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

Hi, everyone. Thank you so much for joining us. And before we kick this off, I do want to point out to the audience that we welcome audience questions. Please post them in the Q&A section at the bottom of your screen. Type in the questions as they come to you, and we will get to those questions at the end. So I'd now like to turn this over to Steven Saltzstein, Force Family Office's CEO.

Thank you, Kelly, and thank you, everyone, for joining us today. We greatly appreciate you taking time out of your day to be with us. I'm honored to have Chris Donaghey, CEO of Applied Energetics. What they're doing in defense is the very definition of cutting edge. And to begin with, Chris is going to give kind of a synopsis of what's going on with the company, and then we'll have Q&A afterwards. So Chris, the floor is yours. Please take it away.

Thanks, Steve, and thanks for hosting us. Welcome, everybody. So as Steve said, I think I'll start with a 20 to 30-minute presentation. I know many of you have seen the presentation. Some of you are new to this. It's been about a year since we did the first Force Family Office video. So in the slides, I'll go through kind of what we've done over the last year and then what our plans are for 2026. So let me pull up the slides. Okay. So I'd like to -- well, so obviously, the safe harbor statement, obligatory in nature. But I always like to start these conversations with our vision statement, which is Directed Energy, Anywhere. And the reason why I like to start with this is because the technology that we're building is all about scaling directed energy into the national security community and onto the battlefield. This is an ambitious vision statement because it's never been done before. Every laser that you read about that is being used by the U.S. military in some form or fashion today is a prototype or an experiment. There is no such thing yet as a program of record where the national security community is buying laser weapons on a programmatic basis with an annual budget to field those systems. So in order for this vision statement to become true, we believe that there are 3 boxes that you must check. The first is you have to have a widely proliferating threat that is vulnerable to the effects of directed energy weapon systems, and small drones clearly check that box. The second box you have to check is you obviously have to build lasers that deliver high-value effects against that threat and take advantage of the vulnerabilities that, that system has to directed energy systems. And so far, both the traditional continuous wave lasers, which are all the prototypes and experiments that I was talking about earlier, can check both of those boxes. Our Ultrashort Pulse Laser-based system can also check both of those boxes. The box that has never been checked is doing that at a size, weight and power that allows you to put the technology in any location you want, whether it's mobile platforms ranging from Navy ships all the way down to the Polaris MRZR side-by-side that the special military forces use. And ultimately, even a backpackable system for certain special military customers. It also means deploying them in places like forward operating bases that we have in the deserts of the Middle East or in Africa or in other places. And also, it's ultimately about deploying these to fixed sites such as permanent military bases, both domestically and overseas and eventually even places like the border as well as power plants or prison systems, things like that. And so we intend to be the first company to check that third box that will allow you to achieve this mission, again, of putting directed energy anywhere you want to. So let's talk more about the size, weight and power contrast. So what you see on the right-hand side is representative of a 20-kilowatt continuous wave laser system. You can see from the top graphic, that system is roughly 60x the size of our system by volume. It weighs thousands of pounds. And if you go from the diesel fuel that you need to have in the generator to charge the battery pack on that laser to create the 20,000 watts of output power, you're talking about 100,000 watts plus of total input power. And that system is only capable of operating for a short period of time before you have to turn it off, recharge the batteries, let the system cool down and get ready to use it again. Conversely, our system, again, is about the size of a couple of shoe boxes, it weighs less than 60 pounds and the input power of our system is 1,000 watts. That is essentially a garage door opener or a microwave oven. So very, very different kind of approach. Our system is also capable of uninterrupted usage. We've had our laser -- one of our laser demonstrators operating in our Battle Lab for a couple of hours at a time, and it's literally just plugged into the wall. So it's a very different approach. It has a significant size, weight and power advantage over the traditional continuous wave laser systems. And when you compare this to the 50-kilowatt systems, to the 100-kilowatt systems, it gets even more sharper in terms of the contrast. You see on the right-hand side is a 2-scale version of what we expect our prototype system to look like compared to a 50 to 100-kilowatt system. So it's a very significant differentiator in our system. This system -- and this system, this 100-kilowatt system, can do some very cool things. But it's hard to imagine deploying that system in volume on a battlefield. Logistically, it's a very difficult system to move around. It's also highly vulnerable in a drone swarm scenario. If I'm the bad guy, I basically send my swarm after this piece of hardware. And all it takes is one drone hitting the beam director that you see on the top of this system and you turn the system into a $40 million or $50 million brick. It is unable to operate if even one drone gets to this beam director and takes out this optic. Conversely, you can take our system, and for the first time, you can visualize what it means to deploy these systems in scale. And so let's go through a vignette of what that could look like. What you're seeing here is the Belaya Air Base in Russia. This is the air base that the Ukrainians attacked on June 1, 2025. This was a watershed event for the community because this is a base 4,000 kilometers from the border of Ukraine and yet the Ukrainians were successful in getting 100 drones stationed about 4 kilometers from this base to take out a couple of billion dollars worth of hardware on this airfield. The day after this attack, I got messages from prime contractors. We had calls from potential customers saying, "Hey, if the Russians had had your system, would that attack have been as successful?" So how would you defend an air base like this with our Ultrashort Pulse Laser system. You would essentially put one of those tripod nodes, a system that we're calling Pulse Laser Air Defense, 1 PLAD node every 1 kilometer along the perimeter of that facility. And what you see in these orange bubbles is a 1 kilometer range of that system. This is a public presentation, so I can only use 1 kilometer, but the goal of the system is actually to exceed that range significantly. But you can see that even at 1 kilometer, you have the entire air field nearly completely covered. So then when the drone swarm attacks, you have multiple lasers that you can use to target each individual drone. And the reason why you can do that is our Ultrashort Pulse Lasers delivers nearly instantaneous defeat of those sensors. We've proven in our lab here in Tucson that we can defeat a drone sensor literally in 500 microseconds. 500 microseconds is all it takes to neutralize a drone camera. So with that kind of speed, you can effectively use multiple lasers per drone in the event of a swarm attack and then rapidly retarget the next drone. Now I do want to emphasize the point here that this is a layered ecosystem. There is going to be other types of hardware that you would have on a facility like this. You have to have the detection stack, something that picks up the RF emissions from the drone control signals or is capable of hearing the frequencies at which the spinning propellers generate at some distance. You have radars to do the initial targeting. And then that initial radar signature gets handed off to the individual lasers. So this is a community of both effectors as well as detectors that make this system work. There's obviously also a software infrastructure that ties these systems together as well to determine which lasers are you going to fire at which drone and then rapidly shift to the next drone after that. We are in the process of rebuilding our website. The new website should be up and running within the next couple of weeks or so. But part of this is helping customers as well as partners visualize what this could look like. And so what you'll see on the new website is a video that we commissioned that tells the story of PLAD, not in PowerPoint, but in video format. So I'm going to let that play now. [Presentation] So we've shown this to a few partners. We've shown this to a few potential customers. It really kind of helps reduce the amount of imagination that you need to use to visualize how this system would work. And then like I said, here in the next couple of weeks, this video will be live on our new website. So what could this look like then ultimately from a revenue generation perspective? What you're seeing here is a typical notional annual program of record that is what -- that is how the Department of War buys their weapon systems. This is a notional 2,000 unit plan. 2,000 units, if you do the math on the number of permanent military sites that we have in the United States and overseas, you do the math on the number of forward operating bases, the actual addressable market for that is somewhere in the 20,000 unit range. But let's just assume that we're talking about the 20 most critical strategic military bases here in the United States as well as forward operating bases overseas, that would all add up to about 2,000 units. And what you see here, again, is a typical ramp that you see in a DoD program of record. I do think that you'll see compression of this time line. But the main point here is, ultimately, 2,000 units, we're targeting roughly $1 million to $1.5 million per system. But using that math, you get about $2 billion of production revenue over the life of this program. And because we are the developer of the system, you also get the operations, maintenance, support and sustainment of that system over time, which is what the gray bars represent. So in total, you're looking at another couple of billion dollars of revenue just from supporting and sustaining and upgrading those systems over the life of that system as well. So roughly a $4 billion potential program of record for just the counter drone application. And there are multiple applications that we'll talk about later on. But again, a significant revenue opportunity just for this one application. So with that as kind of the intro, why invest in Applied Energetics. Well, we've already talked about the fact that there's this emerging threat out there that really isn't emerging anymore. It is here and it is here to stay. You see the video footage all day long on X and on LinkedIn videos from small drones attacking targets in Ukraine and other places. That threat is here to stay. You have to have high-value effects, again, that take advantage of the vulnerabilities of those threats, but you have to do it at a size, weight and power that makes it scalable and deployable in the type of operational construct that we just saw. We've been doing this for a while. We have 26 patents today. We have 11 patent applications that are held under government secrecy orders. We have 6 additional patents pending. I believe that we have -- we are the center of excellence as it relates to the use of an Ultrashort Pulse Laser as a directed energy weapon system in the national security market. These are potentially very large markets. You just saw an example of that in the potential program of record that we just discussed. There are going to be spinouts along the way. Some of those will be national security spinouts. Some of them could potentially be commercial applications as well. And we have a team that is highly focused and very centered on bringing this Ultrashort Pulse Laser system to market. We've already talked about the threat. We are entering the robotic warfare area. Unmanned systems, whether they're in the air, on the ground, on the surface of our oceans, they are proliferating. But every one of those systems is highly reliant on a sensor package. And so if you can defeat the sensors, you can defeat the ability of these systems to be effective in executing their job. And you see this again in Ukraine with this sort of exponential increase in the use of these systems. And again, those sensor packages, particularly the electro-optic camera systems are highly vulnerable to the effects of Ultrashort Pulse Lasers. So let's talk a little bit about this solution then, where the objective here is to defeat sensors of all kinds across a broad range of enemy threat platforms. Our system is a very low average power system, but a very high peak power system. And the way you do that is by taking that low-power system, think 10, 5, 15 watts of power. That is not a very useful laser as a directed energy system. But what we do is we slice that low average power up into thousands of individual pulses per second and compress each one of those slices to fractions, fractions of a second. And when you do that, the peak power goes into the 1 billion watt plus range. And 1 billion watts of power inside the optic of a commercial FPV drone camera is nearly instantaneously devastating. We're doing this at multiple wavelengths because you're going to find multiple different types of electro-optic cameras on the battlefield, whether it's the visible cameras on the small drones, long-wave infrared cameras that you might find on small drones and then the infrared surveillance cameras that might be used on surveillance towers for long-range infrared threat detection. The reason why we're developing multiple different colors of laser is because when you can match the laser wavelength to the sensor wavelength, there is no known countermeasure to stop this from happening. These last 2 are all about manufacturability. So we've spent the last 6 years building the architecture that goes into this that relies as much as possible on commercial telecom grade fiber optic components. And you do that because once you have the recipe for how you stitch those components together, you have a recipe that you can hand off to a contract manufacturer and say, go build me 10 of these, go build me 100 of these, go build me 1,000 of these things. The other aspect of this is, again, because we are trying to use as much fiber optic components as possible, it's also relatively straightforward to ruggedize those systems for military applications on a variety of different platforms. So again, points 3 and 4 here are all about manufacturability and ruggedization. The effects straightforward. At long distances, you're going to temporarily jam the sensor as the threat gets closer or you increase the power of the laser, you start to do damage to that sensor. But eventually, you exceed a critical threshold that defeats the sensor and permanently destroys it. So a demo video of that. This is in our indoor laser test range here in Tucson. This is 4 drone cameras, 1 laser at a range of about 70 feet. We're going to hit each one of those drone cameras with a 200-millisecond burst per camera. And what you're going to see is the defeat of all 4 of those cameras in less than 1 second. [Presentation] So this video, I've used multiple times with both potential partners as well as potential customers. And it's hard for them to believe what they're seeing because when they think lasers, they think long-range continuous wave lasers that require multiple seconds to defeat the adversary system. So think about a small FPV drone flying 10 feet off the deck, 15 feet off the deck at 100 miles an hour and maintaining a thumb nail size spot on one location of that drone for multiple seconds, it's a very difficult problem. In our case, we build a laser that literally just has to flash the optic. We don't have to develop a targeting system that can resolve a 1-millimeter aperture, which is what most of these FPV drones are flying. We build a laser that allows you to spread the energy out. So you're not talking thumb nail size spot. You're talking a spot that's measured in inches. And then you scan the centroid of the profile of the drone and you significantly increase the probability that you're getting light into that optic. And again, we're talking about sensor defeat at the threshold level of 500 microseconds. And more than likely, you're going to get 20, 30, 40 milliseconds of dwell time on that camera, which is way more than sufficient to ensure destruction of that camera system. Again, we do this in Tucson, Arizona at the University of Arizona Tech Park. Our headquarters is the bottom floor, the entire bottom floor of that building you see on the right. Our indoor laser test range is just down that blue hallway by a couple of hundred meters. And so now let's talk about where we were last year when I first did this webinar and where we're going. So in 2025, 2025 was the year where we moved from the R&D lab to demonstrator hardware. And the graphic you see on the right-hand side is the outdoor laser demonstrator that we took to New Mexico in December. So we completed our first outdoor test in New Mexico in December. And that outdoor test is a technology maturity inflection point. I can drill into that a little bit later if you're interested. But basically, an outdoor test demonstrates that your technology is at a Technology Readiness Level 5 or TRL 5. TRL is how the government measures the technology maturity of an emerging technology. And essentially, all of the budget that the Pentagon has to invest in taking technologies from a prototype point into production, it really exists at the TRL 5 point. So TRL 5 is a pretty significant inflection point. We also have the ability now to do on-demand demonstrations in our Battle Lab. We have 2 1.5 billion watt peak power lasers available. We have a new LiDAR concept that we are developing in the Battle Lab. And we have ongoing multi-drone and single drone sensor kill demonstrations in the Battle Lab. We have also reduced the size, weight and power of the early system to the demonstrator system. We've gone from about 10 cubic feet to now 3.5 cubic feet, and we're now in the phase where we're going to take that 3.5 cubic feet down to an even smaller footprint. We also had some hiring. We hired a Chief Product Officer, a new VP of Finance, some additional technical staff, and we were awarded 2 new patents and the trademark for PLAD in 2025. But that's all the past, let's talk about where we're going. So what are the 2026 priorities? The 2026 highest priority is about product. It's moving from that laser demonstrator to a prototype PLAD node that is at the TRL 7 or higher level, moving toward production ultimately and deployment into a network of systems. So I call 2026, our priorities are the 3Ps. First, a very intense focus on product development. We're prioritizing and focusing the current team that we have on laser productization. We are increasing the staff for other parts of the system. We have historically been focused on the laser source. We are now hiring the staff to work on the beam director that puts that light on target and to work on the software that connects the beam director and the laser to each other, and ultimately, the software that connects the laser to someone else's system as well. So from a technical standpoint, 2026 is all about getting to a product. The second P is now about winning programs. And since the beginning of the year, we've already participated in a number of different events. You may have seen on our LinkedIn account yesterday, we participated in a UAS and counter-UAS trade show in Phoenix, Arizona last week called Manifest West. But really, this is about converting the business development pipeline now into active contracts. And we have more proposal submissions out than we have at any other time in the company's history, but we have to convert those now into active contracts and start generating revenue from those contracts. One other interesting point here is related to market awareness. So we have been talking to potential customers and potential partners, and you're starting to see more organizations recognize that Ultrashort Pulse Lasers could be a very valuable layer in this overall counter-UAS concept. And in fact, in the recently approved FY '26 bill, there is a $5 million line item specifically for Ultrashort Pulse Laser development and demonstration and capability maturity. So we are starting to see the program awareness and the business development pipeline expand, and our job now is to convert those into active contracts. And then the last P is about partnering. So in some cases, there are companies that are developing high-energy laser continuous wave systems and they are pursuing specific programs. And integrating our capability into their particular system gives them sort of a dual effect system. So another objective here is to continue to cultivate those partner conversations into active teaming agreements for specific competitions, for layered systems integration architectures, how do we fit into someone else's concept of what this network could look like that you see on the right-hand side here. And then ultimately, we're looking for co-development agreements as well. We will not build this entire beam director. There are companies that already build beam directors. However, we will design the laser cavity that goes inside this beam director and work with a partner to optimize the beam director for our particular application. And you can say the same thing with software. We will develop our own software, but we also have to be able to integrate with other people's software as well. And then the last point here is all about testing and demonstration. So you have the 3Ts and the 3Ds, test, test, test and demo, demo, demo. We did conduct our second outdoor test last Friday. And we did that at a range that was more than 2x the range that we did in December, and we have plans to go back out and do our next test, hopefully, in the month of February. It depends on range availability. And then ultimately, it will be about bringing potential customers out and potential partners to the test range and doing live fire demos for them of the system as well. Again, this has the potential to be big markets. You see the directed energy weapons market, $32 billion. Counter UAS, $12 billion. The key point I would make here is it's still about size, weight and power to see the type of growth that you're seeing here. And I'll just -- I'll reemphasize the directed energy anywhere concept with the technology maturity curve, the traditional S curve that you see for technologies. We have never seen the inflection point for directed energy technologies. The laser was invented in 1960. The military has been wanting to deploy lasers to the battlefield since 1960, and yet we're still at a point where every one of those systems is a prototype or an experiment. And it's not because we couldn't build high-energy lasers that can deliver cool effects. It's not because there aren't targets that are vulnerable to those effects. It is because those prototypes and experiments are not scalable and you don't see the inflection point in this curve until you cross that scalability layer, and we believe we're well positioned to be the catalyst to put the bend in the adoption curve of directed energy. And my last slide here, I'll mention Golden Dome. So Golden Dome nationwide integrated missile defense system. And entire layer of that system must be the ability to take out the eyes of the things that are staring at you, whether those are surveillance drones that are operating at low altitude to other types of surveillance assets that go up as high as you want them to. And the main thing to understand about that is as you get higher and higher and higher in altitude, the more important size, weight and power becomes a critical part of that overall deployed system. And so for all the reasons that we've been talking about, we believe Ultrashort Pulse Lasers are ideally suited to form the key infrastructure layer of that counter EO, counter sensor, again, take out the eyes of the things that are staring at you type of concept. The unique effects that are instantaneous, compact and scalable, again, that is important, especially the higher altitude you go. You have to be able to defeat different types of sensors from visible sensors to long-wave infrared, Because this is a low average power system, it has a relatively low thermal signature. You obviously get the speed of light engagement, but more importantly, you get sub-second dwell times required to neutralize the target. And again, where we match the laser to the sensor wavelength, this is a very, very difficult problem for the adversary to try to counter. So with that, I will end my prepared remarks. And Steve, I will turn it back over to you.

Great. Thank you. Great job. Fantastic update. A few things you did talk about. One is the international market. What are the opportunities there? I mean, can you guys take advantage of those opportunities?

The short answer is yes, but it's a qualified yes because in order to sell a system like this to an international market, you have to apply for a license to sell that. There's a group of regulations called the International Traffic and Arms Regulations or ITAR. You have to be approved by the ITAR governing body to be able to sell those systems. Certainly, for some of our closest allies, we think it's just a matter of doing the paperwork. But yes, short answer is the international market is real and we just have to jump through the hoops to sell those systems overseas.

I mean, you guys have certainly proven yourselves in regards to being able to jump through hoops, getting TRL 5, et cetera. So I can't imagine it's a huge leap to get there.

Correct. It's -- yes, again, it's just a matter of getting the paperwork done.

And the other thing you did talk about, which is one of the hottest topics in Silicon Valley and in defense is space. Can you talk a little bit about applications in space and where you guys fit in?

So it's relatively limited as to what we can say. That gets classified very quickly. But obviously, there are things that stare at us and there needs to be an ability to neutralize those things that are staring at us. And so there is an application there. But unfortunately, it gets very classified very quickly.

I think in November of last year, the Department of War issued a new list of critical technology areas. And what they narrowed the list from like 14 to 6. And directed energy made the cut, but I think they narrowed it to scale directed energy, right?

Correct.

And you guys have, what, a 1 kilowatt of input power and then an output of like 1 billion watts of peak power, which is unbelievable. I think you can go to like 20 billion eventually, right?

Right. So I can't tell you how happy I was when I saw that new critical technology list. And again, it wasn't because directed energy made the cut. It was because they put a qualifier in front of directed energy. They put the word scaled. And our entire system since we started developing the laser source 6 years ago was all about size, weight and power and the ability to deploy these systems in lots of locations. And the vision statement, directed energy anywhere, is another word for scaled directed energy. And that's been our vision statement for a couple of years now. So -- and in fact, I had a conversation with a potential customer last week at the trade show. And when I showed him the video, the 4-shot video plus a visual representation of this picket fence that you can put around the forward operating base, it clicked immediately. And he was highly interested in working with us to take the next step with his organization.

I mean, does anyone scale like you? I mean, I'd love to see a chart of -- I'd love to see a Wall Street analyst put together a chart of all the scaled-directed energy players. I mean, I have to believe based on your input and output that AERG has to be at the top of the chart, top of the list.

Well, we believe it is. There are other companies out there that are working. So again, you go back to the 20-kilowatt laser. 20-kilowatt laser requires 100,000-plus watts of input power if you go from diesel fuel to laser light. And there's just not 100,000 watts of input power laying around on your random forward operating base. You have to take that power with you. And the ability to do a picket fence type of arrangement with those systems is much more complicated because of the amount of generators and just the sheer mass of those systems on the battlefield. Even there are companies that are doing lower power stuff. So if you wanted to do this with 5 kilowatts, again, you're looking at a minimum electrical power into that system of around 15 kilowatts. And again, there's just not 15 kilowatts of spare power lying around everywhere on a forward operating base. 1,000 watts of input power and our current 1 billion watt laser is something like 40 or 50 or 60 watts of input power. You're -- it's just a completely different concept. And so the ability to take a laser, mount it to a vehicle and then just plug it into the prime power of the platform is not a concept that really many people have envisioned.

I mean do you think that this illustrates that the Department of War, Congress are starting to really recognize the extreme benefits of the technology?

So again, demo, demo, demo. Once we start bringing people out, and it's no longer PowerPoint slides, it's -- here's an actual system in operation. Again, that's why we're in this testing phase right now is to gear up for those demonstrations. And it's about bringing customers to our facility and taking them to the range that we are using, but it's also going to be about going to the customer as well. There are lots of organizations that host outdoor exercises where you can take your capability to those exercises and do demonstrations in a military environment. We will be doing that this year, too.

It's funny. In laser wars the other day, there was a draft RFP. I don't know if you saw this. Yes, for the Army's E-HEL, enduring high-energy laser program. And it just seems AERG could bring so many more optimal features to that program, right? Like one of them was, I think, ability to maintain a minute of continuous lasing at full power without damaging the weapon system. I mean, I think you guys can -- you could be on for hours, right?

Correct. So yes, enduring high-energy lasers. So remember in the presentation, I talked about the fact that there's no programs of record currently today for directed energy systems. Enduring high-energy laser is supposed to be the first official program of record, enduring high-energy laser or E-HEL. The main thing about that is it is 100% oriented towards continuous wave laser systems. And what we expect to do over the course of 2026 is change the narrative some. Again, there will be a place for continuous wave high-energy lasers. If you're having to defeat large drone systems, Class 3, Class 4 type drones, that is where a 50-kilowatt, 100-kilowatt laser will be highly useful. But when it comes to defeating a drone swarm, an Ultrashort Pulse Laser operating at tactical range is a better alternative. But we've got to show the customers that capability and demonstrate a real-world application. And I think that will give us the ability to change that narrative to incorporate Ultrashort Pulse Lasers into the thinking of the customer as they think about this scaled directed energy concept. And I saw there's a question on the chat about how many drones can you address? We are really only limited by how quickly the software can reprioritize to the next target. Again, this is a continuous fire, thousands of pulses per second and we need dwell times that are measured in milliseconds or fractions of milliseconds. So if we have the software that can prioritize the targets, if we're tied into that network and we have the beam director oriented the way it should be, you could quickly move from target to target. And the E-HEL RFP is interesting because it talks about 1 second engagements, 9 second engagements, 17 seconds of engagement time. There are very, very few, and I don't know if there are any continuous wave laser systems that could defeat a target in 1 second, especially in a truly operational environment where the drone is coming at you, moving 70, 80, 90 miles an hour. I don't know how many of you have tried to fly an FPV drone. These are not the most stable systems. They vibrate, they move, they're difficult to fly. And the interesting thing is imagine you're flying one of those and all of a sudden your camera goes blind and you no longer have an image. The first thing you're going to do is probably take your thumbs off the throttle. And the minute you do that or the second you do that, you just lost control of the drone and it's more than likely going to crash because those are all flown by visual navigation because they are designed specifically to take out mobile or moving targets. And if your goal is mobile or moving targets, you have to see that target in order to hit it.

Let me ask one last question, and then I'm going to turn it over to Kelly for all the audience questions. But a lot of people are interested, obviously, in the Missile Defense Agency's Golden Dome or SHIELD program. When you think about efforts by the U.S. or even Israel's Iron Beam, why do you think your technology is so critical to those efforts versus other so-called current technologies that have much larger footprints that require a lot more energy?

Yes. So we addressed a little bit of this in the previous response. But as you think about the Iranian Shahed drones, that is a Class 3 drone. That drone is used typically to strike a fixed target. So rather than trying to hit an aircraft on the airfield, those drones are being used to strike the fuel farm. They're being used to strike the radar infrastructure. And the reason why is because you're able to carry a much bigger explosive to create more damage with that target. But the small drones, you don't typically see them being used to strike fixed targets because the amount of payload that they can carry is not as sufficient to defeat hardened fixed targets. So again, there are layers here. You use the high-energy lasers for the Shahed drones. You use some of the newer, more economical missile systems like the Raytheon Coyote or the Anduril Roadrunner for those types of threats. But for the small drones, ours is the system you would use to defeat the mission of those systems, again, at a tactically relevant range where you can minimize the potential damage that they can cause to those mobile or moving targets that they're typically going after.

Okay, great. Kelly, take it away.

Okay, great. So can you talk about your best guess as to timing of when you'll demonstrate quickly disabling several drones at least 2 kilometers out? And Part B, your laser will be operational in the field either stand alone or integrated with a CW laser?

Yes. So again, the goal of the 3Ps and the 3Ts and 3Ds is about doing just that. It is by the end of this year, we have a prototype complete system that has the beam director, the software and the laser to defeat targets at tactically relevant ranges. And we can't talk about the specific range. All I can say is the goal is to go beyond 1 kilometer. That said, part of changing the narrative though is to demonstrate to the customer that I had a customer who said, do you think you can get to 10 kilometers? And I'm like, well, do you have a camera that can resolve an FPV drone flying at 100 miles an hour 10 feet off the deck at 10 kilometers? I don't think that camera exists. And if it does exist, it's going to be the most expensive piece of the entire system because that is not going to be a cheap camera. I think once we are demonstrating regularly to customers that we can achieve those longer distance ranges, they're going to realize that the threat can be neutralized much faster, and frankly, much closer in and still significantly reduce the probability of damage being done. A lot of the range characteristics that you see in these RFPs today is based on dwell time. You have to do the math. If it takes multiple seconds of dwell time to defeat 1 drone, how much time does it take for me to defeat every drone in the swarm. And if you've got 20, 25, 30 drones and you only have 1 laser, you find out pretty quickly that you're in trouble if you're in the 1 kilometer range, because while you may take out a few of them, there are going to be a lot of them that make it through that defensive perimeter and take out your laser system and then start causing other damage. So again, 2026 is all about getting to that complete system and getting to a prototype system where we can demonstrate just that.

Can you talk a little bit about your IP and competitive landscape?

Yes. So our IP portfolio is on our website. There's a section that has the names of all of the patents with the patent numbers. What you will see is a collection of IP that is based on technology patents as well as applications of those patents as well. So we have a lot of IP around how you use an Ultrashort Pulse Laser to accomplish a particular mission. We also have specific IP around the -- how you build one of those systems and some of the technology that goes into those systems as well. And again, we continue to develop new IP as we're going along.

And outside of military, do you see commercialization for private companies and...

Yes. So let me talk a little bit about the architecture of the system. So think of 3 primary subsystems that make up a laser. There's a master oscillator that creates the ultrashort pulses. There's a first stage amplifier that takes it up to a medium power range. And then there's a second stage amplifier that gets you to tactical range. That first subsystem, the master oscillator, we believe has some interesting applications in the biomedical imaging world. And we're going to make some tweaks to that to allow that system to be tunable across a wide range of wavelengths, and that has a very strong potential as a biomedical imaging system. There's also the potential that we take the first 2 components, the master oscillator and the first stage amplifier and we put them in a box and you can put them in a backpack and you can use that to defeat sensors at sensitive facilities for special military types of customers. So there will be both national security additional spinouts as well as potential commercial spinouts that all come as a result of this overarching architecture that we're going after right now.

And there's a few questions in here pertaining to partnerships. What is your plan on key partnerships? And what do you see in the future?

Yes. So we've already begun conversations with one potential partner who wants to be our contract manufacturer. They have much more scale as it relates to manufacturing capability. We could hand off the master oscillator design to them. We could hand off the first stage amplifier to them and they start building that system for us in volume. We will likely remain the final systems integrator. We'll take these components that we're getting from other potential -- from other partners and do final integration and testing and quality control of those systems before they go out the door. But yes, those conversations are happening right now. The master oscillator design is very mature. And we're at the stage now where we could start having a conversation with one or more contract manufacturers to convert that from a prototype demonstrator into a piece of production hardware. And then there will be the other types of partners where, again, if you look at the prime contractor world, again, whether it's Anduril or SAIC or Lockheed or Raytheon or Honeywell or any number of different organizations that are out there, they are all developing fully integrated counter UAS technology stacks that includes all of the tools that you need to detect these systems at long range. We are having conversations with multiple of those guys about becoming an effector that is part of that overall layered architecture. So again, partnership communications happening in lots of different directions ranging from manufacturing partners to integrating to other people's systems.

Great. And could you touch upon the timing of these contracts? Is it within the year?

Yes, I believe so. I mean, that -- again, in terms of the 3Ps, product, program and partner, the goal of the partner program, partner portion of that is to get some of those partnerships for both systems development as well as systems integration across the finish line as well.

Great. And how is AI impacting the business?

If you go back to that slide of multiple drones coming in from lots of different directions, the AI is going to be sitting inside that overall network. It's going to be the system that chooses which drone do I shoot first, which lasers do I target against that system. There will likely also be an AI component in the actual targeting of the drone itself inside our system. How do we maximize the potential that we're going to hit the optic of that FPV drone camera when it's moving very quickly and coming very fast, and it's a small aperture. How does the -- we will likely use an AI to determine what -- how do we scan that overall drone signature and ensure that we get enough energy through the optic of the system to defeat the sensor permanently.

Great. And we only have time for just probably 2 more questions. But how mature is your manufacturing capability? Do you plan in-house production, contract manufacturing or a strategic JV with an industrial laser partner?

Yes. So we talked a little bit about this. I do expect that certain elements of the system, we will use a contract manufacturer to build certain components of the system. We will build certain components of the system in-house and then we will likely be the final systems integration portion of that. The thing to keep in mind about how a program of record generally evolves is the first order that we're going to get for a production system is going to be, I need 5 units so that I can take those 5 units out and put them through their paces in an operational kind of environment. And then they come back and they buy 15 and then they buy 25 and then they buy 50 and you start to stack those on top of each other and you get to volume. But the main point to understand is a traditional weapon system goes through a process where you're being funded to develop the system to get it from a Technology Readiness Level 5 to a Technology Readiness Level 7. And then you get additional funding to go from a Technology Readiness Level 7 to a TRL 9 production system. And again, there's about $150 billion of Pentagon budget that basically does that, that takes systems from TRL 5 to TRL 9. And again, that's the reason why that TRL 5, that outdoor demonstration, that outdoor test is such a critical inflection point because it is what unlocks more than 90% of the Pentagon's R&D budget for us to now go tap into.

Great. And one last question. Can you just talk about your long-term strategic endpoint? Is it independent scaling, licensing platforms or a sale to a defense company?

So we are building the company as if we're going to exist forever. That is the right way to manage a business. You never want to build the business specifically to be acquired. We have to build the business as if this is a long-term sustainable enterprise. Having said that, I don't know how many of you were on the line when Steve and I were talking in the very beginning prior to the webinar actually starting. I used to be an equity research analyst covering small and mid-cap defense technology stocks. And the reason why I'm no longer doing that is my coverage universe basically ceased to exist because they get bought by Raytheon, they get bought by Boeing, they get bought by Lockheed, they get bought by Northrop Grumman. It's generally just how the defense sector works. The primes will let us retire all the technical risk. They are averse to greenfield technology development type programs without a customer providing immediate funding to help do that. There's a trade-off when you do that. When the government funds all the R&D, you typically don't control -- have as much control over the IP and you are limiting your margins when you do that. But again, off target a little bit. But -- so the main thing is the primes, a potential acquirer is going to let us retire all the technical risk and then they'll start to look for evidence of customer traction. And when you get -- when they start to see real evidence of customer traction, that's when they start putting their M&A hats on.

Great. And for the rest of the audience, I'm sorry, we did not get to all of the questions, but everyone out there has my email address. I'm happy to facilitate an introduction and move you in the right direction to get some of your answer -- questions answered. In turn, Applied Energetics will have your information as well. So Chris, I do want to turn it back over to you for any final words before we close out.

Yes. So thanks, everybody, for attending. We certainly appreciate Force Family Office for sponsoring the webinar. As Kelly said, if you have any follow-up questions, please feel free to reach out and we'll get back to you as we can on that. Thanks for your time.

Great job, Chris, and congratulations on your progress. Fantastic job.

Thank you. Thank you, everyone. Have a great day.