As you would no doubt be aware, there is a growing drone industry, and the increased use of drones (small unmanned aerial vehicles or UAVs) has caused a number of incidents that are escalating in scale.

A drone crashed at the White House in Washington in January 2015, one containing radioactive material crashed at the Japanese Prime Minister’s residence, an ISIS-controlled drone was shot down in Iraq by coalition forces in March 2015 and there have been frequent reports of mid-air collisions between drones and airplanes.

There’s also the privacy and public safety issues, potential for illegal items to be dropped into prisons and disruptions to utilities such as power lines and airports.

Now there are fears these incidents could escalate into something much worse, such as terrorists dropping bombs on nuclear power stations, or ‘suicide’ drones packed with explosives, as well as attacks against civilians such as sporting events or festivals.

Responding to this growing threat has required a number of companies to develop technologies to detect, deter and even bring down drones that may be a threat.

Detecting drones

One such company, US-based Droneshield Limited (ASX: DRO) is planning to list on the ASX within the next couple of months. Droneshield has its own proprietary hardware and software to detect drones and alert the user, and started delivery of its products in February 2014.

The system uses acoustic signatures to pickup the sounds of approaching drones, which the company says is the most efficient method compared to radar, laser and LIDAR, optical and infra-red cameras and radio frequencies.

So far, around 214 sensor units have been sold, piloted or trial-installed, including a major US airport and at the Boston Marathon in 2015 and 2016. (The marathon was attacked in 2013 with two bombs that killed 3 people and injured an estimated 264 others.)

Financials

Revenues are growing strongly as you might imagine – given the demand. In the year ending September 2015, Droneshield had $124,000 in sales, compared to $5,000 at the end of December 2014. However, startup costs are large, and the company is likely to report large losses going forward until sales reach a decent scale. There are no financial forecasts in the prospectus, so it’s difficult to get an idea of what that might be.

Risks

There are also a number of risks associated with investing in Droneshield. For one, the legal area of what a user does when a drone is detected has yet to be fully clarified. As an example, in the US and many other countries, it is illegal to interfere with drones.

The company says it recognises the need to go beyond acoustic detection and incorporate multiple detection technologies. Several other companies are also working towards that – and one of Droneshield’s competitors has this handy table comparing it to Droneshield and others. (Just be aware of the biases companies have when comparing their own products to others).

While Droneshield appears to have a head start with commercial sales, there are still plenty of risks associated with investing in the company, and potential investors will want to read the prospectus from front to back.

Foolish takeaway

If you are prepared to take a punt, you might want to invest a small amount in Droneshield, but be prepared to lose all of your capital if it doesn’t work out. And even if the company does become successful, there’s a long and volatile road ahead of it.

As for me, I’ll be watching from the sidelines with interest.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.