Item 1A. Risk Factors
Item 1A. Risk Factors
The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 26, 2026. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
We depend on technology licensed from Frenel Imaging Ltd. for the detection layer of our WrapShield platform, and any loss or limitation of that license, or any failure of the underlying technology to perform as expected, could impair our platform strategy.
The detection capability of our WrapShield platform relies on Frenel's proprietary polarimetric thermal imaging software, which we license on an exclusive basis in the United States and for specified NATO channels. Frenel retains ownership of the underlying intellectual property. If the technology does not perform as expected, if Frenel fails to maintain or support it, if our license is terminated or converted to a non-exclusive license, or if Frenel is unable to protect its intellectual property, our ability to develop and commercialize WrapShield could be delayed or impaired. We may not be able to obtain an adequate substitute on acceptable terms or at all.
Our exclusive license from Frenel is subject to minimum performance milestones, and if we fail to meet them, we could lose exclusivity and the anticipated benefits of the arrangement.
Our exclusivity under the Frenel license depends on satisfying specified minimum annual commitment milestones over the initial four-year term, including establishing a U.S. value chain, completing product demonstrations and pilots, executing customer agreements, and generating specified cumulative revenue for Frenel. If we do not meet these milestones within the applicable periods or after any cure periods, the license would automatically convert to a non-exclusive license for the remainder of the term. Loss of exclusivity could reduce our competitive position and the return on our investment, and there is no assurance that we will achieve the milestones on the anticipated timeline or at all.
Our minority investment in Frenel, a privately held company organized in Israel, is illiquid and subject to risks that could result in a partial or total loss of the investment.
In July 2026 we invested $2.0 million in preferred shares of Frenel, a privately held company organized under the laws of Israel, and we hold a right to invest up to an additional $2.5 million. Our investment is illiquid and has no public market, and its value depends on Frenel's performance, financing needs, and ability to execute its business plan, over which we have limited control. As a minority holder, our information and governance rights are limited, and our rights are governed by Frenel's organizational documents and by Israeli law, which may differ from the protections available under U.S. law. Conditions in the region in which Frenel operates could also affect its business. The value of our investment could decline, and we could lose all or part of it.
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Our expanding defense and international activities subject us to complex export control and trade regulations, and any failure to comply could result in penalties and restrict our ability to sell our products.
Our platform strategy and our activities with Frenel involve products and technologies that may be subject to U.S. export control and trade regulations, including the International Traffic in Arms Regulations, the Export Administration Regulations, and regulations administered by the Office of Foreign Assets Control, as well as Foreign Military Financing and Foreign Military Sales processes for NATO customers. Compliance is complex and costly, and violations could result in civil or criminal penalties, loss of export privileges, and reputational harm. Changes in these regulations, in licensing determinations, or in the classification of our products could restrict or delay our ability to sell into defense and international markets.
The involvement of our Chief Executive Officer and our President is a condition of our Frenel license, and the loss or reduced involvement of either could adversely affect that arrangement.
Under the Frenel license, Scot Cohen, our Chief Executive Officer and Chairman, and Jared Novick, our President and Chief Operating Officer, are required to remain materially and actively involved in our performance under the agreement. A material reduction in the involvement of either person that is not resolved within the prescribed period would permit Frenel to convert our exclusive license to a non-exclusive license. The loss of the services of either executive, or a reduction in their involvement, could therefore harm our operations generally and our rights under the Frenel arrangement in particular.
Our WrapShield platform strategy is in an early stage, and we may not be able to integrate, commercialize, or achieve market adoption of the platform.
We introduced WrapShield in 2026 as a strategy to integrate threat detection, decision support, and proportionate response into a single architecture, with an initial focus on counter-unmanned aircraft system applications. The platform is in an early stage of development and depends on integrating technologies developed by third parties, including Frenel, with our own products. We may encounter technical, regulatory, funding, or procurement obstacles, and the timing and scale of any resulting revenue are uncertain. There is no assurance that WrapShield will achieve commercialization or market adoption, and our investments in the platform may not yield a return.
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