Applied Energetics, Inc. (AERG) Earnings Call Transcript & Summary

Hi, everyone. Thank you so much for joining us today. Before we officially begin, I do want to point out to the audience that we welcome questions. [Operator Instructions] So it's my great pleasure to turn this over to Harvey Briggs, Forest family offices, Chief Communications Officer, who will be moderating today's discussion. Harvey, the floor is yours.

Thank you, Callie, and thank you, everyone, for taking the time to be here today. We really appreciate it because we're talking about a topic that really couldn't be more timely. Defense tech is at the top of the news right now, especially with drones and sensors in the battlefield. And there are a lot of exciting public companies like [indiscernible] and private companies like Anduril both driving technology innovation into the battlefield with data decision-making coming faster than humans can react. But it's really about drones. And they're in the news all the time now. We've seen it that unidentified drones flying over New Jersey, interrupting sporting events like football games and then the attack earlier this month on -- with Russia or Ukraine on the Russian air bases. That really drove home to the world how vulnerable assets are to drone attacks. So that's why we're really excited to be here to talk about this topic with Chris Donaghey From Applied Energetics and Glenn Mattson from Ladenburg Thalmann. They're both experts in this area. And I'm really excited to hear what they have to say about what's going on right now. Glenn, I'd love to turn it over to you to give a little bit of your background and an overview of the topics that we're going to discuss.

Sure. Thanks, Harvey. First, I just had to throw in from my compliance department that the views and opinions expressed on Applied Energetics today are those of the company, do not necessarily reflect the views and opinions of Ladenberg Thalmann & Company, my employer. As I don't yet cover the stock, I have to lay that disclaimer out as required by my compliance. And with that out of the way, I'll just give my background real quick. I've been a Wall Street analyst covering tech generally for 25 years. I've spent half that time on the buy side, at a mutual fund and then a hedge fund. And then the second half of that time has been on the sell side, working for investment banks. I've always covered a broad range of technology, partially always in some defense tech of some kind with a theory that what's going on in defense tech today is going to be in our pockets in kind of 10 or 20 years, depending on the sensitivity of the technology. Today, I'm mainly focusing on automation technology that includes industrial, consumer tech and defense. Within the defense side, obviously, drones have become a significant story over the past 3 to 5 years, I cover a number of names in the space. And as I mentioned, I do not cover Applied Energetics, but I am grateful for the -- that the team has asked me to help host this call given all the things that are going on in the space at the time. So with that out of the way, I thought I would just kind of talk about generally quickly my thoughts on the sector and the space as it stands right now. As Harvey mentioned, it's an incredibly active space, interesting topic, interesting sector. Clearly, small drones in particular, becoming one of the most important tools in the modern battlefield. Innovation in this space is increasing by necessity at a rapid pace. It's kind of like Silicon Valley feel to it. Operations Spider Web, as mentioned, the attack on Russia by Ukraine pulled off just a few weeks ago, heightened awareness. I think, immediately the next day on the counter drone space, I mean, if everyone was already thinking about it, but suddenly, it became, I think, a much higher level of importance for countries and defense departments around the world. And it just would seem that at the time -- it seem that for the time being, we're going to have to all seriously invest in counter drone technology for hard and soft targets around the world. So this is going to be an incredibly interesting space. And hence, why it's extremely interesting and a great time to be speaking with AERG, a company that has a leading technology platform in this space. So from there, we can move on to -- Chris, maybe you want to give your background or maybe your background and then just some background on Applied Energetics for everyone.

Yes, sure. And thanks for being with us, Glenn. We certainly appreciate your time today. So again, I'm Chris Donaghey, I'm the Chief Executive Officer of Applied Energetics. I've been around the defense business for about 30 years. I started my career in the U.S. Navy teaching nuclear reactor physics at the Naval Nuclear Power School for 4 years. I then spent 6 years in the Navy Reserve as an intelligence officer doing scientific and technical analysis of foreign ballistic missile systems as well as supporting a group out of Europe and ultimately, a small group out of the Pentagon that was looking at doing innovative funding programs. I did a couple of years of IT consulting and then moved to equity research at Robinson-Humphrey in Atlanta where I was the senior analyst covering defense technology stocks for about 7 years. Myself, my focus was almost exclusively on small and mid-cap stocks, did not cover the PRIMEs and ended up leaving equity research to go work for one of those smaller emerging intelligence community-focused companies called KeyW Corporation, who did a ton of work in the intelligence community. My job there was corporate strategy, M&A, investor relations, capital markets, you name it. Then move to SAIC for 5 years, one of the big traditional systems integrator firms -- systems integration firms, spent 5 years there, doing mostly M&A as well as corporate venture activities, took the company from about $4.5 billion in size to $7.5 billion over my time there. And then in late 2022 -- summer of 2022, joined Applied Energetics as the CFO of the company and then transitioned to the CEO role in November of 2024. And the one point I'll make about that is the catalyst for the change is all about technology maturity and moving the technology from the research laboratory into hardware that we can build and demonstrate and show customers the advantages of ultrashort pulse laser technology relative to other technologies.

Is it worthwhile to just maybe give us some background on the ultrashort pulse technology and just kind of just describe it a little bit and some of its capabilities?

Sure. So first of all, kind of from a big picture standpoint, my background that you see today is kind of what the company is focused on, and that is the disablement or neutralization of electro-optic sensors and electro-optic sensors, they're everywhere. They underpin modern adversary capabilities by enabling long-range surveillance, precision targeting, drone coordination, autonomous strike, they're deployed on platforms of all types. Drones in the air, drones on the ground, drones on the sea, satellites, intelligence surveillance and reconnaissance platforms and missiles. And as sensors proliferate on the battlefield, certainly with the increased use of one-way attack drones, the need to take out the eyes of the things that are either staring at you or want to do you harm becomes a very critical capability. And over the course of this webinar, we'll kind of reinforce why ultrashort pulse lasers are really the only viable way to do that. Simply put, we trade traditional continuous wave lasers at high energy -- high average power output for low average power output, but extremely high peak power. That does 2 things for us. First, because we are a low-average power system, it gives us a significant size, weight and power advantage over the traditional continuous wave lasers that you're used to seeing reported in various defense industry outlets. So significant size, weight and power advantage. And that allows our customers who want to buy this technology to ultimately deploy them on any platform that they want. The second trade off the extremely high peak power means that we can deliver effects that neutralize targets in less than a second. So you get a low size, weight and power system that delivers extremely high value effects over very short periods of time. And we think that, that is what will enable us to achieve our vision statement which is directed energy anywhere. That's -- it's a bold vision statement because it's never been done before. There are no programs of record in DoD today where the government is procuring laser-based weapons to deploy under the battlefield in a programmatic annual buying cycle. And our belief is that in order for that to happen, you have to have the right type of threat and small drones certainly qualify for that. You have to have lasers that can deliver high-value effects against those targets. But the third box and the reason why directed energy anywhere has never really been accomplished is because nobody solved the size, weight and power problem and that is exactly what we intend to do with our ultrashort pulse laser approach.

And just, Chris, if you don't mind quickly to give people a sense of the scope of what you're talking about, can you give a sense of what the traditional size of a traditional laser versus what you're offering can -- just the differences between the 2?

Yes, sure. So our system is expected to be roughly the size of 2 shoe boxes. It's expected to weigh less than 60 pounds and it's expected to use about the same amount of energy from the wall as your garage door opener. If you compare that to a 20-kilowatt continuous wave laser system that has been tested against small drones in various exercises. That 20-kilowatt laser is about 60x the size of our system by volume. It weighs thousands of pounds. It consumes probably about 100,000 watts of power from the wall. So that means you need to have a generator that goes along with this thing to make sure that it has the power to run it. You need a cooling system to make sure that you're keeping the system operational by keeping it cool. But it also means that you have some complexity with how you deploy these things because of its size. You're typically looking at dragging these things around on a trailer versus being able to mount them directly to the platform and pull power off of the power source on the platform itself versus having to bring a generator to go along with you. So it's a pretty significant size, weight and power differential. The other aspect to those systems is that they are multi-second engagement times with the target. So you find the spot on the drone that you're trying to target, think of something the size of a thumbnail and you have to lock the laser on to that particular part of the drone and then you have to maintain that lock for multiple seconds while you create the burn through to cause that component to structurally fail and cause the drone to crash. And with our system, again, it's about producing a spot size that has enough energy where if I flash it across that optic like the one you see in my background, it's a near instantaneous kill, and we kill cameras all the time. And it's pretty impressive right now, especially given the progress that we've been making in the lab. We have some examples where we killed the camera literally within the first 1/30th of the second with 500 pulses of 25 million-watt peak power energy. So it's a very different approach, but that different approach is what we think will enable us to achieve that vision statement of putting these systems on any platform our customer wants to deploy them on.

And maybe just to build on that a little bit. There's -- obviously, the technology is evolving drone swarms if they're not here today, they're coming. Would you say that through your technology, you're able to manage that problem more effectively than the continuous wave laser systems that are in existence.

Yes. And again, it comes down to what we were just discussing, both size, weight and power as well as much faster effects delivery. So I'm going to swap my background here for just a second so we can have a conversation about that Russian -- that Ukrainian attack on the Russian airbase. So not necessarily the clearest thing but so the Belaya Air base in Russia. That's the image on my background. It's about a 14-kilometer perimeter around that air base. And immediately after the attack, we had both customers, potential customers as well as partners calling us to say, "Hey, if the Russians had your system in place, would that attack have been prevented or would it have been as successful." So the way you would do this is you would deploy a node, an ultrashort pulse laser node, a system we call PLAD, Pulsed Laser Air Defense, every 1 kilometer around the perimeter of that base. Those are the orange triangles that you're seeing in the graphic itself. We can't say exactly what our intended range is for the system. We can only say that we intend to achieve a tactical range, which is 1 kilometer or beyond. And so the circles that you see around those orange triangles are the 1 kilometer range of the system. And so if you look at the upper right of this slide, you can see that with those 6 nodes that are covering that Eastern perimeter of the base, you have total overlap of that particular geography on the base. So the likelihood of a drone getting through without being flashed by one of our lasers is very small. We won't guarantee 100%. Nobody can guarantee 100%. This is warfare. There are no absolutes. But we have an ability to create a barrier that significantly -- should significantly reduce the effectiveness of those kinds of attacks. And the main thing to understand here, and there's videos of this all over the Internet, every one 1 of those small drones was flown by a pilot. You can see the drone as it's flying down the apron of the airfield, all right? I'm not going to hit that plane. It's already on fire. I'm not going to hit that airplane. It's already on fire, Oh, there's one I'll hit that one. So those drones were operated by pilots who are using camera feeds coming off of those drones. And if we can kill the camera of that drone at a range of 1 kilometer or beyond, the likelihood of that pilot being able to randomly fly into the airfield and hit a target goes to virtually 0%. So this is a concept that is capturing a lot of attention right now. Obviously, this is going to be a layered system. We're not a software company. It's going to be a software company that integrates all of these nodes together and along with the sensors, the sensors stack that says, "Hey, we just picked up a signal intelligence hit that shows a lot of command and control signals coming from this particular direction." We need to start spinning up the defensive capabilities to be able to address that. And then the software will say, "All right, here come the drones, here's the first target, here's the lasers that need to fire at that particular target." And that is another differentiator here is because we are a subsecond engagement time, you can afford to fire multiple lasers at one individual drone because you're looking again at a subsecond effects delivery time frame. And that also increases the probability that we have a high probability of neutralization of that sensor.

Super interesting, Chris, can you give us a sense -- you mentioned that people reached out to you, asked you how effective you would be. So I imagine there's a little bit greater sense of urgency since this attack. Could you just talk about maybe what you need to do technologically, if anything, to get the product ready for market and maybe what your -- I know you have a nice partnership with your plan for go-to-market is, maybe a little bit color on that.

Yes. So again, the product line that we're introducing this year, again, is called the Pulsed Laser Air Defense capability, PLAD and there's going to be a couple of different versions of that to begin with. So as you mentioned, we formed a partnership with Kord Technologies, which is a subsidiary of KBR. Kord has developed a system they call FireFly, which is a continuous wave laser system that operates at 10 kilowatts, 20 kilowatts and 30 kilowatts depending on what power you want. We are building a version of our system that will go into the FireFly system, and it gives them a dual effect capability. So maybe in that perimeter defense system that you just saw at the edges or the corners, you would deploy these high-energy laser systems with 2 effectors, one that has the ultrashort pulse laser to blind the drones, at the tactical range. And when the pilot realizes he can't see what's going on, it buys time for the continuous wave laser to then find the aim point that it's looking for, maintain the lock and be destructive to the platform itself. So that will be PLAD E for embedded. At the same time, we are also building our first stand-alone tripod prototype that will have the laser available along with our own gimbaled system to be able to do demonstrations of the stand-alone prototype very similar to what the nodes would be in the vignette that we just went through. So multiple different approaches, stand-alone as well as embedded capabilities because some of our partners have their own capability that they want to have where they want to add this as a new layer to one of their existing systems.

Very helpful. So maybe kind of shifting gears a little bit. There's obviously this proposal by the President for the Golden Dome kind of space defense project. I believe AERG could play a role in helping to complete that system. Could you maybe describe how you think you could play in that very large defense spending that's going to be happening over the next 10 years?

Yes. So again, our belief is that an entire pillar of Golden Dome capability will have to be the ability to neutralize the things that are staring at you at virtually any altitude. Again, the electro-optic sensors are used for a variety of different purposes. And while there are certain deployments at certain altitudes that we really can't say a whole lot about. What I would emphasize is that there are 6 key differentiators of ultrashort pulse lasers that make them ideally suited to being that counter EO layer for the Golden Dome system. So again, first of all, the unique effects. Because of the high peak power, we are affecting the sensor at the material level. We're not burning through something. There's no thermal kill that's happening here. The extremely high peak power that we deliver inside the sensor, the lenses of the camera systems do a lot of workforce and it essentially vaporizes the material that form the sensing layer of the EO system itself. So it's a very, very quick response. It's a very complicated mechanism, but the nonlinear effects of ultrashort pulse lasers basically ablate the material on the sensor and it dies. So you have that unique effects capability. Compact and scalable again, because this is a low-average power system in general, it gives us a significant advantage from a size, weight and power perspective. The third aspect to it is we have wavelength agility. So if you think about all of the things that are staring at you, they operate at different wavelengths of light from visible to near infrared, short-wave infrared, long -- mid-wave infrared and long wave infrared. So we are concurrently building 5 different colors of laser to be able to take out the sensors that might be staring at you. And related to this is when we can match the laser wavelength to the sensor wavelength, there is no countermeasure. It's very difficult to counter these things because we deliver the effects with such high peak power over such a very small fraction of time, fractions of a fraction of a second. There is no way to stop these effects from being delivered, particularly if we can match the wavelength of the laser to the wavelength of the sensor. Obviously, speed of light engagement, it's a laser. So it's pretty laser guided. But again, the differentiator here is that with the high peak power, you get this subsecond kill. So you don't need to maintain a lock or a dwell time on the target to deliver that effect. It can be nearly instantaneous. And then the last thing I'll say is for certain applications, because we are a low-average power system, we will have a low thermal signature. So if you think about a 60-kilowatt laser on that air field, that 60-kilowatt laser, it could deliver some really cool effects. But 60 kilowatts is going to require 300,000 watts of power in and cooling and so on. And so if you have a surveillance drone that has an infrared camera that 60-kilowatt laser is going to show up as the brightest thing that it can see and you're basically going to say, oh, just go shoot that thing first. So the thermal footprint of continuous wave lasers make them very unattractive for certain applications, especially where you're trying to not let the adversary know that you have this capability in the first place. And so with an ultrashort pulse laser because of the low average power, we have a unique advantage from a thermal signature perspective because we don't stick out and it makes it much easier to do a networked, proliferated architecture with these things that may or may not be out there and you just don't know it.

Very helpful. So that's basically 2 significant use cases that you laid out that have near-term and medium-term large, kind of addressable market opportunities for the company. It's interesting because in many ways, the company is kind of pre-revenue, yet it's a public company at the same time. So that presents challenges for people like me or other investors in thinking about kind of how to value the company. Perhaps we can kind of get into the thought process of how you think about that kind of thing and just maybe comparatively how you think about where you sit and how important the technology is versus maybe where it to other public companies and maybe some private companies and where they're valued and just juxtapose the thought process there.

Yes. So first of all, if you look at where our company is from a development stage perspective, it is unique that we are publicly traded, but it is not unique that there are billions of dollars being invested in this space. I also serve as the Executive Chairman of the Silicon Valley Defense Group, which is a nonprofit that was specifically built to help bridge the gap between venture-backed, early-stage in some cases, commercial technology companies that might have a solution to a national security problem, helping them understand the language of national security, but then also working with national security customers, to help them better speak, venture and emerging tech. And one of the key publications that we produce on an annual basis is called the NATSEC100, the National Security 100. It's a ranking of the top 100 venture-backed companies that are either nationally security focused or derive a significant percentage of their revenue from national security customers. We'll be releasing the third iteration of that on July 9 here in a couple of weeks. But the big picture of all of this is in the last few years, venture has put more than $50 billion into defense technology companies to try to accelerate the -- getting this capability to the field. We are taking the same kind of approach. We would consider ourselves in essence, a post Series A from a traditional venture perspective. We've raised about $30 million of outside capital over the last 6 years. We're sitting in about 30 employees at this stage. And our goal is very much like the higher profile private venture capital-backed companies that you hear like an Anduril, for example. So Palmer Luckey on 60 Minutes a few weeks ago. He made the statement. We intend to be a defense product company. We don't want to be a defense contractor. That is the modus operandi for many of the companies that you will see on the NATSEC100. It is also the business model that we intend to pursue. We're using private capital to develop our products to go sell to government customers. If we were a defense contractor, it means we would have our handout waiting for the government's next check to help us accelerate the technology. And those time cycles, they're just -- they're too long. And that's why you've seen the current administration in essence outsource a lot of the early-stage development capability by cutting the budgets for the earlier-stage defense research projects and basically turning it over to private markets to fund the acceleration of those capabilities to get them to the field faster because there has been significant anecdotal evidence that, that business model just works better than the traditional model. And to my knowledge, no investor that I talked to owns Applied Energetics because they're looking for an 8% annual return. Investing in Applied Energetics is not a capital preservation kind of investment. The investors that I talked to have invested in Applied Energetics because they want that same outsized venture type return. And the markets that we're going after certainly have that potential. We choose to take control of our own destiny, to execute that business model and go achieve significant market share in those markets to drive -- hopefully, drive those types of returns that our investors are looking for.

Yes. It's a fascinating change in defense tech as the prior model, like you mentioned where you're kind of waiting for funded R&D, which then results in slow product development, but also once you get a product approved and under a program of record is often a lower margin profile like a cost plus margin and that wouldn't be the case with companies such as yours that are risking capital upfront to develop products.

That is 100% true, and I've witnessed that as both -- as an analyst, primarily, a lot of the companies that I covered use this commercially developed military qualified kind of approach. In some cases, they did it out of necessity because they lost a recompete but didn't want to exit the business, so they just continue developing their own capabilities and sold them to foreign military governments. In other cases, it was their business model all along to develop these capabilities and then sell them to the government as commercial items rather than seeking that R&D funding from the government, as you mentioned. And in those cases, those companies look very different from a margin standpoint than the traditional defense contractor that wins the big R&D contracts and then goes into full rate production of that same system. Your margins are limited when you take the government's money to do the R&D when you get to the production base.

Yes. Great. So I think that covered most of the topics that I thought we'd talk about in terms of helping to describe AERG and why it's an interesting name to look at right at this moment in time, especially. Is there anything you'd like to add, Chris, before we let Harvey open it up for questions.

No. Again, I just want to continue to reemphasize the point that the capabilities that we're bringing to market are they're unique. There are -- as far as we know, there are not other companies in the United States currently pursuing the use of an ultrashort pulse laser as a directed energy system to deliver effects on a target. We have some very significant milestones coming up for the company. In July, our expectation is to have multiple lasers, operational in our battle lab facility, where we will do both on-demand customer demonstrations as well as a significant effects testing program of each of these lasers against different types of sensors. July is going to be a very important month for us. It's when we expect to have the lasers in the battle lab and it's also when we expect to start bringing visitors in to be able to see these things in a more operational kind of scenario than anyone has ever been able to see before. It's a very exciting time right now. My team is super motivated right now. They're very excited about getting their capabilities out of the research lab and into the customer demonstration, and we certainly look forward to introducing this capability to a much broader audience over the second half of 2025.

This has been fascinating. I mean the technology couldn't be more on point for what's going on today. So we do have a ton of questions from the audience. So I'm going to turn it over to Callie to moderate those. And yes, just really excited to see where this goes.

Great. And for the audience, time permitting, I hope to get to all of them. But if for any reason, I can't, everyone out there has my e-mail address. You can certainly e-mail me and I can put you in touch with the company for any further questions. But let's jump right in. So is this just effective on drones only? Could you blind/disrupt preset sensors so that would -- it would be effective example, Israel shooting down explosives from Iran. Would this be PLAD E.

Okay. So it's -- while small drones are certainly one of the more significant near-term opportunities just given what we're seeing happening with Ukraine and Russia. This is about being able to disrupt intelligent surveillance and reconnaissance platforms everywhere and that does include certain types of missile seekers. So one of the contracts that we have been working on for the Army is an infrared countermeasures application and that is using an ultrashort pulse laser to significantly damage or destroy the heat seeker on the front of a surface-to-air missile like a SAM, shoulder launch surface-to-air missile that would be used to fire against helicopters. But this is not a silver bullet. So I see a question on here about Class III drones. Most Class III drones are flown by inertial navigation or GPS. They're not necessarily being flown by a pilot who is looking for a target. They already know where the target is and they're going to go strike that target because it tends to be more of a fixed site that you would use a Class III drone to operate against. With a Class III drone, that actually is a good application for the high-energy continuous wave lasers. But it's also the point where you start to -- where it starts to make sense to use kinetic systems like the Raytheon Coyote system or the Anduril Roadrunner system. It's really the small drones where there is no good solution today and continuous wave is having mixed results against small drones right now. And again, it comes down more to dwell time than anything else. So it is designed to take out all kinds of sensors against -- from all different types of platforms. But it's not going to be a silver bullet. It's going to, in many cases, have to work with other layers to be effective.

Great. And who's the laser provider? Is your system ITAR regulated? What is the beam size? Have you ever done a non-lab demo and what wavelength? A lot of questions in there.

Yes. So again, multiple wavelengths, we're developing multiple wavelengths right now addressing, again, visible all the way through longwave infrared. We are the laser provider. So the laser itself is based on a fiber optic architecture. We do buy third-party pump lasers, but the ultrashort pulse laser mechanism is something that we have built and then the amplifiers that are used to take those ultrashort pulses to increasingly higher energies that's all based on our architecture. And ultimately, we intend for that to be as much an end-to-end fiber optic system as it can possibly be. That is what gives us the size, weight and power advantage number one; number two, because it's fiber optic cable, it tends to be more straightforward to ruggedize that kind of system. The challenge over the last 6 years has been developing the recipes that go into each one of those phases. What does the master oscillator recipe need to be in order for us to be able to produce these things as a manufacturable, large rate production kind of system. What is the first stage amplifier need to be? What's the recipe for that? What's the recipe for the power amplifiers. So the first 6 years have been about developing those recipes that go into how we build each of the components. But yes, we build the laser ourself.

How many R&D programs do you currently have? Are they all with DoD? Or are they contracted with any PRIMEs? And what's your contracted revenue for development this year and into next year?

So again, the point I want to make here is that we have had 3 small contracts, 2 from the -- through the Office of Naval Research, one for the Marine Corps for counter ISR counter drone, one for the big Navy for platform defense. We can't talk a lot about what we're doing on that particular program. Then we had the Army contract to build the IRCM laser, Infrared Countermeasure laser. The thing you need to understand about those contracts is those contracts were in no way, shape or form sufficient from a funding perspective to be able to have us fully develop this system. There's a reason why we've raised $30 million of capital over the last 6 years. The purpose of those contracts was to give us a little bit of funding to prove that you can use an ultrashort pulse laser to deliver the effects that you said you were going to. But they're not sufficient to cover the entire development cost. We did just recently get a fourth small award from the University of Rochester Laboratory for laser energetics. Rochester has a program with the Missile Defense Agency on pulse lethality. So that is working to determine if an ultrashort -- if a pulse laser can defeat hypersonic missiles, and we have the first stage of that contract to design and go through an analysis of alternatives with them before we progress to actually building the laser for them. But revenue, again, for us, this is about getting the product to market. It's getting the product to market. It's not -- we have conversations with customers all the time. We have conversations with our local congressional delegation, who are all working on our behalf. But for me, the near-term priority is getting the product to market.

And then so this is kind of on the heels of that. So this is such a great technology. And why has the DoD been so slow to accelerate? Will -- do you see this changing with the demos? And you would think with Russia -- the Russian attacks that opportunities would be accelerating? Are the demos the key driver to acceleration?

Again, you have to go back to kind of the beginnings of the laser. So the laser was invented in 1960. The DoD has been wanting to deploy lasers on the battlefield since 1960, and we still don't really have lasers on the battlefield. However, it doesn't mean that the DoD has not invested billions of dollars trying to bring those capabilities to market. The issue is that in the early '90s, early to mid-90s, continuous wave lasers won out over pulse lasers. Ultrashort pulse back in those days wasn't even really a thing because high energy versions of ultrashort pulse lasers were not really a thing at that point. So there -- the industry has invested heavily in the continuous wave laser technology capability, mainly because lasers have historically always been about taking down Russian ICBMs or very fast-moving cruise missiles that present threats to other types of platform. It's only now that the threat has evolved to the things that are driven by sensitive electronic devices that are highly vulnerable to the effects of ultrashort pulse lasers. But we have to prove that, and we have to prove that we can do it not just from a research laboratory standpoint, but we can do it from a footprint that looks like a product. And so I do believe that the ability to do a demonstration off of a tripod system in our battle lab is going to be a significant event and can just swing the momentum certainly in our direction as we prove to more and more constituents that this capability delivers effects that are highly unique in the market.

And can you talk about the tracking system, where do you get that? Or are you developing that internally? And why isn't this as equally as complicated as developing the laser.

So there are beam directors all over the continuous wave laser space. There are a few tweaks that you make to make it compatible with an ultrashort pulse laser but it's not significant. So anyone who can build a beam director for a continuous wave laser could build a beam director for an ultrashort pulse laser. I anticipate that we will likely partner with someone and have them purpose build, again, gimbaled system for us that will -- that we will put our life through their optics to get it to the target. We will also likely need to work -- we will have to work on the software side as well that connects both the gimbal as well as the laser together as well. And some of that we will do in-house and some of that we will likely work with the third party who we choose to buy the gimbal from. We are building our own gimbal system right now for battle lab demonstration purposes. But ultimately, when we go out to the field, it will likely take on a different form and one that we likely buy from a third party. But there are lots of beam director guys out there that we can buy this capability from.

Okay. So have you received any inquiries from DoD regarding the Golden Dome.

We have had a couple of conversations with folks that are involved in Golden Dome. I don't know the depth of those details, but yes, we have had conversations there. And again, given some of the particular applications that would be related to that, it's not necessarily going to be something we're going to be able to talk a lot about just given the sensitivity of where you would deploy these systems.

So when will you be able to deliver a stand-alone PLAD laser to a customer?

So again, our objective is to have the first version of the Tripod system demonstrated in our battle lab over the next quarter or so with an objective of getting to something that looks like it could be fielded on a DoD platform this year. Now the thing to understand about this is the customer is ultimately going to dictate what it looks like. So we can use our imagination and come up with a tripod-based version that absolutely looks like it belongs on a battlefield, but the customer is going to come to us and say, this is the platform I wanted to go on. This is the form factor that it needs to be, and we're going to have to be responsive to that. So the goal is to have a stand-alone prototype available for customers to see in the second half of this year and then that will open the door to those early adopter customers who say, that's great. Can you make it fit here and then we match to that requirement.

On a financial side of this, someone had asked, can you give an example of the total addressable market?

So there's plenty of statistics out there on the market for directed energy. The number we use is $32 billion by 2033, I believe, and that's like an 18% annual growth rate. My comment on that is, in order for that kind of growth and that kind of volume to occur, someone is going to have to solve the size, weight and power problem. It's just very difficult to see large quantities of 300-kilowatt lasers showing up in the battlefield anytime soon. They are very expensive. They're very big, and they are very vulnerable to small drones. That beam director that we were just talking about earlier, if 1 small drone makes it through and drops a paint ball on the lens of that beam director that whole system just became a brick. You can't turn it on. So in order to see these really large markets develop, you have to do something about the size, weight and power problem. And we think we are as well positioned as anyone out there to see and create the bend in the technology adoption curve for directed energy-based systems because of the size, weight and power advantage that we bring to this situation.

Someone has asked, does AERG have any joint collaborative projects internationally. Is it considered a controlled item? Is AERG looking at countries not on restricted or sanctioned list of countries, entities?

Yes. We actually -- we have 2 conversations going now with 2 different foreign entities that are working directly with the government of those entities. It requires ITAR licenses and approvals, but both of these countries are very close allies of the United States. It's just a question of getting the paperwork done. But yes, there is significant overseas interest from 2 highly relevant potential foreign partners.

And what altitude can the pulse reach effectively?

It depends on the energy. It's probably a little too specific. I'd probably need a little bit more context for the application. But again, the laser itself is capable of being mounted on to platforms that can operate at altitude as well.

Will all systems have 5 distinct laser subsystems?

No. So for small drones, we know exactly what type of sensors are on small drones. And so for a small drone system, we know that, that will be likely -- that will be fixed wavelength capability. And the reason why we know that is because they're the lowest cost sensors that you can buy. If you want to put a mid-wave sensor on a small drone, you're going to put yourself out of business very, very quickly because a nice mid-wave sensor is in the $25,000 to $30,000 range and you're not going to be seeing those widely produced and deployed on small drones. What you see are visible sensors and you see very inexpensive long-wave infrared sensors. So depending on the application, it will likely be a fixed setup for the particular threat.

Have you been approached by any companies for potential mergers?

That's an interesting question. So if I go back to my days as a sell-side research analyst, this was one of the core investment thesis of why I actually cover small-cap defense technology stocks. So one of the reasons why I'm no longer an equity research analyst covering defense is because I focused on small and mid-cap stocks and most of those companies don't exist anymore because they were acquired by PRIME. So just -- we're not going to talk about Applied Energetics specific situation, but here is how this works. The PRIMEs will allow smaller companies to take all of the technical risk. Again, we've invested $30 million of our own money to get our technology to where it is right now, and we're going to continue to invest in our technology. So there's 2 jumping off points here. Typically, what happens is when the small company has retired enough technical risk and they have achieved product status, if that technology can fit nicely into an existing platform that a PRIME already has, they could make the call then. So that's one jumping off point. If the technology is sufficiently new and they're not exactly sure what customer adoption is going to look like, they'll wait for the next stage, which is when the small company starts to see significant customer traction. And once they see significant customer traction, that's kind of the second jumping off point from that perspective. But we're not focused on that right now. We are focused on building this company to be sustainable for the long term and to create value for our investors. But ultimately, if and when the call comes, it's kind of out of my control. We're a public company. So the decision-making process becomes our shareholders' thought process.

And obviously, we're not going to get to all of the audience questions. Time is starting to tick off. But there is a question here about your staffing and burn rate? And when will you need to raise money next?

So again, I'm not going to get too much into the specifics of this because we're public, all of our SEC filings are up to date and you can kind of see what the burn rate is as of the end of Q1. Again, what I can tell you is that we have our foot on the accelerator because the market opportunity is real, the technology is reaching the level of maturity where we will start to be able to access and tap into the much deeper capital pools that the DoD has for technology acceleration, but it's all pretty straightforward. There's a cash flow statement in our Q1 10-Q.

Great. So we are running out of time. And Chris and Glenn, I do want you to say some final words before we close out. And I appreciate all of the members of the audience who posted questions that we just went over, greatly appreciated there. And if we did not get to your questions or you have further questions, please reach out to me. Everyone has my e-mail address. Happy to facilitate an introduction to the right person who can answer those questions. In turn, AERG will have all of your information as well. But Chris and Glenn, I do want to turn it back over to you for final words before we close out.

Glenn, we can't hear you.

There you are. Go ahead.

Yes. I just wanted to thank everyone for the opportunity to speak today and the opportunity to interview Chris. It's certainly an incredible time for this space in general and counter drone in particular and Applied Energetics is a name, I think everyone should focus on as they think about that space.

Yes. And I want to thank everybody for participating as well. And as Callie said, there were obviously a lot of questions that we didn't get to. Feel free to reach out through FORCE Family office, and we'd be happy to have follow-up conversations for those of you who would like that. Thanks for your time. I appreciate it.

Great. Thank you, everyone, and have a great day.

Thanks, guys. Really interesting.