Deepening losses and contract cuts test Applied Energetics (OTCQB: AERG)
Applied Energetics, Inc. develops advanced ultrashort pulse laser and directed energy technologies for U.S. defense and select commercial markets, backed by 25 issued patents and nine Government Sensitive Patent Applications. The company remains pre‑revenue intensive, relying heavily on government contracts and R&D.
For the year ended December 31, 2025, Applied Energetics generated $461,727 in revenue, down sharply from $2,426,609 in 2024, and recorded a net loss of $14,872,730 versus a $9,174,958 loss in 2024. Its auditor expressed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flow and reduced government contract activity.
As of December 31, 2025, the company held $6,436,082 in cash and cash equivalents and working capital of $6,129,118, after raising about $10.8 million in 2025 bridge financings. At June 30, 2025, non‑affiliate equity market value was approximately $423.4 million, with 223,836,331 common shares outstanding as of March 27, 2026. Management warns it will likely need additional capital and faces risks from inflation, supply chain constraints, contract funding cuts, stringent export controls and complex U.S. government regulations, while also noting a small workforce of 26 employees and ongoing malpractice litigation against former counsel.
Positive
- None.
Negative
- Auditor going‑concern warning based on recurring losses, negative cash flow and reduced government contract activity raises the risk of financial distress.
- Revenue collapse and widening losses: 2025 revenue fell to $461,727 from $2,426,609, while net loss deepened to $14,872,730, increasing dependence on external financing.
Insights
Sharp revenue decline, large losses and going‑concern warning heighten financial risk.
Applied Energetics reported 2025 revenue of $461,727, down steeply from $2,426,609 in 2024, while its net loss widened to $14,872,730. The auditor flagged substantial doubt about the company’s ability to continue as a going concern, a serious signal for equity holders and creditors.
The business is highly dependent on U.S. government contracts and grants, and two contracts lost funding in Q2 2025, leading the company to stop work and revenue recognition while continuing some R&D internally. This intensifies execution risk, because replacing or expanding government programs can be slow and uncertain.
Although cash and cash equivalents of $6,436,082 and working capital of $6,129,118 as of December 31, 2025 provide some runway, management explicitly states it will likely need additional financing. Future results will depend on securing new contracts, managing costs under inflation and supply constraints, and accessing capital markets without excessive dilution.
Key Figures
Key Terms
going concern financial
Government Sensitive Patent Applications (GSPAs) technical
International Traffic in Arms Regulations (ITAR) regulatory
penny stock rules regulatory
Laser Guided Energy (LGE®) technical
ultrashort pulse (USP) laser technologies technical
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APPLIED ENERGETICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2025
TABLE OF CONTENTS
| Page No. |
||
| PART I. | ||
| Item 1. | Business | 1 |
| Item 1A. | Risk Factors | 7 |
| Item 1B. | Unresolved Staff Comments | 16 |
| Item 1C. | Cybersecurity | 16 |
| Item 2. | Properties | 16 |
| Item 3. | Legal Proceedings | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| PART II. | ||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18 |
| Item 6. | [Reserved] | 18 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
| Item 8. | Financial Statements and Supplementary Data | 26 |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | 26 |
| Item 9A. | Controls and Procedures | 26 |
| Item 9B. | Other Information | 27 |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | 27 |
| PART III. | ||
| Item 10. | Directors, Executive Officers, and Corporate Governance | 28 |
| Item 11. | Executive Compensation | 34 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 37 |
| Item 13. | Certain Relationships and Related Transactions and Director Independence | 39 |
| Item 14. | Principal Accountant Fees and Services | 40 |
| PART IV. | ||
| Item 15. | Exhibits and Financial Statement Schedules | 41 |
| Item 16. | Form 10-K Summary | 42 |
i
PART I
ITEM 1. BUSINESS
Cautionary Note Concerning Forward-Looking Statements
Certain statements in this Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of forward-looking words such as “may,” “believe,” “will,” “expect,” “project,” “anticipate,” “estimates,” “plans,” “strategy,” “target,” “prospects” or “continue,” and words of similar meaning. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. This Form 10-K contains important information as to risk factors under Item 1A. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove incorrect over time. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.
Available Information
Applied Energetics, Inc. (the “company,” “Applied Energetics,” “AE,” “we,” “our” or “us”) makes available free of charge on its website at www.appliedenergetics.com its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practical after electronically filing or furnishing such material to the Securities and Exchange Commission (“SEC”). We also periodically provide other information on our website such as investor presentations and status updates. We encourage investors, the media, our customers, business partners and other stakeholders to review the information we post on our website, in addition to following our press releases, SEC filings, public conference calls and webcasts. Website references in this Annual Report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this Annual Report.
This report may be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549 or at www.sec.gov. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
General
Applied Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070 S. Rita Road, Suite 1500, Tucson, Arizona, 85747 and our telephone number is (520) 628-7415. Our website is located at www.appliedenergetics.com.
Applied Energetics, Inc. specializes in advanced laser and photonics systems, particularly fiber-based ultrashort pulse (USP) laser technologies. With 25 patents, nine Government Sensitive Patent Applications (GSPAs), and three other patents pending, Applied Energetics’ proprietary architecture enables orders of magnitude size-weight-power reductions, a key differentiator when compared with continuous wave (CW) and other high energy laser technology with larger footprints. AE’s powerful, dual-use technologies designed for potential integration and deployment on numerous defense platforms for the delivery of high intensity, ultrashort pulses of light to disable or destroy a target or disrupt a mission. These technologies have applications in both national security and commercial markets. Today, AE’s USP optical technologies are being designed to offer flexibility and power for complex missions in national security such as enhancing layered defense strategies to counter complex threats.
Technology, Capabilities, and Patents
Applied Energetics, Inc. is a leader in developing the next generation optical sources exhibiting ever-increasing output energy, peak power and frequency agility while also providing decreased size, weight, and cost of these systems for customers. Applied Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture and wavelength- and pulse-agility capability, our USP technology can enable users to achieve specific effects across different use cases with an unmatched blend of size, weight, and power attributes. While initially designed to meet the emerging needs and priorities for the national security community, our directed energy technology also has potential commercial applications in both the biomedical and advanced manufacturing industries.
1
Our USP lasers are designed to provide:
| ● | Frequency Agile Optical Sources from Ultraviolet (UV) to Far Infrared (IR) | |
| ● | Pulse Duration Agility | |
| ● | Size, Weight, and Power Optimization | |
| ● | Advanced Fiber Applications | |
| ● | Laser Guided Energy (LGE®) | |
| ● | Laser Induced Plasma Channel (LIPC®) |
Applied Energetics’ directed energy technologies are vastly different from conventional directed energy systems. Our proprietary fiber-based architecture is a key differentiator for our most recent technology demonstrators. Compared with traditional continuous wave laser technologies, with their larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables, for powerful, dual-use and agile systems that can fit a host of platforms while delivering very high-intensity, ultrashort pulses of light to the required target. This unique directed energy solution allows extremely high peak power and energy, with target and effects tunability, and is effective against a wide variety of potential targets.
Applied Energetics’ optical fiber-based laser architectures also enable unmatched wavelength agility as well as pulse duration agility. Using innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the far infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature allows for optimization of laser performance for defense or commercial applications.
Our proprietary USP laser technology provides a significantly more compact solution than current continuous wave laser platforms while still delivering high peak power. Continuous wave laser systems are typically used to heat a target and, during continuous illumination, this heat transfer leads to melting or charring of the material. Using continuous wave output powers that now exceed 100 kilowatts (1kW = 1000 watts), it can take anywhere from seconds to tens of seconds to impact a target. By contrast, Applied Energetics has delivered USP lasers to national security users that exceed five terawatts (1 TW = 1 trillion watts) in peak power, with the difference being that this peak power from a USP laser is delivered in a pulse that is less than a trillionth of a second. During this short pulse duration, and having such a high peak intensity, near-instantaneous ablation of the surface of the threat takes place. The net result of our innovative USP approaches is highly effective lasers capable of jamming, damaging, and destroying certain surveillance and reconnaissance sensors with mountable footprints that require only a fraction of the size, weight, and power requirements of other-directed energy technologies. We believe the combination of both low size, weight, and power characteristics with wavelength and pulse duration agility will help us achieve our vision statement of “Directed Energy, Anywhere.”
The Applied Energetics scientific team is continuously innovating and expanding our patent portfolio to cover these technological breakthroughs and further enhance our suite of solutions for threat disruption for the Department of War (“DoW”), the intelligence community, and for commercial, biomedical and space applications with optical sources operating from the deep ultraviolet to the far infrared portions of the electromagnetic spectrum.
Applied Energetics has developed, successfully demonstrated, and holds all crucial intellectual property rights to a dynamic directed energy technology called Laser Guided Energy (LGE®) and Laser Induced Plasma Channel (LIPC®). LGE and LIPC are technologies that can be used in a new generation of high-tech directed energy systems. Applied Energetics’ LGE and LIPC technologies are wholly owned by Applied Energetics and protected by one or more of Applied Energetics’ 25 issued patents and nine GSPA’s. These GSPA’s are held under secrecy orders of the US government, providing the company with extended protection rights.
More recently, the company has been awarded new patents for application in the national security domain (Pulsed Laser Thermal Excitation, Patent No.: US 12,171,055 B2), Selectable Wavelength Cascading Coherent Optical Pump Sources, Patent No.: US 12,548,971 B2, and Tunable High Frequency Modulated Light Beam, Patent No.: US 12,562,545 B2) and a patent for a biomedical application (Pathogen Detection and Neutralization Using Deep UV-C Generation Via Seeded Raman Amplification and Second Harmonic Generation, Patent No.: A1US 12,320,702 B2). The company has also received notice of an allowed patent application in the national security domain (Defensive Laser Amplification System, Patent Application No.: 17/817,726). The company also has three pending patent applications. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage.
As Applied Energetics looks toward the future, our corporate strategic roadmap builds upon the significant value of the company’s USP laser capabilities and key intellectual property, including LGE and LIPC, to offer our prospective partners, co-developers and system integrators a variety of next-generation ultrashort pulse and frequency-agile optical sources, from the ultraviolet to the far infrared portion of the electromagnetic spectrum, to address numerous challenges within the national security, biomedical, and advanced manufacturing market sectors.
2
Strategic Plan and Analysis
The core of our strategy has been to continue growing our management and science teams with highly qualified individuals. This has driven our recruitment efforts in the areas of R&D, software, mechanical, electrical, optical and, systems engineering, modeling and simulation, marketing and finance. We are also contemplating adding members to our Board of Directors and our Board of Advisors. Our board and leadership team have worked to align key innovations with our roadmap to encourage and enable internal filing for a broad, strategic, and robust intellectual property portfolio and continue surveying the literature for acquisitions of parallel intellectual property to that end. We also intend to pursue strategic corporate acquisitions in related fields and technology. The company’s management continues to explore any favorable equity financing opportunities.
Our goal with the Applied Energetics Strategic Plan is to increase the energy, peak power and frequency agility of USP optical sources while decreasing the size, weight, and cost of these systems. We are in the process of developing this breadth of very high peak power USP lasers and additional optical sources that have a broad range of applicability for threat disruption for the DoW, commercial, and biomedical applications, such as biophotonic illumination and imaging. Although the historical market for Applied Energetics’ LGE and USP technology is the U.S. Government, the USP technologies are expected to provide numerous platforms for commercial additive and subtractive manufacturing and biomedical and imaging markets, creating a substantially larger market for our products to address. Since 2020, the Applied Energetics team has been able to develop partnership and teaming arrangements with the three leading laser and optics institutes in the United States, namely, the University of Arizona, the University of Central Florida, and the University of Rochester Laboratory for Laser Energetics.
This vision aligns directly with the DoW’s designation of Scaled Directed Energy asone of its six Critical Technology Areas, which prioritizes deployable, efficient, and operationally flexible directed energy capabilities across a wide range of mission environments. Our ultrashort pulse laser architecture is designed to meet these priorities by enabling high-intensity effects in compact, ruggedized form factors suitable for distributed and mobile deployment. By reducing size, weight, and power requirements while maintaining mission-relevant lethality against electro-optical threats, we believe our technology supports the DoW’s objective to proliferate directed energy systems at scale, accelerating the transition from specialized, platform-constrained solutions to broadly fielded capabilities across the modern battlespace.
The robotic warfare era requires an entire pillar of capability specifically designed to “take out the eyes” of the things that stare at you or want to do you harm, at any altitude. We believe USP laser technology are ideally suited to achieve this as a result of the following factors:
Unique Effects: USPLs deliver high-peak power, enabling disruption/destruction of EO sensors through plasma formation or ablation with minimal collateral effects.
Compact and Scalable: Fiber-based USPL technologies support optimal size weight and power (SWaP) footprints and deployment on land-based mobile and high- to very high-altitude platforms.
Wavelength Agility: Effective across visible to LWIR bands enhancing sensor denial capability.
Low Thermal Signature: Unlike CW or long-pulse lasers, USPLs maintain a low thermal footprint
Speed-of-Light Engagement: Instantaneous targeting of fast-moving threats with sub-second dwell times required to neutralize the target.
Difficult to Counter: Extremely short pulse durations and tunable wavelengths challenge traditional filtering and hardening strategies.
We have continued to execute our business development plans, further our research and development program and submit filings for intellectual property and proposals for grants and contracts. During the past several years, we continued to submit proposals and have been engaged in meetings on a continuous basis with various agencies and departments both remotely and in person in Washington, DC and at various other government facilities around the U.S. We believe the interest in our technology and applications remains high, and we continue to submit proposals for all appropriate opportunities and share our vision of the disruptive capabilities of USP optical sources for both near- and far-term threats and dual-use commercial applications.
Through our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive and interested in directed energy technologies. According to the US DoW fiscal budgets from 2017 through 2023, its directed energy spending grew from approximately $500 million in 2017 to over $1.695 billion in 2023, an increase of nearly 240%. Market analysis and projections have estimated that this directed energy sector is anticipated to reach $32.1 billion globally by 2033. We continue to be optimistic about our future and the growing opportunities in directed energy applications, especially since this growth to nearly $1.7 B annually is being accomplished without a recognized Program of Record (POR) for directed energy platforms. We believe that once these technologies are funded in production for a POR, or are approved to be integrated on fielded platforms in volumes to effect threat reduction, these DoW budgets for directed energy will grow exponentially larger to support the technology insertion. The Applied Energetics team anticipates a continuation of strong funding for the directed energy community. With our existing patent portfolio, and through further advancements of our technologies, we believe we have the substantial building blocks needed to become a significant and successful developer in the USP marketplace. These innovations could play a significant role in the efforts from the new administration to implement the Golden Dome for America program by advancing directed energy and other integrated technological solutions for missile and other threat protection for the country. Estimated budget requirements would exceed $50B annually.
Our research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics and other supplies. A significant, prolonged increase in inflation could negatively impact the cost of materials and components, which could be a particular problem with respect to our fixed fee contracts. Within the current geopolitical context, there are ongoing embargos of exports from some global suppliers of various materials that are used in electronics and some diode and laser materials, which can have negative effects on technology supply chains. This, coupled with tariffs and other trade disruptions, could significantly impair our ability to source necessary supplies and equipment when and in quantities needed. We continuously monitor potential supply chain issues and supplier liquidity and work with our supply base to ensure adequate sources of materials at reasonable costs. In some instances, we depend upon a single source of supply, but we are developing multiple sources, both internal to AE and externally where possible to mitigate the risk. In some cases, we must comply with specific procurement requirements, which can limit the suppliers and subcontractors we may utilize.
3
Market for Our Technology
Unmanned semi- and fully-autonomous aerial, ground, maritime and surface vehicle threats are dramatically increasing in number and capability. As unmanned systems increasingly augment humans, sensors will saturate the battlefield. Most of these threats are piloted through cameras mounted on the vehicle. We believe these emerging threats are ideally suited for directed energy effects. The proliferation of commercial-off-the-shelf sensors and unmanned systems provide both traditional and asymmetric forces with improved intelligence gathering and improvised threat capabilities enabling low-cost and low-tech solutions against high value targets.
Directed Energy Systems
Directed energy systems involve the use of highly focused energy such as lasers or microwaves to incapacitate, damage, or destroy enemy equipment, facilities, and assets. Prior to LGE, the only two viable directed energy systems were High Energy Laser (HEL), which uses heat to burn targets and High-Power Microwave (HPM) systems, that use electromagnetic energy at specific microwave and radio frequencies to disable electronic systems.
HEL and HPM directed energy technologies have been under development for decades with numerous DoW and other government contractors participating. The unique attributes of directed energy weapon systems —the ability to create precise effects against multiple targets near-instantaneously and at a very low cost per shot—have great potential to help the DoW in addressing future warfare requirements. The DoW invests research and development dollars into directed energy solutions to fill gaps identified by warfighters. For example, in future conflicts with capable enemies possessing large inventories of guided missiles or uncrewed aerial drones, it may be operationally risky and cost-prohibitive for the U.S. military to continue to rely exclusively on a limited number of kinetic missile interceptors. Such a competition could allow an adversary to impose costs on U.S. or allied forces by compelling them to intercept each incoming missile or drone with far more expensive kinetic munitions. The DoW has made technological advances in both performance and maturity as a result of many years of research with multiple threat-intercept technologies and previously was directed by Congress, to increase funding and evaluation of pulsed laser technology in future directed energy platforms.
The main drawback to these systems tends to be the larger overall size and power requirements that make them difficult to field more broadly. The laser was invented in 1960, and yet today, directed energy capabilities are still in the early stages of development and adoption. We believe that in order for directed energy capabilities to see an inflection point in adoption, three elements must converge: (1) increased use of a widely proliferating threat uniquely suited to being countered by directed energy systems, (2) directed energy systems that can deliver high-value effects against those threats, and (3) directed energy systems that have optimized size, weight, and power footprints that enable widespread deployment across multiple platform types and fixed sites.
Our Technology Differentiation
Applied Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture and wavelength- and pulse-agility capability, our ultrashort pulse technology enables users to achieve specific effects across different use cases, with an unmatched blend of size, weight and power attributes. While initially designed to meet the emerging needs and priorities for the national security community, Applied Energetics’ directed energy technology also has potential commercial applications in both the biomedical and advanced manufacturing industries.
Our Ultrashort Pulse Laser System Applications have the following solution attributes:
1. High Peak Power allows for sub-second kills,
2. Laser wavelength can be matched to sensor wavelength,
3. Allow for a common underlying architecture across all counter-ISR applications,
4. Can be an efficient, compact and ruggedized optical fiber-based architecture.
Applied Energetics’ proprietary fiber-based architecture is a key differentiator for our technology. Compared with traditional continuous wave technology with larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables, creating powerful, dual-use and agile systems that can fit a host of platforms while delivering very high intensity, ultrashort pulses of light to the required target. Using this unique architecture as a laser source for an integrated system can enable Applied Energetics to develop, integrate and deliver a suite of technologies that best meet the needs and requirements of its customers.
Applied Energetics’ optical fiber-based laser architecture enables unmatched wavelength agility as well as pulse duration agility. Using innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the far infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature allows for optimization of laser performance for defense or commercial applications.
4
Competition
AE’s Ultrashort Pulse sources, including proprietary LIPC® based LGE® technology, are unique and can be integrated onto platforms being developed for use by the U.S. Government. Over the past several years, a relatively small number of major defense contractors have received significant funding for directed energy systems development, manufacturing and integration, using continuous wave, high energy laser and microwave technologies. These contractors specialize in different directed energy system platforms to respond to a variety of threats. Applied Energetics believes that its pulsed laser systems can be a part of a layered defense solution alongside these other technologies. Although AE competes against other directed energy systems for funding, the uniqueness of our technologies should continue to support their development into weapon platform programs. AE believes that there is renewed U.S. Government interest in directed energy applications and believes that continued development of its USP capabilities and growing interest from all branches of the U.S. armed forces and other government agencies will lead to increases in government spending on directed energy in the coming years. Likewise, there are multiple new threats that must be addressed with unique and emerging technologies, and AE is working diligently to rapidly advance development, demonstration, testing and engineering of the Advanced Ultrashort Pulse lasers throughout the spectrum from the ultraviolet to the far infrared. We believe that USP technologies can rapidly accelerate in magnitude, as a percentage of the federal budget, compared with other technologies over the next several years.
AE’s primary direct USP optical source competition are corporations and contractors supported by foreign governments who may be attempting to develop similar technologies. AE believes that such foreign activity will create additional U.S. Government funding for both USP sources and LGE in order to maintain our country’s lead in pulsed directed-energy systems. Other companies with directed energy capabilities, albeit in continuous wave, microwave and other areas within directed energy, are Raytheon Technologies, Lockheed Martin, Northrop Grumman, Boeing, BAE Systems, nLight, General Atomics, DRS Daylight Solutions, L3Harris Technologies, AV, and Epirus. Although based on different types of directed energy technologies, we may compete with these companies to provide solutions to problems presented by common potential customers.
Some of AE’s biggest commercial competitors are Trumpf (German), Coherent (US), Thales (France). IPG (US), RAFAEL Advanced Defense Systems Ltd. (Israel), and Light Conversion (Lithuania), most of which are billion-dollar market class companies that have substantially more resources than AE.
Human Capital Resources
As of March 25, 2026, we had 26 employees, including our leadership team, optical scientists, engineers, technicians, and administrative staff. We also retain outside consultants and contractors for specific projects. We are currently actively recruiting additional scientists, engineers and technicians.
We strive to identify, recruit, train and incentivize employees based on our mission, values, growth strategy and technology and product development levels. Our science and technology team consists of highly skilled and educated employees who demonstrate their dedication to our endeavors on a daily basis. We rely on their scientific and engineering knowledge and expertise for the company’s success. We have an equally skilled and dedicated team of legal, financial and accounting professionals who support our technology and product development endeavors.
In addition to knowledge and expertise, we seek to recruit and develop employees who embody our core values of Agility, Bold Leadership, Mutual Trust, Quality and Innovation and to reinforce and instill these values in every facet of the organization. This is an ongoing, iterative, and sometimes challenging process and requires dedication and leadership by our senior staff.
Our compensation structure is designed to incentivize this highly qualified team with a combination of cash and equity, mostly in the form of stock options and restricted stock units, to instill a sense of ownership and a share in the company’s successes. Our company’s membership in the Arizona Technology Council and inclusion in its Association Health Plans give us access to a suite of benefits that are competitive with those of larger companies. These include an array of health plans, HSAS’s, FSA’s and term life insurance. We also offer employees participation in 401(k) and 529 plans.
5
Supplies and Raw Materials
Our research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics and other supplies. We depend upon the availability of materials and major electro-optical components as well as the performance and reliability of our suppliers. Some of our products require relatively scarce fabricated materials. We have experienced delays in obtaining certain of these supplies and materials and we have had difficulty accessing qualified suppliers of those materials. A significant, prolonged increase in inflation could negatively impact the cost of materials and components, which could be a particular problem with respect to any fixed price contracts. Within the current geopolitical context, there are ongoing embargos of exports from some global suppliers of various materials that are used in electronics and some diode and laser materials, which can have negative effects on technology supply chains. This, coupled with tariffs and other trade disruptions, could significantly impair our ability to source necessary supplies and equipment when, and in quantities, needed
We continue to believe that conflicts overseas and related national security requirements, which limit the companies through which we can source components, pose a substantial risk. The global supply chain remains a challenge for certain products. In addition, significant, prolonged inflation could negatively impact the cost of materials and components. Our inability to procure the necessary supplies and equipment could negatively affect our results of operations, financial condition and liquidity. In addition, the ongoing military action in the Middle East has created a disruption in the flow of oil and liquid natural gas worldwide which affects the cost of supplies and raw materials as well as shipping and related expenses.
In addition, our size coupled with our need for advanced, specialized components poses challenges in getting suppliers to prioritize our orders or, in some cases, fulfill them. We currently seek to procure certain specialized materials in relatively low volume which sometimes can lead to delays as we compete with larger volume customers for availability of these materials. Alternatively, as we execute our business plan, higher volume purchases, particularly of customized components, may result in longer lead times and pose other difficulties due to these and other supply constraints.
We continuously monitor potential supply chain issues and work with our suppliers to mitigate delays in our receipt of necessary materials, components and other supplies, and reduce costs, particularly in light of the supply chain issues outlined above. We also monitor supplier liquidity and work continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions through a number of mechanisms, including consolidating or re-sourcing our purchases, entering long-term agreements, reducing the number of suppliers, strategic global sourcing and competition among suppliers, and the opportunity to develop and deliver scarce components that have few contracts or suppliers. In some instances, we depend upon a single source of supply, but we are striving to develop multiple sources to mitigate the risk. In some cases, we must comply with specific procurement and compliance requirements, which may limit the suppliers and subcontractors we may utilize.
Regulatory Matters
Our business is subject to extensive regulation in the industries we serve. We market our technology to numerous U.S. government agencies and entities, including but not limited to all branches of the DoW and the Department of Homeland Security.
The U.S. government and prime contractors to the U.S. government represent all of our current revenues and likely a substantial portion of any projected revenues for the foreseeable future. U.S. government contracts are subject to termination by the government, either for convenience or for default in the event of our failure to perform under the applicable contract. In the case of termination for convenience, we would normally be entitled to reimbursement for our allowable costs incurred, termination costs and a reasonable profit. If terminated by the government as a result of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered goods or services from another source and any other damages it suffers.
U.S. government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government. DoW contracts are additionally subject to the Defense Federal Acquisition Regulation Supplement (DFARS). Other applicable laws and regulations apply as well. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, contract termination and adjustment, audit and product integrity requirements. Failure to comply with these regulations and requirements could result in reductions to the value of contracts, contract modifications or termination, cash withholding on contract payments, forfeiture of profits, and/or the assessment of civil or criminal penalties and fines and could lead to cause-based suspension or debarment from U.S. government contracting or subcontracting for a period of time.
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We are subject to various laws and regulations relating to the export and import of products, services, and technology from and into the US. In the US, these laws and regulations include, among others, the Export Administration Regulations (EAR) administered by the Department of Commerce, the International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA) provisions administered by the Department of State (DOS), embargoes and sanctions regulations administered by the Department of the Treasury, and import regulations administered by the Department of Homeland Security and the Department of Justice (DOJ). Certain of our developing products and technologies have military or strategic applications and are on the U.S. Munitions List of the ITAR, the Commerce Control List of the EAR, or are otherwise subject to the EAR and/or the US Munitions Import List, and we will be required to obtain licenses and authorizations from the appropriate US government agencies before exporting any of these products or technologies out of the US. This also includes export of technical data and similar information and, potentially, provision of specifications of certain supplies or equipment which we may seek to import from outside of the US to the suppliers of such articles. We may also be restricted in the types of materials and country of origin for supplies or equipment which may not be readily available from US sources. Foreign policy of the US or other licensing jurisdictions may affect the licensing process or otherwise prevent us from engaging in business dealings with certain individuals, entities, or countries. Any failure by us, our customers, or our suppliers to comply with these laws and regulations could result in civil or criminal penalties, fines, seizure of our products, adverse publicity, restrictions on our ability to engage in export or import transactions, or the suspension or debarment from doing business with the U.S. government. For further discussion of risks related to exports and imports, see Item 1A. “Risk Factors”.
Laser Safety Regulations
As we test and develop laser products, we become increasingly subject to laser safety regulations and industry standards. We are also subject to workplace regulations and safety standards for employees working with and around laser products and technology. These regulations and standards may include, among others, regulations promulgated by the US Federal Aviation Administration, the US Food and Drug Administration, the Occupational Safety and Health Administration and standards set forth by the Laser Institute of America and approved by the American National Standards Institute, Inc. (ANSI). We are also subject to various state and local regulations. We have appointed a laser safety officer who works with senior members of our scientific and engineering staff to ensure that our employees understand and follow relevant regulations and standards. However, these regulations and standards can be complex, vary significantly with different laser products, and are subject to change from time to time. Our failure to comply with one or more of these regulations or standards could result in civil or criminal penalties, including significant fines or bans, liability for injury to persons, some of which could be severe, or loss of business. For further discussion of risks related to Laser Safety Regulations, see Item 1A. “Risk Factors”.
ITEM 1A. RISK FACTORS
Future results of operations of Applied Energetics involve a number of known and unknown risks and uncertainties. Factors that could affect future operating results and cash flows and cause actual results to vary materially from historical results include, but are not limited to those risks set forth below:
Risk Related to Our Company
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
In their report accompanying our financial statements, our independent registered public accounting firm stated that our financial statements for the year ended December 31, 2025, were prepared assuming that we would continue as a going concern, and that they have substantial doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses and negative cash flow from operations and the concern that we may incur additional losses due to the reduction in government contract activity raises substantial doubt about our ability to continue as a going concern.
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Our business has generated only limited revenues during the past two fiscal years and had a net operating loss during each period.
For the fiscal years ended December 31, 2025 and 2024, we had revenues of $461,727 and $2,426,609, respectively, and we had net losses of $14,872,730 and $9,174,958, respectively. We can give no assurances that our planned operations will generate revenues in the future or whether any such revenues will result in profitability.
We may need additional financing to fund our operations going forward. If we are unable to obtain additional financing on acceptable terms, we may need to modify or curtail our development plans and operations.
As of December 31, 2025, we had $6,436,082 in available cash and cash equivalents and working capital of $6,129,118. We periodically conduct private bridge financings to cover certain short-term expenses, including raising approximately $10.8 million, in the aggregate, between the second and third quarters of 2025. We believe our cash position is sufficient for the next several months, but we will likely need to raise additional capital in order to fund our operations beyond that. We must allocate funds toward SEC compliance as well as Defense Contract Audit Agency (DCAA), International Traffic in Arms Regulations (ITAR) and other federal regulatory compliance. We also need funds for general and administrative expenses, including salaries, benefits, supplies and equipment, lease expense on our headquarters, accounting, legal, and other professional fees and other miscellaneous expenses. Failure to secure sufficient financing could render us unable to fund these necessary costs and expenses. We also will require additional funding for research and development before we are able to commercialize our technology. We may secure additional government contracts or sub-contracts with larger contractors to fund additional research and development. However, we may need to raise additional capital to supplement these contracts even if we are able to secure them.
Our operating plans and capital requirements are subject to change based on how we determine to proceed with respect to development programs and if we pursue any strategic alternatives. We may seek to raise additional funds through the issuance of equity securities, but such financing may not be available on terms acceptable to us if at all. Any equity financing would cause the percentage ownership by our current stockholders to be diluted, and such dilution may be substantial. Also, any additional equity securities issued may have rights, preferences or privileges senior to those of existing stockholders. If such financing is not available when required or is not available on acceptable terms, we may be required to modify or curtail our operations, which could cause investors to lose the entire amount of their investment.
Risk Related to Our Industry and Business Activities
Economic, geopolitical and other factors beyond our control can affect our business.
Our business, operating results, financial condition and liquidity may be adversely affected by changes in global economic conditions and geopolitical risks, including the ongoing military action in Iran, the inflationary environment in the United States and internationally, oil and other commodity prices, supply chain challenges, exchange rates, potential changes in policy positions or priorities, levels of government spending and deficits, the availability and cost of labor, the threat environment, trade policies, political conditions, national or international crises, including recurring global health emergencies, tariffs, trade embargoes, and other challenges that could affect the global economy, the demand for our technology and our ability to source materials and equipment. In recent years, inflationary pressures have increased labor and material costs at a higher rate than in prior years. Due to the nature of our government business, and the customer and supplier contracts within that business, we may not be able to increase our contract value or pricing to offset these cost increases, particularly with grants or fixed price contracts. This could adversely affect our operating profits and margins particularly if increased inflation continues. Similarly, increases in interest rates from recent historical lows in the U.S. and internationally could negatively impact financial markets and tighten the availability of, and increase our cost of, capital, which could have an adverse effect on our operating results, financial condition and liquidity. Tightening credit in financial markets also could adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations. Similarly, such tightening credit may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. In addition, geopolitical and security risks could affect government priorities, budgets and policies, which could impact sales of defense and other products and services.
Changes in US government spending could negatively affect our business.
Substantially all of our current and planned near-term revenues are or may be from US government contracts and grants awarded under various programs, primarily with the DoW, prime contractors to the U.S. government, and, possibly, with intelligence, national security and other departments and agencies. Changes in US government spending for various reasons, including as a result of potential changes in policy positions or priorities, could negatively impact our results of operations, financial condition and liquidity. Our programs are subject to US government policies, budget decisions and appropriation processes which are driven by macroeconomic and geopolitical factors as well as Congress’s ability to enact, and the administration’s willingness to execute, appropriations bills and other legislation. In recent years, the US government has been unable to complete its budget process before the end of its fiscal year, resulting in government shutdowns and Continuing Resolutions emergency funding only at prior-year levels. In addition, failure to raise the debt ceiling could cause the U.S. government to default on debts which it has already incurred. U.S. government spending levels and available program funding are thus hard to estimate in the medium- and long-term. Significant changes in U.S. government spending or changes in U.S. government priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition and liquidity.
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The establishment of the Department of Government Efficiency (DOGE) whose mission was to sharply reduce federal spending, including reviewing defense spending for possible waste, fraud and abuse has made securing funding for existing and new government contracts challenging. Although DOGE was disbanded in November 2025, many of its functions and personnel were absorbed into various federal agencies, including the DoW, and its principles and agenda to cut spending may continue in other forms. The termination of government employees responsible for payment of invoices can slow down payments under our contracts and disrupt our cash flows from operating activities which, if prolonged, could cause the loss of our business. The current budgetary and deficit funding environment, continuing inflation, tariffs and other ongoing supply chain disruptions, and DOGE, among other items, pose significant risks to the company.
During the quarter ended June 30, 2025, the company received notifications regarding loss of funding on two contracts. Funding ceased for one of these contracts although it is still in effect, and no stop-work order was received. With respect to the second of these contracts, the company was notified that no further funds are available and advised to stop work on it. Receipt of additional amounts under this contract, including for any work to be performed, is in doubt. The company has ceased working under and recording revenue for each of these contracts, and receipt of additional amounts under them is in doubt. The company intends to continue working in parallel on this technology as part of its ongoing internal research and development program.
We face risks relating to performance of our US government contracts and our ability to secure additional contracts and/or grants.
Our success depends on our ability to complete timely and satisfactory performance on our existing customer projects and to secure additional grants and contracts. Performance delays, cost overruns, technology failures, materials or components shortages, or contract delays, could negatively impact our business prospects, results of operations, financial condition and liquidity. U.S. government contracts generally permit the government to terminate the contract, in whole or in part, without prior notice, at the U.S. government’s convenience or for default based on performance. Correspondingly, subcontracts which we may seek to enter with prime government contractors, may be terminable by the prime contractor upon government termination of the prime contract. We may be unable to secure additional contracts to offset any revenues lost as a result of the termination of any such contracts.
Because the funding of U.S. government programs is subject to congressional appropriations made on a fiscal year basis even for multi-year programs, programs are often only partially funded initially and may not continue to be funded in future years. Appropriations bills may be delayed, which may result in delays to funding, the collection of receivables and our contract performance due to lack of authorized funds to procure related products and services. Under certain circumstances, we may use our own funds to meet our customers’ delivery dates or other requirements, and we may not be reimbursed. If appropriations for programs are reduced or delayed, the U.S. government may terminate any contract or subcontract under that program.
During the quarter ended June 30, 2025, the company received notifications regarding loss of funding on two contracts. Funding ceased for one of these contracts although it is still in effect, and no stop-work order was received. With respect to the second of these contracts, the company was notified that no further funds are available and advised to stop work on it. The company intends to continue working in parallel on this technology as part of its ongoing internal research and development program, but the company ceased recording revenue for each of these contracts, and receipt of additional amounts under them is in doubt.
The growth of our business depends on the development, application and manufacture of advanced technology and products aimed at achieving challenging goals. New technologies may be untested or unproven and, in some instances, product requirements or specifications need to be developed. This could result in performance difficulties, delays, cost overruns or failures which could require additional resources to address. Any failure to execute timely and effectively on our current programs could hamper future contracting opportunities. We may also need to invest in internal research and development projects in order to achieve certain grants or contracts, as our customers may demand proven concepts and solutions. These expenditures may not pay off if we are not awarded the intended grants or contracts.
Under certain types of government contracts, if we are unable to control costs or if our initial cost estimates are incorrect, our profitability could be negatively affected, particularly under fixed-price development contracts. We may also experience cost underruns which would reduce contract value and related expected revenues, and we may be unable to expand the contract scope or secure additional work to offset the resulting lost revenues. Contracts for development programs with complex design and technical challenges may be cost reimbursable. However, if they are firm fixed price or fixed price incentive contracts, such challenges and unexpected cost increases may impact our results of operations. US government contracts also require compliance with extensive and evolving procurement and other rules and regulations and subject us to potential audits, investigations, and disputes. We may also become involved in programs that are classified or otherwise restricted by the US government, which place limits on our ability to discuss our performance on these programs, including any risks, disputes and claims.
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We may be unable to protect our intellectual property rights adequately, which could affect our ability to sustain the value of such assets.
Protecting our intellectual property rights is critical to our ability to maintain and protect the value of our intellectual property portfolio. We hold a number of United States patents and patent applications, as well as trademarks, and registrations which are necessary and contribute significantly to the preservation of our competitive position in the market. Any of these patents or future patent applications and other intellectual property could be challenged, invalidated or circumvented by third parties. In some instances, we may seek to augment our technology base by licensing the proprietary intellectual property of others, but we may be unable to obtain necessary licenses or to secure them on commercially reasonable terms. We have entered into confidentiality and invention assignment agreements with employees and consultants and nondisclosure agreements with suppliers, potential job candidates, and appropriate customers so as to limit access to and disclosure of our proprietary information. These measures may not suffice to deter misappropriation or independent third-party development of similar technologies. Based on our current financial condition, we may not have the funds available to enforce and protect our intellectual properties. Certain of our patents are Government Sensitive Patent Applications, meaning they are held under secrecy orders of the US government which limits our ability to develop technology under them although their expiration date is extended until such time as they are no longer classified. We also hold many of our intellectual property in the form of trade secrets, which may be difficult or impossible to protect in certain circumstances. In order to manufacture products, we may need to contract with third parties who have manufacturing capabilities which we do not have. In such instances, we may face the risk of our intellectual property being misappropriated.
We may face claims of infringement of proprietary rights.
There is a risk that a third party may claim our products and technologies infringe on their proprietary rights. Whether or not our products infringe on proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against us and we could incur significant expense in defending them. If any claims or actions are asserted against us, we may not have the funds necessary to defend against such claims. Our failure to do so could adversely affect the value of our intellectual property.
We may face liability for injury to persons within or outside of the company, or damage to property, and incur obligations, liabilities and costs under environmental, health and safety (EHS) laws, if we fail to adhere to laser safety standards or broader EHS requirements.
As we test and develop laser products, we are subject to laser safety regulations and industry standards. We are also subject to workplace regulations and safety standards for employees working with and around laser products and technology. These regulations and standards may include, among others, regulations promulgated by the US Federal Aviation Administration, the US Food and Drug Administration, the Occupational Safety and Health Administration, the Arizona Radiation and Regulatory Agency, and standards set forth by the Laser Institute of America and approved by the American National Standards Institute, Inc. (ANSI). We are also subject to various state and local safety regulations. We currently use, handle, store, and periodically dispose of relatively small quantities of chemicals used in our development process, such as acetone and isopropyl alcohol. We are subject to regulations regarding their disposal. Any increase in the type or use of such chemicals could subject us to increased regulation.
We have appointed a Laser Safety Officer (LSO) who works with senior members of our scientific and engineering staff to ensure that our employees understand and follow relevant regulations and standards. However, these regulations and standards can be complex, may require specialized facilities, equipment and training, vary significantly with different laser products, processes and materials, and are subject to change from time to time (including through the adoption of more stringent EHS requirements). Our failure to comply with one or more of these regulations or standards could result in civil or criminal penalties, including significant fines or bans, liability for injury to persons or damage to property, some of which could be severe, or loss of business. In addition, future developments, such as more aggressive enforcement policies from the U.S. federal government, or the discovery of presently unknown environmental conditions, may require expenditures that could have a material adverse effect on our business, financial condition and results of operations. We may also face more stringent regulations if our operations require the use, handling, storage, transportation and disposal of hazardous materials.
As we progress from primarily conducting research to outdoor demonstration and product development, we could become subject to product liability claims which could be expensive, divert management’s attention and harm our business. If we ultimately undertake to manufacture our own laser products, we could face costly product recalls or warranty claims.
As we work to develop and demonstrate prototypes and eventually produce and sell products to customers, our business exposes us to potential liability risks that are inherent in the production, demonstration, manufacturing, marketing and sale of laser products to customers. We may be held liable if any of our products under development or other future products cause injury or death or are otherwise malfunction during demonstration or usage.
Our products under development are expected to incorporate sophisticated laser components and computer software. Complex software can contain errors, particularly when first introduced. In addition, new products or enhancements may contain undetected errors or performance problems that, despite testing, are discovered only after delivery and use by customers. While we believe our technology will be safe, users may allege or possibly prove defects, some of which could be alleged or proved to cause harm to users or others. While most of our laser technology is considered “eye-safe,” certain of our products under development are designed to operate in bands that could cause harm to vision or even total blindness. These products will require safety precautions and procedures, both by our internal team during product development and demonstrations and by prospective customers during demonstrations or customers using these products.
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In addition to the foregoing, we have begun testing our prototypes at testing ranges outside of our laboratory facilities. These facilities are general in remote areas and configured so as to make testing relatively safe if certain protocols identified by our LSO are followed. While we endeavor to comply with all applicable safety regulations promulgated by the relevant agencies, including without limitation, the Occupational Health and Safety Administration (OSHA), the Federal Aviation Administration and the Food and Drug Administration, as well as any applicable requirements under state law, we cannot be certain that testing of our lasers will not cause serious harm or injury either to personnel involved with the testing or third parties.
A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs. We cannot guarantee that we will be able to obtain products liability insurance; if we do, however, the coverage limits of any insurance policies that we may choose to purchase to cover related risks may not be adequate to cover future claims, and the cost of insurance, if obtainable, could be prohibitive. If sales of our products increase or we suffer future product liability claims, we may be unable to maintain product liability insurance in the future at satisfactory rates or with adequate amounts. Similarly, the potential risks associated with some of our lasers could result in substantial premiums for workers compensation insurance.
We intend to advance our products to manufacture, whether in contract with one or more third parties or in our own facilities, we could also face product recalls or warranty claims. A product liability claim, any product recalls or excessive warranty claims, whether arising from defects in design or manufacture or otherwise, could negatively affect our sales or require a change in the design or manufacturing process, any of which could harm our reputation and result in a decline in revenue, each of which would harm our business.
Moreover, if a product we designed or manufactured is defective, whether due to design or manufacturing defects, improper use of the product or other reasons, we may be required to notify regulatory authorities and/or to recall the product. A required notification to a regulatory authority or recall could result in an investigation by regulatory authorities of our products, which could in turn result in required recalls, restrictions on the sale of the products or other penalties. The adverse publicity resulting from any of these actions could adversely affect the perception of customers and potential customers. These investigations or recalls, especially if accompanied by unfavorable publicity, could result in our incurring substantial costs, losing revenues and damaging our reputation, each of which would harm our business.
Security breaches, cyber-attacks, or other disruptions or incidents could expose us to liability and severely damage our operations and business development efforts.
We depend heavily on information technology systems and infrastructure for our business. We, our collaborators and our service providers collect, store, and transmit sensitive information including intellectual property, proprietary business information, and research results and related data, in connection with our business operations. The secure maintenance of this information is critical to our operations and business strategy. Some of this information could be an attractive target of criminal attacks by third parties with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” disgruntled current or former employees, terrorist organizations, nation-state and nation-state supported actors, and others. The level of sophistication of cyber threats continues to grow over time.
We have cybersecurity systems in place to protect our and our customers’ proprietary information and sensitive data against the risk of inappropriate and unauthorized external use and disclosure and other types of compromise. However, these measures may prove inadequate to detect, prevent or mitigate security breaches and other incidents and we may be subject to data breaches through cyber-attacks, including ransomware, malicious code (such as viruses and worms), phishing schemes, social engineering schemes, and theft or misuse of data from inside the company. Any such breach could compromise our networks and the information stored there could be accessed, modified, destroyed, publicly disclosed, lost or stolen. If our systems become compromised, we may be unable to discover the intrusion promptly enough to mitigate any damage.
A cybersecurity breach or other incident could cause our credibility to suffer with customers. Any investigation, response, or remediation of such a breach, would result in costs in addition to possibly significant legal claims or proceedings, and possibly liability under our customer contracts. Any one of these events could cause material harm to our business, results of operations and financial condition.
Management has broad discretion over the selection of our business and prospective business opportunities.
Any person who invests in our securities will do so without an opportunity to evaluate the specific merits or risks of our prospective business and business opportunities. As a result, investors will be entirely dependent on the broad discretion and judgment of management in connection with the selection of a prospective business. The business decisions made by our management may not be successful.
We depend on the recruitment and retention of qualified personnel, and failure to attract and retain such personnel could seriously harm our business.
Due to the specialized nature of our businesses, our future performance is highly dependent upon the continued services of our key engineering and scientific personnel. Our prospects for obtaining government contracts or significant commercial contracts depend upon our ability to attract and retain qualified engineering, scientific and manufacturing personnel for our operations. Given intense competition, we may not be successful in attracting or retaining qualified personnel. Our failure to compete for these personnel could seriously harm our business, results of operations and financial condition. Additionally, since much of our business involves technologies that are or may be classified or otherwise restricted for national security reasons, we must hire U.S. citizens who have the ability to obtain a security clearance. This further reduces our potential labor pool.
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Our future success will depend on our ability to develop and commercialize technologies and applications that address the needs of our markets.
Both our defense and commercial markets are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future performance depends on a number of factors, including our ability to identify emerging technological trends in our target markets; develop and maintain competitive products; enhance our products by improving performance and adding innovative features that differentiate our products from those of our competitors; develop and manufacture and bring products to market on-time and on-budget; and enter into suitable arrangements for volume production of mature products.
We believe that, to be competitive in the future, we will need to continue to develop and commercialize technologies and products, which will require the investment of financial and engineering resources. Due to the design complexity of our products, we may in the future experience delays in completing development and introduction on a commercial scale of new products. Any delays could result in increased costs of development, deflection of resources from other projects or loss of contracts.
In addition, the market for our technologies and products may not develop or expand as we currently anticipate. The failure of our technology to gain market acceptance could significantly reduce any ability to generate revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing or differing technologies which gain market acceptance in advance of our products. The possibility that our competitors might develop new technology or products might cause our existing technology and products to become obsolete or create significant price competition. If we fail in our new product development and commercialization efforts, or our products fail to achieve market acceptance more rapidly than our competitors, our revenue will decline and our business, financial condition and results of operations will be negatively affected. We rely on testing ranges owned and operated by third parties for outdoor testing of our technology. These outdoor testing facilities can be shut down, expensive, or offer only limited time slots for their use.
We heavily depend on key personnel for the successful execution of our business plan. The loss of one or more key members of our management team could have a material adverse effect on our business prospects.
We are highly dependent upon Christopher Donaghey, our President and Chief Executive Officer and Stephen McCahon, our Chief Science Officer. We depend on Dr. McCahon’s decades of expertise for the marketing and development of our technology. We also depend upon their global visibility and outreach as well as Mr. Donaghey’s and our directors’ networks of contacts and experience to recruit key talent to the company. We do not have key-person insurance on any of these individuals. Loss of the services of any of these key members of our management team, or of our Board of Directors’ ability to identify and hire key talent, could have a material adverse effect on our business prospects, financial condition and results of operations. Although a key component of our growth strategy is succession planning and hiring additional key personnel, we may be unable to achieve this in the near term given constraints in the labor market and our interest in recruiting highly qualified professionals.
If we are unable to hire additional qualified personnel, our business prospects may suffer.
Our success and achievement of our business plans depend upon our ability to recruit, hire, train and retain additional highly qualified technical and managerial personnel. Competition for qualified employees among high technology companies is intense, and any inability to attract, retain and motivate additional highly skilled employees required for the implementation of our business plans and activities could strongly impact our business. Our inability to attract and retain the necessary technical and managerial personnel and scientific, regulatory and other consultants and advisors could materially damage our business prospects, financial condition and results of operations.
The market for our technology has a limited number of potential customers.
Given the highly specialized nature of our technology, the potential market for our products is limited to a relative few potential customers who tend to allocate significant budgeted amounts to selected projects. Currently, we are marketing our technology and focusing our research and development on the defense sector, in which demand is ultimately determined primarily by the US federal defense budget and the needs and priorities of the DoW and its various agencies. The potential customers in this area are defense agencies for direct contracts and major defense contractors for subcontracts. Thus, the demand for our products depends on their needs for our technology and selecting us for research and development. Although we intend to diversify into other applications for our technology and markets, we cannot be certain that opportunities in those markets will present themselves when we are ready, or that we will otherwise be able, to do so.
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Our reliance for our business on a single facility subjects us to concentration risks.
We currently operate our business from a single location in Tucson, Arizona. Due to the lack of diversification in our assets and geographic location, an adverse development at or impacting our facility or in local or regional economic or political conditions could have a significantly greater impact on our results of operations and financial condition than if we maintained more diverse assets and locations. While we implement preventative and proactive maintenance at our facility, it is possible that we could experience prolonged periods of reduced production and increased maintenance and repair costs due to equipment failures. In addition, because of our single facility and location, in certain cases we rely on limited or single suppliers for significant inputs, such as electricity. We are also reliant on the adequacy of the local skilled labor force to support our operations. Supply interruptions to or labor shortages or stoppages at our facility could be caused by any of the aforementioned factors, many of which are beyond our control, and would adversely affect our operations and we would not have any ability to offset this concentrated impact with activities at any alternative facilities or locations.
We are subject to certain regulations and requirements for our facility and personnel security clearances, which are prerequisites to our ability to perform on classified contracts for the U.S. Government.
A facility security clearance is required for a company to perform on classified contracts for the DoW and certain other agencies of the U.S. Government. Security clearances are subject to regulations and requirements including the National Industrial Security Program Operating Manual (“NISPOM”), which specifies the requirements for the protection of classified information released or disclosed in connection with classified U.S. Government contracts.
We require certain facility and personnel security clearances to perform any anticipated classified U.S. government related business. As such, we must comply with the requirements of the NISPOM and any other applicable U.S. Government industrial security regulations. If we were to violate the terms and requirements of the NISPOM or any other applicable U.S. Government industrial security regulations (which apply to us under the terms of classified contracts), any of our cleared facilities could lose its facility security clearance. We cannot be certain that we will be able to maintain our facility security clearance. If for some reason our facility security clearance is invalidated or terminated, we would not be able to continue to perform on classified contracts and would not be able to enter into new classified contracts, which could adversely affect our ability to generate revenues. Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to classified information, inability to obtain further U.S. government contract, or potentially debarment as a government contractor
We currently maintain significant cash balances at a commercial bank which could exceed the FDIC insurance limits and do not always earn a significant return.
We maintain a large percentage of our cash balances with Western Alliance Bank. At times, our bank balances exceed FDIC limits. As of December 31, 2025, $6,180,178 of our cash balance was uninsured. From time to time, significant portions of our cash balance earn little, if any, interest. We continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest-bearing cash equivalents and auxiliary cash accounts to maximize our insurance coverage. We continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest bearing cash equivalents and auxiliary cash accounts to maximize our insurance coverage.
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Risks Related to Our Securities
We are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements, coupled with our status as a former shell company, may cause a reduction in the trading activity of our common stock, and make it difficult for our stockholders to sell their securities.
Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and adversely affect any market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
| ● | The basis on which the broker or dealer made the suitability determination; and |
| ● | That the broker or dealer received a signed, written agreement from the investor prior to the transaction |
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations and restrictions, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock, in all probability, will be subject to such penny stock rules and other restrictions for the foreseeable future and our stockholders will, in all likelihood, find it difficult to sell their shares of common stock.
Because we are a former shell company, our stockholders face restrictions on their reliance on rule 144 to sell their shares.
Historically, the SEC staff has taken the position that Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) is not available for the resale of securities initially issued by companies that are, or previously were, shell companies, like AE. The SEC has codified and expanded this position in certain amendments to Rule 144 by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
| ● | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| ● | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
| ● | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and |
| ● | at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company. |
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We expect that we will be able to meet all of these requirements in the future, but unknown future events and circumstances could change that outcome. As a result, pursuant to Rule 144, stockholders who receive our restricted securities in a private placement or a business combination may not be able to sell our shares without registration for up to one year after we have completed the private placement or business combination.
A large number of shares of our common stock could be sold in the market in the near future, which could depress our stock price, particularly in light of the limited trading volume and volatility in the market for our common stock which can make it illiquid.
As of March 27, 2026, we had outstanding 223,836,331 shares of common stock. Approximately 100 million of our shares are currently freely trading without restriction under the Securities Act. Most of the remaining shares have been held by their holders for over one year and are thus eligible for sale under Rule 144(k) of the Securities Act. Sale of these shares into the market could depress our stock price. This is particularly true in an illiquid market characterized by limited trading volume. The market for shares of our common stock is subject to a limited trading volume and at times is volatile. The thinly traded nature of our common stock could make it difficult to sell shares at or near ask prices, if at all, particularly as additional shares enter the market for sale.
Provisions of our corporate charter documents could delay or prevent change of control.
Our Certificate of Incorporation authorizes our Board of Directors to issue up to 2,000,000 shares of “blank check” preferred stock without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable to each new series of preferred stock. In addition, our Certificate of Incorporation divides our board of directors into three classes, serving staggered three-year terms. At least two annual meetings, instead of one, will be required to effect a change in a majority of our board of directors. The designation of preferred stock in the future and the classification of our Board of Directors, could make it difficult for third parties to gain control of our company, prevent or substantially delay a change in control, discourage bids for our common stock at a premium, or otherwise adversely affect the market price of our common stock. Moreover, the holders of our outstanding Series A Preferred Stock have a right to put their shares to the company for an amount equal to the liquidation preference of approximately $340,000 plus unpaid dividends (approximately $433,000 as of December 31, 2025), in the event of a change of control. Such right could hinder our ability to sell our assets or merge with another company.
The redemption and dividend provisions of our outstanding preferred stock are onerous due to our current financial condition.
The company has redeemed substantially all of its outstanding preferred stock. At December 31, 2025, 13,602 shares were outstanding with a liquidation preference of approximately $340,000 and unpaid dividends of approximately $431,000. As of March 27, 2026, the liquidation preference of our outstanding preferred stock plus unpaid dividends thereon was approximately $442,000. If an event occurs that would require us to redeem the preferred stock, we may not have the required cash to do so.
In addition, our annual dividend payment on the preferred stock is approximately $34,000, which will further deplete our cash. We have not paid the dividends commencing with the quarterly dividend due August 1, 2013, and, as a result, the dividend rate has increased to 10% per annum and will remain at that level until such failure no longer continues. These terms may also make it more difficult for us to sell equity securities or complete an acquisition.
Any issuance of additional securities in conjunction with a business or financing opportunity which will result in a dilution of present stockholders’ ownership.
Our certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock. As of March 27, 2026, we had approximately 223,836,331 shares of common stock issued and outstanding. If funding opportunities present themselves on favorable terms, we may issue additional shares to fund our business or in connection with our pursuit of new business opportunities and new business operations. To the extent that additional shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests. If we issue shares of common stock in connection with our intent to pursue new business opportunities, a change in control of our company could occur. The issuance of additional shares of common stock may also adversely affect the market price of our common stock, particularly given the historically low trading volume in the market for our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
As
a company in general, and particularly, as a government contractor, we understand the critical need to maintain all data and information
systems in the safest, most secure manner. Accordingly, our approach to cybersecurity is multi-tiered and comprehensive.
Our Chief Executive Officer works with our information technology (IT) consultants to assess any reasonably foreseeable internal and external risks to our information systems, including the likelihood of malware, ransomware, cyber espionage, and any other cybersecurity threats. Through these risk assessments, management seeks to determine the likelihood of, and potential damage that could result from, such risks, and the sufficiency of existing systems and safeguards in place to manage them. Our IT consultants continually monitor our systems for any attempted, unauthorized entries or breaches and report this information to management on a quarterly basis. Information gathered from these processes enable our IT consultants to make any necessary adjustments to our systems and address any identified gaps in existing safeguards.
Our IT consultants also provide guidance and support with respect to protecting our information systems from these various threats. This includes advising both management and other personnel on the best practices for keeping these systems safe and a training program that includes random testing for weaknesses.
Certain
customer contracts require that we maintain a heightened level of information security and set out specific protocols to which we must
adhere to safeguard covered data and other information.
We
have
ITEM 2. PROPERTIES
Our Facilities
Our main headquarters are located at the University of Arizona Science and Technology Park at 9070 S Rita Road, Suite 1500, Tucson, AZ 85747. This location consists of approximately 13,000 rentable square feet of offices, conference rooms, and laboratory/production space; and approximately 9,805 usable square feet suite of administrative office space. Having these two separate spaces enables us to separate AE’s public facing facilities from the restricted access space of the science and research laboratory. This location is outfitted with:
| ● | 4,830 sq ft. Class 1000 cleanroom | |
| ● | Multiple integrated laser labs |
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| ● | Secure server room with network capability | |
| ● | Dedicated inventory, shipping and receiving areas ITAR, DCSA, and NIST compliant | |
| ● | Shop assembly area (outside of cleanroom) |
We also rent approximately 6,000 square feet of development, testing and manufacturing space, known as the Battle Lab, with capacity and planned critical infrastructure to fulfill both current, and possible future, U.S. military priorities. With this expansion, the company now occupies, in the aggregate, approximately 26,000 sq. ft. of space at the Arizona Tech Park. The Battle Lab supports laser system testing against relevant targets and emerging threats, enables technology maturation, and serves as a venue for customer and partner demonstrations under certain realistic and controlled conditions. The facility also provides the capability to manufacture, integrate, and test advanced lasers as Applied Energetics makes the anticipated transition of its technology to the next stage of its lifecycle.
Our aggregate rent expense, including common area maintenance costs, was approximately $359,000 and $318,000 for 2025 and 2024, respectively. For 2025, this included the cost of an option to lease the Battle Lab space until it was exercised and the rent on the Battle Lab space thereafter. We believe these facilities are adequate for our current and expected level of operations.
See Note 7 to our 2025 Consolidated Financial Statements, which is incorporated herein by reference for information with respect to our lease commitments as of December 31, 2025.
ITEM 3. LEGAL PROCEEDINGS
On January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan & Nusbaum (GKN) and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel to the company. On May 28, 2021, GKN and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021, the company filed an opposition to the motion. On July 13, 2021, GKN and Mr. Whalen filed their reply brief. On March 30, 2022, United States Magistrate Judge Debra Freeman signed an order denying the motion of GKN and Mr. Whalen to dismiss the company’s claim for malpractice and for rescission of the shares-for-fees agreement under which GKN and Whalen received 1,242,710 shares of the company’s common stock. The motion was partially granted as to the separate claim for violation of NYRPC 1.7 and 1.8 because the court found that it was duplicative of the malpractice claim. Motions for summary judgment in the case are fully briefed, and the judge held oral arguments on August 7, 2025. On September 17, 2025, the court issued an Opinion and Order denying both parties’ motions for Summary Judgment. . The parties have scheduled a mediation for April 23, 2026. The pre-trial conference, originally set for October, has been extended to May 20, 2026, to accommodate the mediation. No date has been set for trial.
As with any litigation, the company cannot predict the outcome with certainty, but the company expects to provide further updates on the status of the litigation as circumstances warrant.
The company may, from time to time, be involved in legal proceedings arising from the normal course of business.
ITEM 4. Mine Safety DisclosureS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock is currently quoted for trading on the OTCQB Market, trading under the symbol “AERG”. On March 27, 2026, the closing price of our common stock on the OTCQB Market was $1.28. Over-the-counter market quotations, such as on the OTCQB, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of March 27, 2026, there were approximately 380 holders of record of Applied Energetics’ common stock.
Unregistered Sale of Securities and Use of Proceeds
The company has reported all information pertaining to issuances of equity securities during the period covered by this Annual Report on Form 10-K in previously filed report on Forms 10-Q and 8-K.
Dividends
Dividends on our preferred stock are payable quarterly on the first day of February, May, August and November, in cash or shares of common stock. We paid dividends via the issuance shares of common stock on our 6.5% Series A Convertible Preferred Stock in 2011. We paid cash dividends on our 6.5% Series A Convertible Preferred Stock in 2012 and February and May 2013. The company has not paid the dividends commencing with the quarterly dividend due August 1, 2013. Dividends due as of December 31, 2025 and March 27, 2026 were approximately $431,000 and $442,000, respectively. Our Board of Directors suspended the declaration of the dividend, commencing with the dividend payable as of February 1, 2015, because we did not have a surplus (as such term is defined in the Delaware General Corporation Law) as of December 31, 2014. Our Board anticipates continuing such suspension until such time as we have a surplus, or net profit, for a fiscal year.
Equity Compensation Plan Information
See Item 12.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with the risk factors set forth in Item 1A and with our audited Consolidated Financial Statements and Notes thereto included elsewhere herein.
Overview
Applied Energetics, Inc. specializes in the development and manufacture of advanced high-performance lasers and optical systems, and integrated guided energy systems, for prospective defense, national security, industrial, biomedical, and scientific customers worldwide.
AE owns and protects intellectual property that is integral and necessary for the development of Ultrashort Pulse (“USP™”) Lasers, Laser Guided Energy (“LGE®”) and Direct Discharge Electrical products for military and commercial applications. AE currently owns 25 patents and an additional nine Government Sensitive Patent Applications (“GSPA”). These GSPA’s are held under secrecy orders of the US government and allow the company greatly extended protection rights, including having no expiration date until such time as they are no longer classified after which they will have the normal 20-year patent protection. The company also has three pending patent applications and one provisional patent application which is undergoing conversion to its non-provisional form. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage. We conduct research and development efforts under contracts and on an internal basis as we move toward product development and testing.
During the past several years, substantially all of our operating revenues have derived from contracts with DoW agencies and a major research university. Along with the performance of these contracts, we have conducted internal research and development efforts, building a team of scientists and engineers and establishing our testing facilities in the Battle Lab. We have also begun testing products in remote testing field locations, some of them private and some of them run by government agencies or universities. During the past year, our efforts in this area have been focused on preparing for and conducting these tests and preparing product demonstrations.
AE continues to expand its technical capabilities and administrative capacity with the addition of employees, consultants and contractors, and agreements with leading laser and optics universities in the country. AE also works with a team of contractors to strengthen our compliance, IT, technical staff, human resources and public relations.
Recent Developments and Trends
Effective May 17, 2025, the company received a requisition from the University of Rochester in the amount of $181,639. This is part of a contractual arrangement with the university in the approximate amount of $250,000 to support its Laboratory for Laser Energetics (LLE) for ongoing efforts to explore pulsed laser technologies. Work on the contract commenced on July 10, 2025 with a meeting at Applied Energetics headquarters in Tucson, AZ with Dr. Jon Zuegel, Laser Development and Engineering Division Director and a Senior Scientist at the LLE to discuss the research to be provided by the company. We completed work under the requisition and have worked with the University of Rochester to plan and commence work on the next phase. We have submitted our portion of the proposal for the next phase and are awaiting receipt of the formal contract revision.
During 2024 and through mid-2025, we continued work on our 2023 contract with the Office of Naval Research (ONR) to develop a high-peak and high-average power USP optical system which had an aggregate contract price of $1.99 million payable over two years as the company delivered its work. In the second quarter of 2025, the company was notified that no further funds were available for this contract and advised to stop work on it. The contract is now closed, and receipt of additional amounts under it, including for any work to be performed, is in doubt. The company has continued working in parallel on this technology as part of its ongoing internal research and development program.
During 2024 and through mid-2025, we continued work on our other contract with the ONR to accelerate the development and testing of Infrared (IR) optical technology with an ultrashort pulse laser (USPL) system, under a base period of performance through November 11, 2024 and a 12-month unfunded option period that was to end November 11, 2025, which had transitioned from a grant in March of 2024, with a ceiling value of $1,217,535. On September 4, 2024, the company received a funding increase of $237,647 which brought the total funding on the contract to $1,455,182. During the quarter ended June 30, 2025, the company was notified that funding had ceased for this contract. In the fourth quarter of 2025, the Company received notice that the contract was closed. The company has ceased recording revenue for this contract, and receipt of additional amounts under it is in doubt. The company has continued working in parallel on this technology as part of its ongoing internal research and development program.
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During the second quarter of 2023, we executed a Phase II Small Business Technology Transfer (STTR) contract with the U.S. Army at an aggregate contract price of $1.148 million payable over two years as the company performs its obligations thereunder, with the first year currently funded. The objective of this Phase II award was to further the development and testing of an IR laser system utilizing technologies that were investigated under the US Army Phase I STTR contract which the company was awarded in May 2022. This Phase II contract followed a successful Phase I which established a computational concept with physical modeling and simulation to establish the feasibility of an IR laser system. Phase I was performed in collaboration with the James C. Wyant College of Optical Sciences at the University of Arizona. On May 9, 2025, the company entered into a no-cost modification to continue work on the contract through November 14, 2025. The company also amended its related agreement with the University of Arizona consistent with this extension. In the fourth quarter of 2025, we completed work on this contract and received full payment from the customer.
Throughout 2024 and the first half of 2025, as we continued work on each of these contracts, we recognized revenues as we performed these services and recorded related costs. Costs under these firm fixed fee contracts were affected by supply chain disruptions, and shortages of items like semiconductor chips, and related systemic issues, and general inflation although to a lesser extent than in the preceding years. Micro-electronic and semiconductor chip shortages are still impacting supply chains, and as such, can impact our ability to execute and deliver technology to meet demands of our customers. Certain optical transmitting components are also in short supply. These costs and supply issues also may affect any internal research and development programs, and we anticipate that they will continue for at least the near term.
During the year ended December 31, 2025, as the next phase of its collaboration with Kord Technologies, Inc.(“Kord”), the company purchased from Kord a specially modified FIREFLYTM High Energy Laser Weapon System (HELWS) unit which the company has used to work on the development and integration of its proprietary Ultrashort Pulse technology in its Battle Lab, with the assistance of Kord personnel under a related services agreement. Throughout 2025 and into 2026, the company is working on the design and integration of USP technologies onto the Kord Firefly platform. With recent upgrades and advances to the FIREFLYTM system, the company looks to continue integration onto the updated platform.
In July 2024, the company exercised an option to lease more than 5,000 square feet of additional space at the University of Arizona Tech Park to create our Battle Lab. The company exercised the option to lease this additional space under the June 7, 2023, amendment to its Lease Agreement with Campus Research Corporation, as Landlord. In February 2025, we announced the opening of the Battle Lab, which is initially being used as a testing and demonstration space for the company’s lasers and prototypes. The Battle Lab is also expected to provide the capacity to manufacture and integrate advanced lasers as Applied Energetics makes the anticipated technology transition to the next stage of its lifecycle. The company has installed equipment to test and demonstrate multiple ultrashort pulse lasers with varying wavelengths against relevant target packages in the Battle Lab and has performed such testing and demonstrations.
During the fourth quarter of 2025 and the first quarter of 2026, the company began conducting field tests of certain of its lasers. To do so, it has made arrangements to use existing testing facilities maintained by third parties, including a private entity and a research university. The costs and availability of these testing facilities vary, depending on prior reservations and the minimum length of time needed for each field test. To facilitate these testing outings and make the time spent in the field more efficient, the company has also purchased an ATC Command/Response Trailer which is outfitted with a ramp door for access to the laser being tested, air conditioning for climate control, a generator, and workstations to enable the team to make adjustments to the lasers being tested in real time in the field. To date, our team has conducted four such field tests, and in the fourth of these, we completely disabled the sensor on a drone at a range that meets specifications provided to us by prospective customers.
The current budgetary and deficit funding environment, continuing inflation, tariffs and other ongoing supply chain disruptions, the appropriations process, federal government shutdowns, and budget cuts, among other items, all continue to create significant short and long-term challenges and risks to the company and its business development endeavors. It is difficult to forecast the effect that any future tariffs will have on our ability to source raw materials, supplies, and equipment needed to continue our operations both for the performance of our ongoing contractual obligations and our internal research and development efforts. Moreover, the cuts to funding and reductions in federal government personnel can impact our cash flows and ability to continue operating. Many of these cuts are proposed to the Departments of War and Homeland Security budgets which are the focus of much of our business development efforts. However, we remain optimistic that the innovative nature of our technology and its novel approach to addressable threats position the company for development, growth, and market opportunities.
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Certain mitigating factors could blunt any potential impact of these changes on our industry. The DoW and others in the administration have indicated that funding for innovation and novel technologies will continue to be a priority, and directed energy has been discussed as part of this trend. Also, many of the cuts are being challenged in court and, in some cases, reversed either because of judicial rulings or policy reversals. However, it is difficult to predict precisely where funds will be cut or allocated, and even a general reduction in force can make administrative functions, such as finalizing contracts and government payment processing, challenging. These factors could severely impact our cash flows and our ability to continue operating.
Geo-political events continue to affect our business. In particular, the ongoing military action in the Middle East has restricted the flow of oil and liquid natural gas worldwide and is driving up the price of goods and services which include supplies, materials and equipment which we need for our business. Also, certain economic events and policies, such as tariffs and embargoes, tend to be inflationary and contribute to drive up costs.
Neither of the US federal budgets for fiscal 2025 or 2024 were approved by Congress by the start of the corresponding U.S. federal government fiscal year, which is October 1 of the preceding year. In both 2025 and 2024, Congress passed, and the president signed, continuing resolutions (“CRs”), to extend federal government funding through specified dates. The final Defense Appropriations Bill for fiscal 2024 was signed into law on December 23, 2023 and included increases in areas of particular interest to the company. A full year Continuing Resolution, H.H. 1968, was passed and signed into law on March 15, 2025, and extended through September 30, 2025.
For fiscal year 2026, which started on October 1, 2025, the National Defense Authorization Act (NDAA) was delayed, but on December 18, 2025, the-president signed the 2026 NDAA into law (P.L.-119-60). The NDAA sets defense spending policies, while the separate appropriations bills comprising the federal budget fund government spending, including spending on defense and homeland security. This impacts all proposals under review by the DoW. The federal government experienced a funding gap beginning on October 1, 2025—the start of FY2026—and ending when the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (P.L. 119-37), was signed into law on November 12, 2025. On February 3, 2026, the president signed the Consolidated Appropriations Act, 2026 (P.L. 119-75). This bill included Defense Appropriations, and all previously unfunded agencies except for Homeland Security.
Critical Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other inputs and estimates that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein.
Share-Based Payments
Stock-based compensation cost is measured at grant date, based on the fair value of the award and is recognized as an expense over the requisite service period.
The fair value of each option grant is estimated at the date of grant using the Black-Scholes-Merton option valuation model. We make the following assumptions relative to this model: (i) the annual dividend yield is zero as we do not pay dividends on our common stock, (ii) the weighted-average expected life is based on a midpoint scenario, where the expected life is determined to be half of the time from grant to expiration, after taking into account the vesting period, (iii) the risk free interest rate is based on the U.S. Treasury security rate for the expected life, and (iv) the volatility is based on the level of fluctuations in our historical share price for a period approximately equal to the weighted-average expected life. We estimate forfeitures when recognizing compensation expense and adjust this estimate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods.
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Results of Operations
Our consolidated financial information for the years ending December 31, 2025 and 2024 is as follows:
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| Revenue | 461,727 | $ | 2,426,609 | (1,964,882 | ) | (81 | )% | |||||||||
| Cost of revenue | (212,620 | ) | (1,480,093 | ) | (1,267,473 | ) | (86 | )% | ||||||||
| General and administrative | (12,159,328 | ) | (9,509,860 | ) | 2,649,468 | 28 | % | |||||||||
| Selling and marketing | (1,350,026 | ) | (374,710 | ) | 975,316 | 260 | % | |||||||||
| Research and development | (1,670,004 | ) | (239,060 | ) | 1,430,944 | 599 | % | |||||||||
| Other income | 57,521 | 2,156 | 55,365 | 2568 | % | |||||||||||
| Net loss | (14,872,730 | ) | $ | (9,174,958 | ) | 5,697,772 | 62 | % | ||||||||
Revenue
Revenue decreased by approximately $1,965,000, or 81%, to approximately $462,000 for the year ended December 31, 2025, from approximately $2,427,000 for the year ended December 31, 2024. The decrease in revenue was primarily the result of the suspension of work on two active customer contracts. In April 2025, we were notified by a customer that no further funds were available for two of our contracts, resulting in a decrease in revenue for the period. Although the contracts remain open, the Company was advised to stop work and has accordingly suspended all activities under those contracts. Despite the suspension, the Company continues to advance the underlying technology through its internal research and development efforts. Both the customer and the Company are actively seeking alternative sources of funding, including from within the original contracting agency and other departments of the DoW.
Cost of Revenue
Cost of revenue decreased by approximately $1,267,000, or 86%, to approximately $213,000 for year ended December 31, 2025, from $1,480,000 during the year ended December 31, 2024. The decrease was primarily attributable to the suspension of two active customer contracts during the second quarter of 2025 after the Company was notified that the contracts were unfunded. As a result, work under those contracts was suspended, which reduced contract labor and materials costs. Additionally, during the period the Company shifted a portion of its operational focus toward internal research and development activities.
General and Administrative
General and administrative expenses increased approximately $2,649,000, or 28%, to $12,159,000 for the year ended December 31, 2025, compared to approximately $9,510,000 for the year ended December 31, 2024. The increase primarily relates to higher payroll and related costs of approximately $584,000, increased professional fees of approximately $258,000, and $1,400,000 of stock-based compensation expense. The increase also includes materials and supplies of approximately $215,000 and other general and administrative expenses of approximately $170,000.
Selling and Marketing
Selling and Marketing expenses increased approximately $975,000, or 260%, to $1,350,000 for the year ended December 31, 2025, compared to approximately $375,000 for the year ended December 31, 2024, primarily due to an increase of approximately $758,000 related to the development and installation of the Battle Lab and related demonstrations of our technology as well as an increase of approximately $205,000 for labor and the increase in business development activities.
Research and Development
Research and development expenses increased approximately $1,431,000, or 599%, to $1,670,000 for the year ended December 31, 2025, compared to approximately $239,000 for the year ended December 31, 2024, primarily due to an increase in labor costs of approximately $844,000 and material costs of approximately $587,000 associated with continued development of our USP laser technologies and programs which remain in place as we continue to work on them.
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Other Income/(Expense)
Other income increased approximately $55,000, or 2568%, to $57,000 for the year ended December 31, 2025, compared to other expenses of $2,000 for the year ended December 31, 2024. The change was primarily attributable to the write-off of an obligation of approximately $50,000, as management concluded that the obligation was no longer probable of settlement and the balance was derecognized from the Company’s balance sheet. In addition, the period-over-period fluctuation was impacted by higher average cash balances, which resulted in an increase in interest income earned during the year.
Net Loss
Our operations in 2025 resulted in a net loss of approximately $14,873,000, an increase of approximately $5,698,000, or 62%, compared to the approximately $9,175,000 net loss for the year ended 2024, primarily due to increases in general and administrative, selling and marketing, and research and development expense, as well as lower revenue.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. In their report accompanying our financial statements for the year ended December 31, 2025, our independent auditors stated that our financial statements were prepared assuming that we would continue as a going concern and that they have substantial doubt as to our ability to do so for one year from the date the financial statements are issued based on our recurring losses from operations and need to raise additional capital. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the company be unable to continue as a going concern.
At December 31, 2025, the company had total current assets of $6,969,464 and total current liabilities of $840,346 resulting in working capital of $6,129,118. At December 31, 2025, we had $6,436,082 cash and cash equivalents, an increase of $6,271,270 from $164,812 at December 31, 2024.
During the year ended December 31, 2025, the net cash outflow from operating activities was $9,237,951 This amount comprised primarily of our net loss of $14,872,730. This was offset by non-cash stock-based compensation expense of $5,136,473, amortization of prepaid assets of $140,893, depreciation and amortization expense of $282,200, and the amortization of right of use assets of $263,430. Additionally, net cash used from changes in assets and liabilities totaled $188,217. This included a decrease in accounts receivable of $335,839, and, accrued expenses and compensation of $179,044. This was offset by an increase in prepaids and deposits of $350,147, right of use liabilities of $265,380, accounts payable of $37,573, and due to related parties of $50,000.
During the year ended December 31, 2025, the net cash outflow from investing activities was $1,234,734. This was for the purchase of equipment.
During the year ended December 31, 2025, net cash provided by financing activities was $16,743,956. This amount consisted of $16,794,248 in proceeds from sale of common stock and $126,467 from the exercise of options and warrants, which were offset by $17,434 tax withholdings related to the share settlement of RSUs and $159,325 of repayment of an insurance premium loan.
Based on the company’s current business plan, we believe our cash balance as of the date of this report, along with anticipated contract revenue, will be sufficient to meet the company’s anticipated cash requirements for the near term. However, we cannot be certain that the current business plan will be achievable. In addition, we recently received verbal notice that funding under two of the company’s contracts has been discontinued, as described under Results of Operations and Ongoing Business Activities. Although these contracts are still in effect, receipt of any additional funds under them is highly uncertain, which negatively affects our anticipated cash flows from operating activities.
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The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting a significant portion of its efforts to developing additional business and raising capital, as needed, but cannot be certain that these efforts will be successful. Management’s business development efforts may not result in profitable operations. To fund its research and development and marketing efforts, the company’s management continues to explore possible financing opportunities through discussions with investment bankers and private investors. The company may not be successful in its effort to secure additional financing on terms it considers favorable. The accompanying consolidated financial statements do not include any adjustments that might result should the company be unable to continue as a going concern.
In January and February 2025, the company raised approximately $6 million through the private placement of shares of its common stock, par value, $0.001 per share, some of which were underlying pre-funded common stock purchase warrants, in a private sale to individual purchasers at a price of $0.75 per share (or $0.749 per underlying share for pre-funded warrants), all to accredited, sophisticated investors.
In October 2025, the company raised approximately $11 million through the private placement of shares of its common stock, par value, $0.001 per share, some of which were underlying pre-funded common stock purchase warrants, in a private sale to individual purchasers at a price of $1.80 per share (or $1.799 per underlying share for pre-funded warrants), all to accredited, sophisticated investors.
Additionally, international, macroeconomic events, including the military action in the Middle East and South America, the Russian military action in Ukraine and related economic sanctions around the globe could impact the company’s ability to source necessary supplies and equipment which could materially and adversely affect our ability to continue as a going concern. These events may also impair our ability to raise capital, including as a result of increased market volatility, or decreased market liquidity, which also affects the company’s ability to continue as a going concern. Third-party financing may become unavailable on terms acceptable to the company or at all. The impact of such events on the world economy and the specific impact on the company’s financial position and results of operations are difficult to predict. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Budgeting for upcoming expenses and costs of supplies and equipment needed to perform our existing, and any future, grants or contracts requires that we estimate factors such as inflation and geo-political events that affect such expenses and costs. Although inflation generally moderated in 2024 and 2025, recent events in the Middle East are driving it back up. In addition, the cost of labor continues to increase across certain sectors of the US and global economy which may drive up our general and administrative expenses as well as the cost of personnel working directly and indirectly on our grants and contracts, particularly given the highly skilled nature of this work. Inflation has also impacted the price of supplies and materials we must purchase in order to perform grants and contracts, some of which may have been bid on based on cost structures which were submitted during periods of lower inflation. In addition, geo-political events have further limited the number of countries from which we can source certain supplies and equipment. These limitations can range from outright prohibitions to strong discouragement based on potentially sensitive information. We continually monitor these events and the markets for needed supplies in order to make the best estimates possible, both in our internal budgeting and in any bids or proposals we submit.
Contractual Obligations:
The following table summarizes our contractual obligations and other commercial commitments as of December 31, 2025:
| Payment by Period | ||||||||||||
| Total | Less than 1 Year | 1 to 5 Years | ||||||||||
| Notes payable | $ | 48,000 | $ | 48,000 | $ | - | ||||||
| Leases | 1,062,788 | 394,256 | 668,532 | |||||||||
| Total | $ | 1,100,788 | $ | 442,256 | $ | 668,532 | ||||||
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The above table does not include the dividends on our Series A Preferred Stock. Assuming that there is no conversion of the outstanding shares of Series A Preferred Stock into shares of common stock, the dividends are approximately $34,000. each year (approximately $9,000 each quarter).
Leases
In March 2021, the company signed a five-year lease for an 11,000 usable square foot (13,000 rentable square foot) laboratory/office space in Tucson. The lease term commences May 1, 2021 and ends on April 30, 2026. The base rent is $6.7626 per rentable square foot for year one, and escalated to $9.2009 in year two, $11.4806 in year three, $13.1740 in year four and $14.9306 in year five, plus certain operating expenses and taxes.
On June 7, 2023, the company entered into an amendment to extend the term of the original lease from April 26, 2026 to July 31, 2028. Included in the lease amendment is extension space commencing on August 1, 2023. As of August 1, 2023, the company has secured additional square footage in the amount of 9,805 square feet. The initial base rent for the expansion space was $9.10 per rentable square foot for year one, and escalated to $10.20 in year two, and $11.30 in year three, and further escalates to $12.40 in year four and $13.50 in year five, plus certain operating expenses and taxes.
On July 3, 2024, the company exercised its option to least an additional 6,458 rentable square feet (5,520 usable square feet) of manufacturing space support the company’s investment in its Battle Lab. The option was at a price of $2,690.83 per month through the date of exercise. With this expansion, the company now occupies, in the aggregate, approximately 26,000 sq. ft. of space. Our aggregate rent expense, including common area maintenance costs, was approximately $359,000 and $318,000 for 2025 and 2024, respectively. This included the cost of the option until it was exercised and the rent on the Battle Lab space thereafter. These facilities are adequate for our current and expected level of operations.
Preferred Stock
The Series A Preferred Stock has a liquidation preference of $25.00 per share. The Series A Preferred Stock bears dividends at an initial rate of 6.5% of the liquidation preference per share per annum, which accrues from the date of issuance, and is payable quarterly. We have not paid dividends commencing with the quarterly dividend due August 1, 2013 and, as a result, the dividend rate has increased to 10% per annum and will remain at that level until such failure is cured. Dividends due as of December 31, 2025, and March 27, 2026, were approximately $433,000 and $442,000, respectively.
The holders of the Series A Preferred Stock have a right to put the stock to the company for an aggregate amount equal to the liquidation preference approximately $340,000 plus unpaid dividends of $433,000 as of December 31, 2025, in the event of a change in control. Dividends are payable in: (i) cash, (ii) shares of our common stock (valued for such purpose at 95% of the weighted average of the last sales prices of our common stock for each of the trading days in the ten trading day period ending on the third trading day prior to the applicable dividend payment date), provided that the issuance and/or resale of all such shares of our common stock are then covered by an effective registration statement or (iii) any combination of the foregoing. As of December 31, 2025, there were 13,602 shares of Series A Preferred Stock outstanding.
Recent Accounting Pronouncements:
Refer to Note 3 of Notes to Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.
Off-Balance Sheet Arrangement:
As of December 31, 2025, we had no significant off-balance sheet arrangements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business, our financial position is subject to a variety of risks, such as the ability to collect our accounts receivable and the recoverability of the carrying values of our long-term assets. We do not presently enter into any transactions involving derivative financial instruments for risk management or other purposes.
Our available cash balances are deposited in bank demand deposit accounts and money market funds. Substantially all of our cash flows are derived from our operations within the United States and today we are not subject to market risk associated with changes in foreign exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements, the related notes and the Report of Independent Registered Public Accounting Firms thereon, are included in Applied Energetics’ 2025 Consolidated Financial Statements and are filed as a part of this report on page F-1 following the signatures.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025 primarily as a result of weaknesses in our internal control over financial reporting as described below. In response to this conclusion and in conjunction with our ongoing assessment and remediation of such internal control over financial reporting as described below, we have begun the process of strengthening the company’s disclosure controls and procedures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company’s assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of the management and directors of the company; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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With the assistance of independent consultants, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2025, based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). This assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. This assessment also took into consideration a material weakness cited by our auditors. In particular, our auditors noted lack of segregation of duties and written policies and procedures within the accounting functions and evidence of control review in that we have not designed such policies and procedures at a sufficient level to support the operating effectiveness of controls to prevent and detect potential error. To mitigate this weakness, the company has retained the services of an independent consulting firm to conduct an assessment of our internal controls, gap analysis, and remediation recommendations. Based on our assessment under the criteria described above, the Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was not effective as of December 31, 2025.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the SEC rules that permit smaller reporting companies to provide only management’s attestation in an Annual Report on Form 10-K.
Remediation of Material Weakness
The company is committed to addressing the material weakness described above and has retained an independent consultant which has conducted a comprehensive assessment of the company’s internal controls and provided a gap analysis and recommendations for remedial measures. Management has begun to implement changes in processes designed to improve its internal control over financial reporting in accordance with some of these preliminary recommendations. Remediation will not be complete until there has been sufficient time to conclude through testing that the controls operate effectively.
Changes in Internal Control Over Financial Reporting
Other than work on remedial measures set forth above under Management’s Report on Internal Control over Financial Reporting, there has been no change in Applied Energetics’ internal control over financial reporting for the quarter ended December 31, 2025, that materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During
the three months ended December 31, 2025, no director or officer
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following is information with respect to our executive officer and directors:
| Name | Age | Principal Position | Years Remaining in Term | Director Since | Board Committee | |||||
| Bradford T. Adamczyk | 57 | Executive Chairman and Director | 2.5 | March 2018 | Audit, Compensation | |||||
| Christopher Donaghey* | 54 | President, Chief Executive Officer and Director | 1.5 | June 2025 | N/A | |||||
| Warren Spector | 67 | Chief Financial Officer | N/A | N/A | N/A | |||||
| Gregory J. Quarles | 63 | CEO Emeritus, Government and Institutional Relations Executive and Director | <one | May 2019 | N/A | |||||
| Mary P. O’Hara | 59 | General Counsel, Chief Legal Officer, Secretary and Director | 2.5 | August 2021 | N/A | |||||
| Stephen W. McCahon | 66 | Chief Science Officer | N/A | N/A | N/A | |||||
| David Spence | 59 | Chief Product Officer | N/A | N/A | N/A | |||||
| John E. Schultz Jr. | 72 | Director | <one | November 2018 | N/A | |||||
| Michael J. Alber | 68 | Director | <one | April 2024 | Audit (Chairman) Compensation | |||||
| A. Scott Andrews | 67 | Director | 1.5 | June 3, 2025 | Audit Compensation (Chairman) |
| * | Mr. Donaghey served as Chief Operating and Financial Officer until November 25, 2024 and continued to serve as Principal Financial and Accounting Officer for SEC reporting purposes until the appointment of Mr. Spector as Chief Financial Officer on January 28, 2026. |
Bradford T. Adamczyk: Mr. Adamczyk has served as Executive Chairman of the Company since November 2021 and as Chairman of the Board since May 2019. He has been a member of the Board of Directors since March 2018, following a proxy contest that resulted in the reconstitution of the Company’s board and management team. He also served as the Company’s Principal Executive Officer from August 2018 to May 2019 during the Company’s search for a permanent Chief Executive Officer. In December 2017, Mr. Adamczyk, together with a group of shareholders, initiated a recapitalization of the Company, culminating in the March 2018 proxy process that repositioned the Company to pursue development of its technology and intellectual property portfolio. During his tenure, he has been involved in various board and strategic initiatives, including capital-raising activities, organizational buildout and retention of key personnel, assistance with legal and strategic efforts to reclaim millions of shares of Company stock, corporate outreach and preparations for a potential uplisting to a national securities exchange. Mr. Adamczyk has over 30 years of experience in investment management and financial analysis. He is the founder of MoriahStone Investment Management, established in 2013, which focuses on public equity and small-cap private investments. From 2014 to 2024, he served on the board of directors of BroVo Spirits, LLC, including as Chairman from 2018 to 2024, and continues to serve as a director. Prior to founding MoriahStone, Mr. Adamczyk was a senior securities analyst at Columbus Circle Investors, where he focused on traditional and emerging technology investments. He began his career at Morgan Stanley. Mr. Adamczyk holds an MBA from the University of Michigan and a bachelor’s degree from Western Michigan University, where he graduated magna cum laude.
Christopher Donaghey: Mr. Donaghey has served as the Company’s President and Chief Executive Officer since November 25, 2024. Prior to that date, he served as the company’s Chief Operating and Financial Officer from July 2022. He continued to function as the company’s principal financial officer through January 27, 2026. Mr. Donaghey is an experienced financial executive with extensive experience in the defense industry. From June 2018 until July 2022, Mr. Donaghey served as senior vice president and head of corporate development for Science Applications International Corporation (SAIC), a defense and government agency technology integrator, where he was responsible for executing the company’s mergers and acquisitions (M&A) and strategic ventures strategy. He joined SAIC in 2017, as senior vice president of finance for SAIC’s operations until June 2018. Mr. Donaghey is also a Co-Founder and Chairman of the Board of the Silicon Valley Defense Group, a non-profit organization whose mission is to create the nexus of pioneering ideas, people, and capital that will unlock new sources of innovation for national security and power the digital evolution of the defense industrial base. Prior to joining SAIC, Donaghey was Vice President of Corporate Strategy and Development for KeyW Corporation, a national security solutions provider for the intelligence, cyber and counterterrorism communities, where he guided the overall corporate strategy, M&A, and capital markets activities. Mr. Donaghey was also a senior research analyst for SunTrust Robinson Humphrey Capital Markets during which time, he was ranked the number one defense analyst and number two analyst overall for stock selection by Forbes/Starmine in 2005 and was named in the Wall Street Journal Best on the Street survey in 2005, 2008, and 2009. Mr. Donaghey served in the U.S. Navy Reserve where he provided scientific and technical analysis of missile guidance and control systems and advanced electronics for the Short-Range Ballistic Missile group at the Defense Intelligence Agency’s Missile and Space Intelligence Center. Donaghey earned his bachelor’s degree in mechanical engineering from Texas Tech University and served as an officer in the U.S. Navy. Mr. Donaghey also completed the Advanced Management Program at Harvard University in 2021. Mr. Donaghey served on Applied Energetics’ Board of Advisors from April 30, 2019 until becoming Chief Operating and Financial Officer.
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Warren Spector: Mr. Spector was appointed to serve as the company’s Chief Financial Officer as of January 28, 2026. Prior to that appointment, he had served as Vice President of Finance since June 23, 2025. Prior to joining the company, Mr. Spector served as Chief Financial Officer of Crossroads Live, a leading producer of large-scale theatrical entertainment, operating in the US, UK, Australia, and Asia. Prior to that, he served as Chief Financial Officer of Raycom Media, previously one of the largest US privately held local media companies, providing strategic finance leadership which contributed directly to its later acquisition by Gray Television for approximately $3.35 billion. He also serves on the Board of Directors of BroVo Spirits. Mr. Spector holds an MBA from UCLA’s Graduate School of Management and a bachelor’s degree in economics from UCLA. He is a CPA (inactive) and has extensive experience working with boards of directors, audit committees, lenders, and investors across both private-equity-backed and publicly traded companies. As Chief Financial Officer, Mr. Spector oversees all finance, accounting, treasury, and reporting functions, including SOX readiness, audit and internal controls, and capital markets strategy.
Gregory J. Quarles: Dr. Quarles has served as the CEO Emeritus and as the Executive for Government and Institutional Relations, since November 25, 2024. Prior to this time, he served as the company’s Chief Executive Officer and as a company director effective May 2019, and as President from January 2021. Prior to May 2019, he had served on the Company’s Scientific Advisory Board since March 18, 2017. Before joining Applied Energetics, Dr. Quarles spent eight years with Optica (formerly, The Optical Society of America) in Washington D.C., both as a member of the Board and the Executive Committee (three years) and more recently as the Chief Scientific Officer (five years). His responsibilities at Optica encompassed a broad range of scientific, technical and engineering infrastructure, and included content development for the Optica meetings portfolio, along with many other related projects, highlighted by his reports to Congress. Moreover, Dr. Quarles had been personally involved through Optica, in the establishment of many crucial partnerships involving major R&D laboratories and global agencies worldwide. This involvement included being a long-standing member of the U.S. Department of Commerce, Bureau of Industry and Security, and Sensors and Instrumentation Technical Advisory Committee. In addition to his executive leadership, Dr. Quarles is a well-respected member of the laser development community globally with over 35 years of experience since the award of his Ph.D. from Oklahoma State University. He has served on the board of directors of Nanocerox, Inc., a private company, since 2011, and on the Physics Department Advisory Board of Oklahoma State University, and the LLE Advisory Board of the University of Rochester, since 2017 and 2021, respectively. He is a Fellow in both the SPIE and Optica, a Senior Member of the IEEE and received the Memorial D.S. Rozhdestvensky Medal from the Russian Optical Society (2015). In 2016, he joined the Oklahoma State University CAS Hall of Fame, and in 1996 received the R&D 100 Award for the Ce:LiSAF Laser System.
Mary P. O’Hara: Ms. O’Hara was appointed to the Board of Directors on August 20, 2021. Ms. O’Hara was appointed General Counsel and Chief Legal Officer in January 2022 and Secretary in September 2022. She has been in private law practice for over thirty years and has broad experience in all facets of securities, corporate and commercial law. Prior to joining the Company full-time, she was affiliated with the law firm of Masur, Griffitts, Avidor, LLP (now known as Griffitts LLP) and had represented the company for several years as outside counsel. Previously, she was a partner at Hodgson Russ LLP and an associate at Fulbright & Jaworski LLP (now known as Norton Rose Fulbright) and Mayer Brown & Platt, LLP (now known as Mayer Brown LLP). Ms. O’Hara has a J.D. from New York University School of Law and a B.A. in Economics, magna cum laude, from the University of New Mexico.
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Stephen W. McCahon: Dr. Stephen McCahon has served as the company’s Chief Science Officer since May 1, 2023. From May 2019 until May 2023, he served, pursuant to a Consulting Agreement, as Chief Scientist, providing input into the strategic direction of the Company and assistance in building relationships in the defense markets He was an original founder of the company and returned to the company to serve as our Chief Scientist. Dr. McCahon has been a scientific researcher, technology developer, and entrepreneur for over 30 years. He has co-authored more than 50 scientific publications and has more than 30 patents issued, patents pending, or invention disclosures in preparation for patent submission. . He was a Member of the Research Staff in the Optical Physics Department at the Hughes Research Laboratory in Malibu, California from 1986 to 1996 performing basic research in the area of optical physics and non-linear optical materials. In 1996, Dr. McCahon moved to Raytheon (Hughes) Missile Systems Co, in Tucson, AZ during which time he was significantly responsible for the successful creation and development of the Directed Energy Weapons Product Line and served as its Chief Scientist. He left Raytheon in 2002 to co-found Applied Energetics Inc. in Tucson, AZ to develop Directed Energy Weapons for the DoW including very high energy and average power ultrashort pulse (USP) laser sources and Laser Guided Energy (LGE®) technologies. In April 2010, he left Applied Energetics to form Applied Optical Sciences where he developed technologies related to the application of optical physics to a broad range of areas, including photonics and USP laser development. From February 2016 through May 2019, he served as a consultant to the Company. In 2019, Applied Energetics purchased substantially all of the assets of Applied Optical Sciences, integrating it into Applied Energetics, and retained him as Chief Scientist through the above-mentioned Consulting Agreement. He served as Chief Scientist under this Consulting Agreement until the board appointed him Chief Science Officer on May 1, 2023. Dr. McCahon is a graduate of the University of Southern California (BSEE, MSEE) and holds a Ph.D., Photonics, Inter-disciplinary Physics and Electrical Engineering, from the University of Iowa.
David Spence: Dr. Spence has served as the company’s Chief Product Officer (“CPO”) since November2025. Prior to joining the company, he was with Spectra Physics, a subsidiary of MKS Instruments in Newport, CA, as a Senior Scientist from 1996 until 2010 and then as Advanced R&D Manager and Senior Engineering Manager, Advanced Technology Development Group for MKS Instruments. In that capacity, he directed cross-functional teams developing next-generation ultrashort pulse laser systems, nonlinear optical solutions, and diode-pumped solid-state amplifiers. Dr. Spence has more than 25 years of experience in the conception, design, and commercialization of advanced laser technologies across industrial, scientific, and defense markets.
Dr. Spence is also an Optica Fellow, holds over a dozen issued patents, and has authored numerous scientific publications. Dr. Spence holds a Ph.D. in Laser Physics from the University of St. Andrews in Scotland and a B.Sc. in Physics with First Class Honors from the University of Stirling.
John E. Schultz Jr.: Mr. Schultz has had a long affiliation with Wall Street, having founded CSG Spectra, Inc., a risk analytics firm, in 1984. He also founded Oak Tree Asset Management Ltd. in 2000, where he actively trades securities in managed LLC’s. Mr. Schultz’s strong networks have emphasized outside-the-box investment opportunities and early-stage new frontier private equity investment deals. Mr. Schultz has an intimate knowledge of Applied Energetics, including its history and financials and has in the past served as a consultant to the company. Additionally, Mr. Schultz helped drive the initial recapitalization efforts of Applied Energetics in 2018. He was part of the team that led the 2018 proxy of Applied Energetics, establishing a new company board and management team and recapitalizing the Company to pursue the development of its technology and IP portfolio. Mr. Schultz is a graduate of California State University at Long Beach.
Michael J. Alber: Mr. Alber has an extensive career spanning over 35 years in corporate finance, capital markets, treasury, risk allocation and mergers and acquisition experience. From April 2021 until September 2023, he was the Chief Financial Officer and Founder of First Light Acquisition Group (NYSE: FLAG), a special purpose acquisition company. From December 2020 to April 2023, he served as an Independent Director on the SSA (Special Security Agreement) of AceInfo Tech (subsidiary of Dovel Technologies) and, since October 2022, has served on the advisory board of Sincerus Global Solutions. From June 2016, he was the Chief Financial Officer and Executive Vice President of KeyW (NASDAQ: KEYW), until its sale to Jacobs (NYSE: J) in June 2019. During this period, he led several capital market transactions along with two strategically important M&A transactions, one that resulted in a record setting sale multiple and change in control. Mr. Alber served as a Principal with Growth Strategy Leaders, a business and financial consulting firm (specializing in M&A and due diligence support), from April 2015 to May 2016, and as Chief Financial Officer and SVP at Engility Corporation (NYSE: EGL) a $2.5 billion technology services and solutions provider to both U.S. Government and International customers from May 2012 to March 2015. During this period, he supported the company’s spin-out from L3 Technologies as a stand-alone publicly traded company. Prior to Engility, Mr. Alber held the position of Chief Financial Officer and Treasurer at Alion Science and Technology from 2007 to 2012. He has also held senior executive positions at SAIC (NYSE: SAIC) for 18 years, where he served as a Senior Vice President and Group CFO, and prior to that was Director of Finance at Network Solutions, Inc. He has served on the board of directors of Sincerus Global Solutions, a private company, since October 2022. Mr. Alber received his Bachelor of Science degree from George Mason University in Business Administration with a concentration in finance and subsequently completed an Advanced Management Program (AMP) at Georgetown University’s McDonough School of Business.
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A. Scott Andrews: Mr. Andrews is a proven leader and accomplished executive with a history of success across a wide range of industries, including manufacturing, transportation, financial services, entrepreneurship, and higher education. Since 2022, he has served as Chair-Board of Trustees of The Virginia Retirement System (VRS), an independent state agency and the 14th largest public or private pension fund in the U.S. Since 2019, he has served as Chairman and CEO of Northern Contours, Inc., a leading manufacturer of alternative cabinet and furniture components using advanced engineering, He has also served on its Board of Directors since 2006. He has been a Co-Founder and Partner in Harvest Equity Investments, LLC. He was President & Chief Executive Officer of Grantham University in 2017 and 2018. Mr. Andrews has served on the Board of Directors of Journey Health since 2024 and has previously been on the boards of World Air Holdings, Inc.(NASDAQ: WLDA), serving as Chairman of the Audit Committee and the Special Committee on Strategic Alternatives, and of Grantham Education Corporation, where he was also Chairman of the Audit Committee and a member of the Special Committee on Strategic Alternatives, in addition to serving as its President and CEO. Mr. Andrews received his BA in Economics, cum laude, from the University of Virginia and is a Fellows Program Graduate of the Halftime Institute.
Directors Qualifications, Experience and Skills
Our directors bring to our board a wealth of executive leadership experience and technical knowledge derived from their service as senior executives, founders of industry and legal or financial professionals. Our board members have demonstrated strong business acumen and an ability to exercise sound judgment, and each of them has a reputation for integrity, honesty and adherence to ethical standards. When considering whether each director or director nominee has the experience, qualifications, attributes, and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the other board members focus primarily on the information discussed in each of the directors’ individual biographies set forth above and the specific individual qualifications, experience and skills as described below:
| ● | Mr. Adamczyk’s qualifications as a director include his expertise in corporate finance, capital markets, strategy and building high performing teams to execute the Company’s business strategy. Mr. Adamczyk was part of the team that led the 2018 proxy of Applied Energetics, establishing a new company board and management team and recapitalizing the Company to pursue the development of its technology and IP portfolio. He, along with the others in this group, continues his work to establish a foundation of good corporate governance and transparency, and focus the Company’s efforts in driving growth and stockholder value. |
| ● | Mr. Donaghey’s qualifications as a director include his many years of experience in finance and operations, particularly in the defense sector, a bachelors degree in mechanical engineering, and completion of the Advanced Management Program at Harvard University in 2021.. He has spent many years working in finance as well as mergers and acquisitions for defense contractors and is also a veteran of the United States Navy. |
| ● | Dr. Quarles’s qualifications as a director include his experience as director and senior executive in the laser industry with primary focus on the defense and aerospace sector. |
| ● | Mr. Schultz’s qualifications as a director include his expertise in the equity investment industry. He has been an investor in and advisor to Applied Energetics since its public inception in 2004 and has an intimate knowledge of the Company’s background, including its history and financials. Mr. Schultz and his entity Oak Tree Asset Management were part of the team that led the 2018 proxy, establishing a new company board and management team and recapitalizing the Company to pursue the development of its technology and IP portfolio. He, along with the others in this group, continues his work to establish a foundation of good corporate governance and transparency. |
| ● | Ms. O’Hara’s qualifications as a director include her many years of experience in securities, corporate and commercial law and the business and financial knowledge she has acquired over those years as well. She has also acquired specific knowledge and experience in the various other areas of law and business that affect the Company on a daily basis. |
| ● | Mr. Alber’s qualifications as a director include over 30 years of experience serving in executive leadership positions within both public and private companies, possessing a strong balance of strategic thinking, business acumen and operational skills. He has served as a finance executive, with particular experience with publicly listed government contractors where he has navigated challenging situations and handled many of the issues that typically face growing companies in this space. He also has experience with stock exchange listings and knows the relevant processes, criteria, and requirements as well as extensive experience with capital restructuring transactions, including initial public offering (IPO), multiple debt/equity offerings, new credit facilities, and equity buy-back programs. He has led multiple strategic acquisitions, divestitures and reorganizations to drive growth, diversification, and shareholder value. |
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| ● | Mr. Andrews’s qualifications as a director include many years of leadership in a wide range of industries, including manufacturing, transportation, financial services, entrepreneurship, and higher education including both executive and board positions with public and private companies. He has also served on the audit committees of two companies, which gives him particular insights as we work toward implementing a committee structure. He also brings to the board a great deal of experience as a private investor. |
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires certain officers and directors of Applied Energetics, and any persons who own more than ten percent of the common stock outstanding to file forms reporting their initial beneficial ownership of shares and subsequent changes in that ownership with the SEC. Officers and directors of Applied Energetics, and greater than ten percent beneficial owners are also required to furnish us with copies of all such Section 16(a) forms they file. Based on a review of these filings, two initial reports on Form 3 for the company’s CPO and Mr. Andrews, a director, and two reports on Form 4 for the company’s President and CEO and CSO reporting a change in beneficial ownership were filed after their respective deadlines. The company does not believe any other officers or directors failed to timely file any required forms under Section 16(a) during the year ended December 31, 2025.
Code of Ethics
Applied Energetics has adopted a Code of Business Conduct and Ethics that applies to all of Applied Energetics’ employees and directors, including its Chief Executive Officer and Chief Financial Officer (and principal accounting officer). Applied Energetics’ Code of Business Conduct and Ethics covers all areas of professional conduct including, but not limited to, conflicts of interest, disclosure obligations, insider trading, confidential information, as well as compliance with all laws, rules and regulations applicable to Applied Energetics’ business.
Our Code of Ethics and Business Conduct is available upon request made to us in writing at the following address, and will be provided without charge:
Applied Energetics, Inc.
Attention: Chief Legal Officer
9070 S. Rita Road, Suite 1500
Tucson, AZ 85747
Committees of the Board of Directors
As a Smaller Reporting Company listed on the OTCQB, Applied Energetics is not required to have established committees of its Board of Directors. However, On November 18, 2025, the company submitted an application to The Nasdaq Stock Market LLC to list our common stock on the Nasdaq Capital Market. If the company’s common stock is listed on the Nasdaq Capital Market, it will then be subject to certain governance requirements, including that it have an audit committee, a compensation committee, and a nominating and governance committee in addition to a majority of independent directors on the board and all independent directors on these committees. In lieu of a nominating and governance committee, directors may be nominated by a majority of the independent directors.
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Both to continue enhancing the company’s corporate governance and in anticipation of a possible uplisting to the Nasdaq Capital Market, during the fourth quarter of 2025, our Board established an Audit Committee and a Compensation Committee.
Audit Committee
Michael Alber, Bradford Adamczyk and A. Scott Andrews are members of the Audit Committee and Michael Alber serves as Chairman. Michael Alber and A. Scott Andrews are independent. If we uplist to the Nasdaq Capital Market, we intend to have an Audit Committee that will comply with the rules of the SEC and listing standards of the Nasdaq Capital Market. The committee operates under a charter that was approved by our board of directors. The primary purposes of our Audit Committee are to assist the board’s oversight of:
| ● | the integrity of our financial statements; | |
| ● | our compliance with legal and regulatory requirements; | |
| ● | the qualifications, engagement, compensation, independence and performance of our independent registered public accounting firm; | |
| ● | our process relating to risk management and the conduct and systems of internal control over financial reporting and disclosure controls and procedures; and | |
| ● | the performance of our internal audit function. |
Compensation Committee
Michael Alber, Bradford Adamczyk and A. Scott Andrews are members of the Compensation Committee and A. Scott Andrews serves as Chairman. Michael Alber and A. Scott Andrews are independent. If we uplist to the Nasdaq Capital Market, we intend to have a Compensation Committee that will comply with the rules of the SEC and listing standards of the Nasdaq Capital Market. The committee operates under a charter that was approved by our board of directors. The primary purposes of our Compensation Committee are to assist the board’s oversight of:
| ● | determining and approving the compensation of our executive officers; and | |
| ● | reviewing and approving incentive compensation and equity compensation policies and programs. |
The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the Nasdaq, if applicable, and the SEC.
In the future, our Board may establish other committees, as it deems appropriate, to assist it with its responsibilities and in accordance with any market or regulatory requirements.
Each of our standing committees has a written charter which is available on the Investor Relations page of our website at www.appliedenergetics.com.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table discloses the compensation for the persons who served in the positions indicated for the years ended December 31, 2025 and 2024. Mr. Donaghey served as our Chief Operating and Financial Officer from July 2022 until becoming President and CEO (and Principal Financial Officer) in November 2024. Dr. Quarles served as our Chief Executive Officer from May 6, 2019 and President since January 2022 through November 2024 when he became CEO Emeritus. Dr. McCahon has served as Chief Science Officer since May 2023.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation(1) | Total | |||||||||||||||||||
| Christopher Donaghey, | 2025 | $ | 400,000 | $ | - | $ | - | $ | - | $ | - | $ | 400,000 | |||||||||||||
| President and Chief Executive Officer (1) | 2024 | $ | 354,167 | (1) | $ | - | $ | - | $ | 656,582 | $ | - | $ | 1,010,749 | ||||||||||||
| Gregory J Quarles, | 2025 | $ | 350,000 | $ | - | $ | - | $ | - | $ | - | $ | 350,000 | |||||||||||||
| CEO Emeritus and Government and Institutional Relations Executive | 2024 | $ | 400,000 | $ | - | $ | - | $ | - | $ | - | $ | 400,000 | |||||||||||||
| Stephen McCahon, | 2025 | $ | 350,000 | $ | - | $ | - | $ | - | $ | - | $ | 350,000 | |||||||||||||
| Chief Science Officer | 2024 | $ | 325,000 | $ | - | $ | - | $ | - | $ | - | $ | 325,000 | |||||||||||||
| (1) | Mr. Donaghey’s 2024 salary is based on an annual amount of $350,000 for the first 11 months of 2024, serving as Chief Operating and Financial Officer, and of $400,000 for the last one month of 2024 as President and Chief Executive Officer. During the last month of 2024 and for all of 2025, Mr. Donaghey served as President and CEO and as the company’s Principal Accounting Officer. Effective January 28, 2026, the company appointed Warren J. Spector as Chief Financial Officer. |
Director Compensation
The following table discloses our director compensation for the years ended December 31, 2025 and 2024:
| Name | Year | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) (1) | All Other Compensation ($) | Total | ||||||||||||||||
| Bradford T. Adamczyk, | 2025 | $ | 250,000 | (1) | $ | - | $ | - | $ | - | $ | 250,000 | ||||||||||
| Executive Chairman | 2024 | $ | 215,000 | $ | - | $ | - | $ | - | $ | 215,000 | |||||||||||
| Michael J. Alber | 2025 | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| 2024 | $ | - | $ | - | $ | 419,028 | $ | - | $ | 419,028 | ||||||||||||
| John E. Schultz, Jr. | 2025 | $ | 101,667 | $ | - | $ | - | $ | - | $ | 101,667 | |||||||||||
| 2024 | $ | 90,000 | $ | - | $ | - | $ | - | $ | 90,000 | ||||||||||||
| A. Scott Andrews | 2025 | $ | - | $ | $ | 629,236 | $ | - | $ | 629,236 | ||||||||||||
| 2024 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| (1) | Mr. Adamczyk’s 2025 director compensation is based on an annual amount of $215,000 for the first five months of 2025 and of $275,000 for the last seven months of 2025. |
| (2) | Mr. Schultz’s 2025 director compensation is based on an annual amount of $90,000 for the first five months of 2025 and of $110,000 for the last seven months of 2025. |
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Board Considerations in Determining Salaries
Our executive compensation program is designed to attract, retain, and incentivize talented executives with a dedication to achieving our scientific, financial, and strategic objectives. Our 2025 compensation program consisted primarily of base salary as we awarded certain officers time-vesting equity during prior years. Mr. Donaghey received additional options and an increase in salary, in 2024, as consideration for his acceptance of the position of President and Chief Executive Officer. Compensation of our named executive officers is primarily determined by compensation levels in the market for their services, among large- and small-cap defense and technology companies. The Board considers recommendations from various outside consultants and other informed sources in making compensation decisions. Aligning executive compensation with stockholder interests is a key consideration for our compensation program. As we continue to grow, we anticipate developing and evolving our compensation program around specific objectives and key responsibilities with metrics and compensation targets.
Equity Grant Policies
Pursuant to our compensation programs, we may grant awards and stock options to certain employees from time to time. We have not adopted a formal policy regarding the timing of equity award grants, including stock option grants. However, our compensation committee generally approves equity award grants during its regularly scheduled meetings. While the compensation committee has discretionary authority to grant equity awards outside of this cycle, the compensation committee does not grant equity awards in anticipation of the release of material nonpublic information, nor is the timing of disclosures of material nonpublic information based on planned equity grant dates.
Employment Agreements for Named Executive Officers
Effective November 25, 2024, we entered into an Executive Employment Agreement with Christopher Donaghey setting forth the terms of his service as President and Chief Executive Officer. The agreement is for a term of three years and is renewable thereafter for sequential one-year periods. The agreement may be terminated by the company for “Cause” or by Mr. Donaghey for “Good reason” both of which terms are defined in the agreement. The agreement may also be terminated, without Cause or Good Reason, by either party upon sixty days’ written notice to the other.
The agreement calls for (i) a cash salary of $400,000 per annum, payable monthly, and eligibility for a discretionary bonus within 60 days of the end of each year, and (ii) incentive stock options to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.78 per share under the company’s 2018 Incentive Stock Plan. These options vest in installments based upon achievement by the company of target amounts of “gross revenue” (as defined under US GAAP) during any one fiscal-year period (each, an “Annual Revenue Target”) as follows: with respect to 170,000 shares, upon achievement of an Annual Revenue Target of $10 million; with respect to an additional 330,000 shares, upon achievement of an Annual Revenue Target of $25 million; and with respect to the remaining 500,000 shares, upon achievement of an Annual Revenue Target of $50 million. The installments shall be cumulative. (I.e., the options may be exercised, as to any or all shares covered by an installment, at any time or times after an installment becomes exercisable and until expiration or termination of the options, and achievement of more than one Annual Revenue Target in any one fiscal-year period will cause the options to vest as to shares covered by both such installment amounts.).
In the event of a termination of the agreement by Mr. Donaghey with Good Reason, or by us without cause, we must pay him any unpaid base compensation due as of the termination date as well as any pro rata unpaid bonus and any unpaid expenses plus additional severance of 90 days’ base salary.
As of April 18, 2019, we entered into an Executive Employment Agreement with Dr. Gregory J. Quarles setting forth the terms of his service as Chief Executive Officer. The agreement called for (i) a cash salary of $250,000 per annum, payable monthly, and eligibility for a discretionary bonus within 60 days of the end of each year, and (ii) options to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.35 per share. These options were issued pursuant to a grant agreement, dated as of April 18, 2019, and vest immediately with respect to 500,000 shares and in semi-annual installments with respect to the remaining 4,500,000 shares. The agreement also provided for Quarles to retain 2,000,000 options previously granted to him under a Consultant Stock Option Agreement in 2017, for his services on the Scientific Advisory Board, which are subject to vesting based on achievement of performance milestones. Dr. Quarles forfeited options to purchase an additional 1,500,000 shares under another prior option agreement. Dr. Quarles also received health and life insurance and other standard benefits under the agreement and reimbursement of certain out-of-pocket expenses. This agreement was amended December 15, 2020, increasing Dr. Quarles’ salary to $300,000 per year effective January 1, 2021, on November 30, 2021, increasing his salary to $350,000 per year effective January 1, 2022, and again, on November 29, 2022, increasing his salary to $400,000 per year effective November 1, 2022.
Effective November 25, 2024, the Board of Directors accepted the resignation of Dr. Quarles as President and Chief Executive Officer and entered into an Employment and Transition Agreement with Dr. Quarles pursuant to which he serves as CEO Emeritus. This agreement has an initial term of one year and may be extended by mutual agreement for an additional year. Under this agreement, he is to receive a salary at a monthly rate of $33,333 until March 1, 2025 and $29,167 thereafter, subject to certain performance criteria.
As of May 1, 2023, we entered into an Executive Employment Agreement with Dr. Stephen W. McCahon setting forth the terms of his service as Chief Science Officer. The agreement is for an initial term through December 31, 2025, and is renewable thereafter for sequential one-year periods unless terminated by either party. The agreement may be terminated by the company for “cause” or by McCahon for “Good Reason” both of which terms are defined in the agreement.
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The agreement calls for a cash salary of $300,000 annualized for 2023, $325,000 for 2024 and $350,000 for 2025, plus standard benefits. The agreement also requires the company to reimburse certain out-of-pocket expenses. In the event that we terminate the agreement for cause or he terminates without Good Reason, he will receive base compensation and expense reimbursement through the date of termination but will forfeit any unvested equity compensation.
Prior to entering into his Executive Employment Agreement described above, Dr. McCahon served as our Chief Scientist, pursuant to a Consulting Agreement, dated as of May 24, 2019 (the “SWM Consulting Agreement”), by and between the company and SWM Consulting LLC, of which he is the principal. The SMW Consulting Agreement provided for a combination of cash and equity compensation. The SWM Consulting Agreement provided for cash compensation of $180,000 for the first year and $250,000 during each of the second and third years of the term. Under the SWM Consulting Agreement, the company also repurchased 5,000,000 shares if its common stock, issued to Dr. McCahon in 2016 under a prior Consulting Agreement, at a price of $0.06 per share based on the company share price at the time of the SWM Consulting Agreement. 5,000,000 of an additional 15,000,000 shares held by Dr. McCahon are subject to a lock-up and released pro rata each month during the term of the agreement which may be accelerated in the event of termination other than for cause or a change in control. Effective May 23, 2022, the company and Dr. McCahon agreed to an extension of the SWM Consulting Agreement upon the same general terms and conditions. On January 17, 2023, the company amended the SWM Consulting Agreement. The amendment was effective as of January 1, 2023, provided for an extended term of three years, commencing on that date, and increased compensation under the agreement to $300,000, $325,000 and $350,000 per year for the first, second and third years of the extended term, respectively. The Consulting Agreement terminated upon execution of Dr. McCahon’s Executive Employment Agreement described above. Thus Dr. McCahon’s current compensation under his Executive Employment Agreement is commensurate with what he was to receive under the SMW Consulting Agreement.
Dr. McCahon is a significant stockholder of the company. See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Outstanding Equity Awards at Fiscal Year-End
The following table discloses unexercised options held by the named executives at December 31, 2025:
| Option Awards | ||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | ||||||||||||
| Gregory J. Quarles(2) | 4,850,000 | - | $ | 0.35 | 4/18/2029 | |||||||||||
| Christopher Donaghey(1) | 150,000 | - | $ | 0.35 | 04/29/2029 | |||||||||||
| 200,000 | - | $ | 0.61 | 05/21/2031 | ||||||||||||
| 750,000 | 250,000 | $ | 2.36 | 07/13/2032 | ||||||||||||
| 37,500 | 12,500 | $ | 2.30 | 10/20/2032 | ||||||||||||
| 1,000,000 | $ | 0.78 | 11/26/2034 | |||||||||||||
| Stephen W. McCahon | - | - | - | - | ||||||||||||
| (1) | Mr. Donaghey also holds Restricted Stock Units covering 100,000 shares of the company’s common stock which are subject to time vesting. |
| (2) | Dr. Quarles also holds Restricted Stock Units covering 1,954,545 shares of the company’s common stock which are subject to time and milestone vesting and terminate in November 2032. |
Payments upon Termination or Change-In-Control
There are no termination or change in control agreements in place that would require payments
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Compensation Committee Interlocks and Insider Participation:
During the fiscal year ended December 31, 2025, none of our executive officers served on the Board of Directors or the Compensation Committee of any other company whose executive officers also serve on our Board of Directors or our Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our Common Stock, based on information provided by the persons named below in publicly available filings, as of March 25, 2026:
| ● | each of our directors and executive officers; |
| ● | all directors and executive officers of ours as a group; and |
| ● | each person who is known by us to beneficially own more than five percent of the outstanding shares of our Common Stock |
Unless otherwise indicated, the address of each beneficial owner is in care of Applied Energetics, Inc., 9070 S Rita Road, Suite 1500, Tucson, Arizona 85747. Unless otherwise indicated, the company believes that all persons named in the following table have sole voting and investment power with respect to all shares of common stock that they beneficially own.
For purposes of this table, a person is deemed to be the beneficial owner of the securities if that person has the right to acquire such securities within 60 days of March 25, 2026, upon the exercise of options or warrants. In determining the percentage ownership of the persons in the table below, we assumed in each case that the person exercised all options which are currently held by that person and which are exercisable within such 60-day period, but that options and warrants held by all other persons were not exercised, and based the percentage ownership on 223,836,331 shares outstanding on March 27, 2026.
| Name of Beneficial Owner | Number
of Shares Beneficially Owned(1) |
Percentage
of Shares Beneficially Owned(1) |
||||||
| Bradford T. Adamczyk | 7,055,081 | (2) | 3.1 | % | ||||
| Christopher Donaghey | 2,233,592 | (3) | 1.0 | % | ||||
| Gregory J. Quarles | 6,797,945 | (4) | 2.9 | % | ||||
| Stephen W. McCahon | 14,357,861 | (5) | 6.4 | % | ||||
| Mary P. O’Hara | 1,500,000 | (6) | * | |||||
| Warren J. Spector | 75,000 | (7) | * | |||||
| David E. Spence | 0 | (8) | * | |||||
| John E. Schultz Jr. | 4,320,000 | (9) | 1.9 | % | ||||
| Michael J. Alber | 175,000 | (10) | * | |||||
| A. Scott Andrews | 1,298,775 | (11) | * | |||||
| Kevin T. McFadden | 12,100,000 | (12) | 5.4 | % | ||||
| All directors and executive officers as a group (10 persons) | 37,813,254 | 16.3 | % | |||||
| * | Less than one percent. |
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| (1) | Computed based upon the total number of shares of common stock, restricted shares of common stock and shares of common stock underlying options or warrants held by that person that are exercisable within 60 days of the Record Date. |
| (2) | Based on information contained in a Form 4, filed with the SEC on January 9, 2026. Includes 1,563,599 shares held by Moriah Stone Global L.P., which is controlled by Mr. Adamczyk. Also includes 4,820,000 shares underlying options, 3,500,000 of which are held in the name of the Adamczyk Family 2021 LLC. |
| (3) | Based on information contained in a Form 4, filed with the SEC on January 28, 2026. Includes options to purchase 1,000,000 shares of common stock which are subject to vesting upon the occurrence of certain milestones. Does not include options to purchase an additional 250,000 shares of common stock and Restricted Stock Units covering 100,000 shares of common stock, all of which are subject to timed vesting. |
| (4) | Based on information contained in Form 4, filed with the SEC on July 22, 2025. Includes options to purchase up to 4,843,000 shares of common stock, which are fully vested, and Restricted Stock Units covering 1,954,545 shares of common stock, which are subject to vesting upon the occurrence of certain milestones. |
| (5) | Based on information contained in a Form 4 filed with the SEC on August 5, 2024. Includes 1,435,000 shares underlying warrants. |
| (6) | Based on information contained in a Form 4, filed with the SEC on May 22, 2025. All such shares underlie options, 500,000 of which are subject to vesting upon the occurrence of certain milestones. |
| (7) | Does not include 500,000 shares underlying options all of which are subject to timed vesting. |
| (8) | Does not include 500,000 shares underlying options all of which are subject to timed vesting. |
| (9) | Based on information contained in a Form 4 filed with the SEC on May 30, 2023. Includes 500,000 shares held by Oak Tree Asset Management Ltd., which is controlled by Mr. Schultz, and 720,000 shares held by Mary Schultz, Mr. Schultz’s wife, in her IRA. Also includes 2,500,000 shares underlying options. 500,000 of Mr. Schultz’s shares are held in an IRA. |
| (10) | Does not include 75,000 shares underlying options all of which are subject to timed vesting. |
| (11) | Does not include 250,000 shares underlying options all of which are subject to timed vesting. |
| (12) | Based on contained in Mr. McFadden’s Schedule 13G, filed with the SEC on September 29, 2020. Includes a warrant to purchase 125,000 shares of common stock. Mr. McFadden’s address is 21 Tow Path Lane South, Richmond, VA 23221. |
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table details information regarding our then-existing equity compensation plans as of December 31, 2025:
Equity Compensation Plan Information
| Plan Category | Number of securities to be issued upon exercise of outstanding options and rights | Weighted- average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| Equity compensation plans approved by security holders | 36,428,684 | $ | 0.64 | 13,571,316 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 36,428,684 | $ | 0.64 | 13,571,316 | ||||||||
Effective November 12, 2018, the board of directors adopted the 2018 Incentive Stock Plan. On October 30, 2019, the stockholders voted to approve and adopt the plan. The plan provides for the allocation and issuance of stock, restricted stock purchase offers and options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants of the company. The board reserved a total of 50,000,000 for possible issuance under the plan.
Effective July 25, 2025, the board of directors has adopted the 2025 Equity Incentive Plan. On September 15, 2025, the stockholders voted to approve and adopt the plan. The plan provides for the allocation and issuance of stock, restricted stock purchase offers and options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants of the company. The board reserved a total of 35,000,000, plus the number of shares available for grant under the 2018 Incentive Stock Plan, for possible issuance under the plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with Related Parties
Except as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since the year ended December 31, 2025.
Contractual Relationships with Related Parties
On February 20, 2025, Applied Energetics made a $25,000 contribution to Silicon Valley Defense Group (“SVDG”), a 501(c)(3) non-profit organization, where CEO Christopher Donaghey serves as an Executive Chairman of the Board of Directors. As its objective, SVDG “seeks to align and connect the people, capital, and ideas that will ensure allied democracies retain a durable techno-security advantage.”
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Review, Approval or Ratification of Transactions with Related Persons
Pursuant to company policy, all officers and directors of the company who have, or whose immediate family members have, any direct or indirect financial or other participation in any business that supplies goods or services to Applied Energetics, are required to notify our Board of Directors, who will review the proposed transaction and take such action as it sees fit, including, if necessary, formal approval by the Board.
Director Independence
Based on information provided by each of our directors concerning his or her background, employment and affiliations, our board of directors has determined that each of John Schultz, Michael Alber and A. Scott Andrews are considered independent in accordance with the standards set forth in the listing criteria for the Nasdaq Capital Market. We have applied this standard as we have applied for listing of the company’s common stock on the Nasdaq Capital Market although our common stock is currently listed on the OTCQB which does not impose any such requirement. In making this determination, our board of directors considered the relationships that each such director has with the Company and all other facts and circumstances that our board of directors deemed relevant in determining their independence.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES:
The following is a summary of the fees billed to the company by its independent registered Public Accounting firm for the years ended December 31, 2025 and December 31, 2024.
| 2025 | 2024 | |||||||
| Audit fees | $ | 70,500 | $ | 68,500 | ||||
| Audit related fees | - | - | ||||||
| All other fees | - | 7,000 | ||||||
| Tax fees | 7,500 | 7,000 | ||||||
| $ | 78,000 | $ | 82,500 | |||||
Fees for audit services include fees associated with the annual audit of the company and its subsidiaries, the review of our quarterly reports on Form 10-Q. Tax fees include tax compliance, tax advice, research and development credits and tax planning related to federal and state tax matters.
Pre-Approval Policies and Procedures
Consistent with the SEC requirements regarding auditor independence, our Board of Directors must pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. Under the policy, the Board must approve non-audit services prior to the commencement of the specified service. Our independent registered public accounting firm, RBSM LLP, have verified to our Board that they have not performed, and will not perform any prohibited non-audit service.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The following documents are filed or incorporated by reference as part of this report:
(a) (1) The Consolidated Financial Statements of Applied Energetics, Inc. are filed as part of this report on page F-1 following the signatures.
Exhibits:
| EXHIBIT NUMBER | DESCRIPTION | |
| 2.1 | Amended and Restated Plan and Agreement of Merger entered into as of March 17, 2004, by and among U.S. Home & Garden, Inc. (“USHG”), Ionatron Acquisition Corp., a wholly-owned subsidiary of USHG, Robert Kassel (for purposes of Sections 5.9, 6.2(d), 6.2(j), 9.4 and 10.10 only), Fred Heiden (for purposes of Section 9.4 only), and Ionatron, Inc. and Robert Howard, Stephen W. McCahon, Thomas C. Dearmin and Joseph C. Hayden (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on March 24, 2004). | |
| 3.1 | Certificate of Incorporation, as amended, (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-KSB for the fiscal year ended June 30, 1995). | |
| 3.2 | Certificate of Amendment of Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on April 29, 2004 (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-Q for the quarterly period ended March 31, 2004). | |
| 3.3 | Certificate of Elimination of the 10% Series A Convertible Preferred Stock of the Registrant (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on October 28, 2005). | |
| 3.4 | Certificate of Designation of the 6.5% Series A Redeemable Convertible Preferred Stock of the Registrant (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on October 28, 2005). | |
| 3.5 | Certificate of Ownership and Merger of Applied Energetics, Inc. into Ionatron, Inc. (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on February 20, 2008). | |
| 3.6 | Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2007. | |
| 3.7 | Certificate of Amendment to Certificate of Incorporation filed with the Secretary of State of the State of Delaware on September 10, 2007.(incorporated by reference to Exhibit 3.7 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-231885) | |
| 4.1 | Form of certificate evidencing Common Stock, $.001 par value, of the Registrant (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (Registration No. 333-38483). | |
| 4.2 | Description of Registrant’s Securities (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the year ended December 31, 2022) | |
| 10.1 | 2018 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-K for the year ended December 31, 2018). | |
| 10.2 | Consulting and Advisory Services Agreement, effective as of February 15, 2019, by and between the Registrant and WCC Ventures, LLC (incorporated by reference to Exhibit 99 to the Registrant’s Form 8-K filed with the SEC on February 22, 2019). | |
| 10.3 | Executive Employment Agreement, dated as of November 25, 2024, by and between Registrant and Christopher Donaghey (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on December 2, 2024). | |
| 10.4 | Executive Employment Agreement, dated as of May 1, 2023, by and between the Registrant and Stephen W. McCahon (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Form 8-K filed with the SEC on May 5, 2023). | |
| 10.5 | Master Services Agreement, effective as of July 16, 2018, by and between the Registrant and Westpark Advisors, LLC (incorporated by reference to Exhibit 99 to the Registrant’s Form 8-K filed with the SEC on July 7, 2018), as amended by the First Amendment to Master Services Agreement, dated as of April 21, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on April 27, 2021) and further amended by the Second Amendment to Master Services Agreement, dated January 17, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on January 25, 2023). |
41
| 10.6 | Executive Employment Agreement, dated as of January 1, 2022, by and between the Registrant and Mary P. O’Hara (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the year ended December 31, 2022). | |
| 10.7 | Lease Agreement, by and between the Registrant and Campus Research Corporation (incorporated by reference to Exhibit 10.1 in the Registrant’s Form 8-K filed with the SEC on March 17, 2021. | |
| 10.8 | 2025 Equity Incentive Plan (incorporated by reference to Appendix A to the Proxy Statement in Schedule 14A filed with the SEC on August 1, 2025) | |
| 10.9 | Employment and Transition Agreement, dated as of November 25, 2024, by and between the Registrant and Dr. Gregory Quarles (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the SEC on December 2, 2024). | |
| 10.10 | Executive Employment Agreement, dated as of October 3, 2025, by and between the Registrant and Dr. David Spence (incorporated by reference to Exhibit 99.2 to the Registrant’s Form 8-K filed with the SEC on October 8, 2025) | |
| 10.11 | Executive Employment Agreement, dated as of January 28, 2026, by and between the Registrant and Warren Spector (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed with the SEC on February 3, 2026). | |
| 19 | Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 26, 2024) | |
| 21 | Subsidiaries (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the year ended December 31, 2006). | |
| 23.1 | Consent of RBSM LLP | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 97 | Clawback Policy | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
ITEM 16. FORM 10-K SUMMARY
None.
42
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of March 2026.
| APPLIED ENERGETICS, INC. | ||
| By: | /s/ Christopher Donaghey | |
| President and | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act, this report has been signed below on the 30th day of March 2026 by the following persons on behalf of the registrant and in the capacities indicated:
| Signature and Name | Title | |
| /s/ Bradford T. Adamczyk | Director, Executive Chairman | |
| Bradford T. Adamczyk | ||
| /s/ Christopher Donaghey | Director, President and Chief Executive Officer | |
| Christopher Donaghey | ||
| /s/ Warren Spector | Chief Financial Officer | |
| Warren Spector | ||
| /s/ Gregory J. Quarles | Director, CEO Emeritus | |
| Gregory J. Quarles | ||
| /s/ Mary P. O’Hara | Director, General Counsel, Chief Legal Officer and Secretary | |
| Mary P. O’Hara | ||
| /s/ John E. Schultz Jr. | Director | |
| John E. Schultz Jr. | ||
| /s/ Michael J. Alber | Director | |
| Michael J. Alber | ||
/s/ A. Scott Andrews |
Director | |
A. Scott Andrews |
43
APPLIED ENERGETICS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2025 and 2024
INDEX
| Page No. | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| CONSOLIDATED FINANCIAL STATEMENTS | |
| Consolidated Balance Sheets | F-3 |
| Consolidated Statements of Operations | F-4 |
| Consolidated Statements of Stockholders’ Equity | F-5 |
| Consolidated Statements of Cash Flows | F-7 |
| Notes to the Consolidated Financial Statements | F-8 |
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Applied Energetics, Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Applied Energetics, Inc. and Subsidiary (collectively, the “company”) as of December 31, 2025 and 2024 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the company at December 31, 2025, and the results of its operations and its cash flows for each of the years in the period ended period ended December 31, 2025 and 2024, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and will require additional capital to fund its current operating plan, that raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
We have served as the company’s auditor since 2016.
March 30, 2026
PCAOB ID Number
F-2
APPLIED ENERGETICS, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | - | |||||||
| Other assets | ||||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property and equipment – net | ||||||||
| Right of use asset – operating | ||||||||
| Security deposit | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable | ||||||||
| Due to related parties | - | |||||||
| Operating lease liability – current | ||||||||
| Accrued expenses | ||||||||
| Accrued dividends | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Operating lease liability - non-current | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Series A convertible preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
APPLIED ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| FOR THE YEARS ENDED DECEMBER 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| General and administrative | ||||||||
| Selling and marketing | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income/(expense) | ||||||||
| Other income | ||||||||
| Total other income/(expense) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Preferred stock dividends | ( | ) | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to common stockholders per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding – basic and diluted including prefunded warrants | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
APPLIED ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ (Deficit) | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Issuance of common stock under the market offering | - | - | ||||||||||||||||||||||||||
| Common stock issued on exercise of options | - | - | - | |||||||||||||||||||||||||
| Common stock issued on exercise of warrants | - | - | - | |||||||||||||||||||||||||
| Common stock issued for settlement of restricted stock units | - | - | ( | ) | - | |||||||||||||||||||||||
| Common stock withheld to cover income tax withholding obligations | - | - | ( | ) | ( | ) | ( | ) | - | ( | ||||||||||||||||||
| Net loss for the year ended December 31, 2024 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
APPLIED ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ (Deficit) |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2024 | $ | |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issued on exercise of options and warrants | - | - | ||||||||||||||||||||||||||
| Common stock issued for settlement of restricted stock units | - | - | ( |
) | - | - | ||||||||||||||||||||||
| Common stock withheld to cover income tax withholding obligations | - | - | ( |
) | ( |
) | ( |
) | - | ( |
) | |||||||||||||||||
| Shares issued for consulting services | - | - | ||||||||||||||||||||||||||
| Issuance of common stock under market offering | - | - | - | |||||||||||||||||||||||||
| Proceeds from issuance of prefunded warrants | - | - | - | |||||||||||||||||||||||||
| Net loss
for the year ended December 31, 2025 |
- | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
APPLIED ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| FOR THE YEARS ENDED DECEMBER 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Noncash stock-based compensation expense | ||||||||
| Amortization of ROU assets | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of prepaid assets | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid and deposits | ( | ) | ( | ) | ||||
| ROU liabilities | ( | ) | ( | ) | ||||
| Due to related parties | ( | ) | - | |||||
| Deferred revenue | - | ( | ) | |||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and compensation | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from issuance of prefunded warrants | - | |||||||
| Proceeds from the exercise of stock options and warrants | ||||||||
| Repayment on note payable | ( | ) | ( | ) | ||||
| Tax withholdings related to net share settlement of RSU’s | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | - | |||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities | ||||||||
| Insurance financing for prepaid insurance | $ | $ | ||||||
| Implementation of ASC 842 | $ | - | $ | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
APPLIED ENERGETICS,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION OF BUSINESS, GOING CONCERN AND SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Applied Energetics, Inc. and its wholly owned subsidiary North Star Power Engineering, Inc. (“North Star”) (collectively, “company,” “Applied Energetics, “we,” “our” or “us”). All intercompany balances and transactions have been eliminated.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
For the year ended
December 31, 2025, the company incurred a net loss of $
Based on the company’s current business plan, we believe our cash balance as of the date of this report, along with anticipated contract revenue, will be sufficient to meet the company’s anticipated cash requirements for the near term. However, we cannot be certain that the current business plan will be achievable. In addition, we recently received verbal notice that funding under two of the company’s contracts has been discontinued, as described under Results of Operations and Ongoing Business Activities. Although these contracts are still in effect, receipt of any additional funds under them is highly uncertain, which negatively affects our anticipated cash flows from operating activities.
The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting a significant portion of its efforts to developing additional business and raising capital, as needed, but cannot be certain that these efforts will be successful. Management’s business development efforts may not result in profitable operations. To fund its research and development and marketing efforts, the company’s management continues to explore possible financing opportunities through discussions with investment bankers and private investors. The company may not be successful in its effort to secure additional financing on terms it considers favorable. The accompanying consolidated financial statements do not include any adjustments that might result should the company be unable to continue as a going concern.
In
January and February 2025, the company raised approximately $
In
October 2025, the company raised approximately $
Additionally, international, macroeconomic events, including the military action in the Middle East, the Russian military action in Ukraine and related economic sanctions around the globe could impact the company’s ability to source necessary supplies and equipment which could materially and adversely affect our ability to continue as a going concern. These events may also impair our ability to raise capital, including as a result of increased market volatility, or decreased market liquidity, which also affects the company’s ability to continue as a going concern. Third-party financing may become unavailable on terms acceptable to the company or at all. The impact of such events on the world economy and the specific impact on the company’s financial position and results of operations are difficult to predict. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Budgeting for upcoming expenses and costs of supplies and equipment needed to perform our existing, and any future, grants or contracts requires that we estimate factors such as inflation and geo-political events that affect such expenses and costs. Although inflation generally moderated in 2024 and 2025, recent events in the Middle East could drive it back up. In addition, the cost of labor continues to increase across certain sectors of the US and global economy which may drive up our general and administrative expenses as well as the cost of personnel working directly and indirectly on our grants and contracts, particularly given the highly skilled nature of this work. Inflation has also impacted the price of supplies and materials we must purchase in order to perform grants and contracts, some of which may have been bid on based on cost structures which were submitted during periods of lower inflation. In addition, geo-political events have further limited the number of countries from which we can source certain supplies and equipment. These limitations can range from outright prohibitions to strong discouragement based on potentially sensitive information. We continually monitor these events and the markets for needed supplies in order to make the best estimates possible, both in our internal budgeting and in any bids or proposals we submit.
F-8
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
To further improve its liquidity position, the company’s management continues to explore additional equity financing through discussions with investment bankers and private investors. The company may be unsuccessful in its effort to secure additional equity financing.
Applied Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070 S. Rita Road Suite 1500, Tucson, Arizona 85747, including office and laboratory space, and our telephone number is (520) 628-7415.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. Significant estimates include revenue recognition, carrying amounts of long-lived assets, valuation assumptions for share-based payments, evaluation of debt modification accounting, effective borrowing rate determinations, analysis of fair value transferred upon debt extinguishment, legal claims and contingencies, valuation and calculation of measurements of income tax assets and liabilities.
Net Loss Attributable to Common Stockholders
Basic loss per common
share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding
for the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding,
which are considered to be dilutive common stock equivalents. Diluted net loss per common share is calculated based on the weighted average
number of common and potentially dilutive shares outstanding during the period after giving effect to dilutive common stock equivalents.
Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent.
The number of shares underlying warrants, options, restricted stock units and our Series A Convertible Preferred Stock, which were not
included in the computation of earnings per share because the effect was antidilutive, was
Fair Value of Current Assets and Liabilities
The carrying amount of accounts payable approximate fair value due to the short maturity of these instruments.
Cash and Cash Equivalents
Cash equivalents
are investments in money market funds or securities with an initial maturity of three months or less. We maintain our cash balances at
a commercial bank, and, at times, balances exceed FDIC limits. As of December 31, 2025, $
Income Taxes
Deferred tax assets
and liabilities are recognized currently for the future tax consequences attributable to the temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be
realized. Our valuation allowance is currently
F-9
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.
Revenue Recognition
The company recognizes revenue in accordance with ASC Topic 606 – Revenue from Contracts with Customers (“ASC 606”) to depict the transfer of control to the company’s customers in an amount reflecting the consideration to which the company expects to be entitled. The company determines revenue recognition through the following steps:
| i. | Identification of the contract, or contracts, with a customer |
| ii. | Identification of the performance obligations in the contract |
| iii. | Determination of the transaction price |
| iv. | Allocation of the transaction price to the performance obligations in the contract |
| v. | Recognition of revenue, when, or as, the company satisfies the performance obligations. |
The company generates revenue from its customers by performing research and analysis regarding laser systems, and submits technical reports to its customers on a periodic basis summarizing the results of its findings.
In accordance with ASC 606-10-25-14 through 25-22, the Company evaluates its contracts with customers to identify performance obligations, which may consist of one or multiple promises to transfer goods or services. Contracts are often structured to include specific tasks, milestones, or deliverables. Each task or milestone is evaluated to determine whether it represents a distinct performance obligation in accordance with ASC 606-10-25-19.
The transaction price is determined in accordance with ASC 606-10-32-2 through 32-27 and is generally fixed and specified within the customer contract. The Company’s contracts do not typically include significant variable consideration, significant financing components (ASC 606-10-32-15 through 32-20), or noncash consideration. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling prices of the underlying deliverables in accordance with ASC 606-10-32-28 through 32-41. In cases where a contract contains a single performance obligation, allocation is not required.
The Company recognizes revenue at a point in time when control of the promised deliverable is transferred to the customer in accordance with ASC 606-10-25-23. Control is generally considered to transfer upon completion of the underlying task or milestone, delivery of the related technical report or system, and customer acceptance, as applicable under the terms of the contract. We have evaluated the criteria for over-time recognition under ASC 606-10-25-27 and determined that its performance obligations do not meet the requirements for recognition over time. Accordingly, revenue is recognized at a point in time. Certain contracts include milestone or progress-based billing arrangements, such as percentages of total contract value billed upon completion of specified tasks. Revenue is recognized as each performance obligation is satisfied, which generally corresponds to the completion of each task or milestone.
We record deferred revenue when consideration is received in advance of satisfying its performance obligations in accordance with ASC 606-10-45-2. Deferred revenue is recognized as revenue when the Company fulfills the related performance obligations and control of the deliverables is transferred to the customer.
Share-Based Payments
Employee stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The fair value of each option grant is estimated at the date of grant using the Black Scholes-Merton option valuation model. We make the following assumptions relative to this model: (i) the annual dividend yield is zero as we do not pay dividends on common stock, (ii) the weighted-average expected life is based on a midpoint scenario, where the expected life is determined to be half of the time from grant to expiration, regardless of vesting, (iii) the risk free interest rate is based on the U.S. Treasury security rate for the expected life, and (iv) the volatility is based on the level of fluctuations in our historical share price for a period equal to the weighted-average expected life. We estimate forfeitures when recognizing compensation expense and adjust this estimate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change, and which impacts the amount of unamortized compensation expense to be recognized in future periods.
F-10
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Segment Information
Significant Concentrations and Risks
We maintain cash
balances at a commercial bank, and, at times, balances exceed FDIC limits. As of December 31, 2025, $
NOTE 2 – NEW ACCOUNTING STANDARDS
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s financial statement disclosures.
In March 2024, FASB issued Accounting Standards Update (“ASU”) 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. The amendments remove references to various FASB Concepts Statements from the Accounting Standards Codification to avoid unintended reliance on non-authoritative guidance. ASU 2024-02 is effective for public business entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. The adoption of this standard did not have an impact on the Company’s consolidated financial position, results of operations, or cash flows, but resulted in expanded income tax disclosures in the notes to the consolidated financial statements.
In December 2023, FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position, results of operations, or cash flows, but resulted in expanded income tax disclosures in the notes to the consolidated financial statements.
No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements.
F-11
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – OTHER ASSETS
Other assets consisted of the following as of December 31, 2025 and 2024:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Prepaid Expenses | $ | $ | ||||||
| Prepaid Insurance | ||||||||
| Total other assets | $ | $ | ||||||
NOTE 4 – PROPERTY AND EQUIPMENT – NET
Property and equipment – net consisted of the following as of December 31, 2025 and 2024:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Lab equipment | $ | $ | ||||||
| Battle Lab Equipment | - | |||||||
| Computer equipment | ||||||||
| Software | ||||||||
| Other Property Used for Transportation | - | |||||||
| Furniture & Fixtures | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense
for the year ended December 31, 2025 and 2024, was $
NOTE 5 – SECURITY DEPOSITS
As of December 31,
2025 and 2024, the company had security deposits totaling $
F-12
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2025 and 2024:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued PTO | - | |||||||
| Accrued taxes | ||||||||
| Accrued other | - | |||||||
| Total accrued expenses | $ | $ | ||||||
NOTES 7 – NOTES PAYABLE
Premium Financing
On June 12, 2025,
the company entered into an agreement with Oakwood D&O Insurance to provide financing in the original principal amount of $
On March 12, 2024,
the company entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $
The following reconciles notes payable as of December 31, 2025 and December 31, 2024:
| December 31, 2025 | December 31, 2024 | |||||||
| Beginning balance | $ | $ | - | |||||
| Notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less-Notes payable – current | ||||||||
| Notes payable – non-current | $ | - | $ | - | ||||
F-13
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – DUE TO RELATED PARTIES
On July 31, 2018, the company’s
now deceased CEO deposited $
NOTE 9 – STOCKHOLDERS’ EQUITY
Authorized Capital Stock
The company’s
authorized capital stock consists of
During the year ended
December 31, 2024, the company completed the placement of
During the year ended
December 31, 2024, the company issued
During the year ended
December 31, 2024, the company issued
During the year ended
December 31, 2024, the company issued
During the year ended
December 31, 2024, the company issued
During the year ended
December 31, 2024, restricted stock units covering
During the year ended
December 31, 2025, certain holders of the Company’s outstanding warrants and stock options exercised their rights to purchase shares
of the Company’s common stock. As a result of these exercises, the Company issued an aggregate of
During the year ended
December 31, 2025, restricted stock units covering
During the year ended
December 31, 2025, restricted stock units covering
During the year ended
December 31, 2025, the company issued
During the year ended
December 31, 2025, the company completed the placement of
During the years
ended December 31, 2025, and 2024, the company recognized stock-based compensation in the amount of $
F-14
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock
As of December 31, 2025 and
2024, there were
Our Series A Preferred Stock
has a liquidation preference of $
Each share of Series
A Preferred Stock is convertible at any time at the option of the holder into a number of shares of common stock equal to the liquidation
preference (plus any unpaid dividends for periods prior to the dividend payment date immediately preceding the date of conversion by
the holder) divided by the conversion price (initially $
If a change of control
occurs, each holder of shares of Series A Convertible Preferred Stock that are outstanding immediately prior to the change of control
shall have the right to require the corporation to purchase, out of legally available funds, any outstanding shares of Series A Convertible
Preferred Stock at the defined purchase price. The purchase price is defined as: per share of Preferred Stock,
F-15
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
If the Corporation pays all or a portion of the Purchase Price in Common Stock, no fractional shares of Common Stock will be issued; instead, the company will round the applicable number of shares of Common Stock up to the nearest whole number of shares; provided that the Corporation may pay the Purchase Price (or a portion thereof), whether in cash or in shares of Common Stock, only if the Corporation has funds legally available for such payment and may pay the Purchase Price (or a portion thereof) in shares of its Common Stock only if (i) the Common Stock is listed on a U.S. national securities exchange or the Nasdaq Stock Market at the time of issuance and (ii) a shelf registration statement covering the issuance by the Corporation and/or resales of the Common Stock issuable as payment of the Purchase Price is effective on the Payment Date unless such shares are eligible for immediate resale in the public market by non-affiliates of the Corporation.
Stock Option and Stock Issuance Plan
Effective November
12, 2018, the Board of Directors of Applied Energetics, Inc. adopted the 2018 Incentive Stock Plan. The plan provides for the allocation
and issuance of options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants
of the company. The board reserved a total of
We have, from time
to time, also granted non-plan shares, restricted stock units and options to certain officers, directors, employees and consultants.
Total stock-based compensation expense for grants to officers, employees and consultants was $
During the year ended
December 31, 2024, the company issued non-qualified stock options to purchase up to
During the year ended
December 31, 2024, the company issued incentive stock options to purchase up to
During the year ended
December 31, 2024, the Company modified certain outstanding stock option awards previously granted to employees and no executive team
options were repriced. The modification involved the cancellation of
See Note 9 –
Stockholders’ Equity – Authorized Capital Stock for details related to the exercise of an aggregate of
During the year ended
December 31, 2025, the company issued incentive stock options to purchase up to
During the year ended
December 31, 2025, the company issued incentive stock options to purchase up to
F-16
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the year ended
December 31, 2025, the company issued incentive stock options to purchase up to
During the year ended
December 31, 2025, the company issued a non-qualified stock option to purchase up to
During the year ended
December 31, 2025, the company issued an incentive stock option to purchase up to
During the year ended
December 31, 2025, the company issued incentive stock options to purchase up to
During the year ended
December 31, 2025, the company issued incentive stock options to purchase up to
During the year ended
December 31, 2025, the company issued an incentive stock option to purchase up to
The $
The company recognized no related income tax benefit because our deferred tax assets are fully offset by a valuation allowance.
Stock Options
We determine the fair value of option grant share-based awards at their grant date, using a Black-Scholes- Merton Option Pricing Model.
As of December 31,
2025, the company has $
F-17
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity of our stock options for the years ended December 31, 2025 and 2024:
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Term Outstanding | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | ||||||||||
| Forfeited or expired | ( | ) | ( | ) | - | - | ||||||||||
| Outstanding at December 31, 2024 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Outstanding at December 31, 2025 | $ | $ | ||||||||||||||
| Outstanding and exercisable at December 31, 2025 | $ | |||||||||||||||
The Company determines the fair value of option grant share-based awards at their grant date, using a Black-Scholes- Merton Option Pricing Model applying the assumptions in the following table:
| Years
Ended December 31, |
||||||||
| Assumptions: | 2025 | 2024 | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life (in years) | ||||||||
Restricted Stock
As of December 31,
2025 and 2024, the company has $
F-18
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The fair value of
restricted stock and restricted stock units was estimated using the closing price of our common stock on the date of award and fully
recognized upon vesting.
| Restricted Stock Outstanding | ||||||||
| Shares | Weighted Average Fair Value per Share at Grant Date | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted – restricted stock units and awards | - | - | ||||||
| Granted – performance – based stock units | - | - | ||||||
| Canceled | - | - | ||||||
| Vested and converted to shares | ( | ) | ( | ) | ||||
| Outstanding at December 31, 2024 | $ | |||||||
| Granted – restricted stock units and awards | - | - | ||||||
| Canceled | - | - | ||||||
| Vested and converted to shares | ( | ) | ( | ) | ||||
| Outstanding at December 31, 2025 | $ | |||||||
Warrants
The following table summarizes the activity of our warrants for the years ended December 31, 2025 and 2024:
| Warrant Activity | ||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | ||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||
| Granted | - | - | - | |||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited or expired | - | - | - | |||||||||
| Outstanding at December 31, 2024 | $ | |||||||||||
| Granted | - | - | - | |||||||||
| Exercised | ( | ) | ( | ) | ||||||||
| Forfeited or expired | - | - | - | |||||||||
| Outstanding at December 31, 2025 | $ | |||||||||||
| Outstanding and exercisable at December 31, 2025 | $ | |||||||||||
F-19
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – REVENUE RECOGNITION
The company derives revenue from technical research detailing the findings of its investigations to its customers under contract for specific projects. Under Topic 606, revenue is recognized when control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. A performance obligation is a contractual promise to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations are satisfied. The company’s contracts require significant integrated services and are accounted for as a single performance obligation, and revenue is recognized by the company over the contract term at a fixed contract price.
During the year ended December 31, 2024, the company modified its contract with a customer for changes in the contract specifications and requirements. The modification was for services that are not distinct from the existing contract due to the significant integration of services performed. The modification was accounted for as if it was part of the existing contract and a cumulative catch-up adjustment was recorded for the year ended December 31, 2024.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.
The following table summarizes the company’s accounts receivable, net,
| December 31, 2025 | December 31, 2024 | |||||||
| Accounts receivable | $ | - | $ | |||||
Concentrations
During
the year ended December 31, 2025, three customers accounted for a total of $
During
the year ended December 31, 2024, three customers accounted for a total of $
F-20
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Operating Leases
In March 2021, the
company signed a five-year lease for a
On June 7, 2023,
the company entered into an amendment to extend the term of the original lease from April 26, 2026 to July 31, 2028. Included in the
lease amendment is extension space commencing on August 1, 2023. As of August 1, 2023 the Company has secured additional square footage
in the amount of
On July 3, 2024, Applied
Energetics, Inc. exercised its option to lease more than
The company incurred
lease expense for its operating leases of $
At December 31, 2025,
we had approximately $
| Operating Lease | ||||
| For the fiscal years ending December 31,: | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | - | |||
| Thereafter | - | |||
| Total undiscounted lease payments | ||||
| Present value discount, less interest | ||||
| Lease Liability | $ | |||
Guarantees
The company agrees to indemnify its officers and directors for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The maximum amount of future payments that the company could be required to make under these indemnification agreements is unlimited. However, the company maintains a director’s and officer’s liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result, it believes the estimated fair value of these indemnification agreements is minimal because of its insurance coverage, and it has not recognized any liabilities for these agreements as of December 31, 2025 and 2024.
F-21
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Litigation
On
January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan
& Nusbaum (GKN) and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel
to the company. On May 28, 2021, GKN and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021, the company filed an opposition
to the motion. On July 13, 2021, GKN and Mr. Whalen filed their reply brief. On March 30, 2022, United States Magistrate Judge Debra Freeman
signed an order denying the motion of GKN and Mr. Whalen to dismiss the company’s claim for malpractice and for rescission of the
shares-for-fees agreement under which GKN and Whalen received
As with any litigation, the company cannot predict the outcome with certainty, but the company expects to provide further updates on the status of the litigation as circumstances warrant.
The company may, from time to time, be involved in legal proceedings arising from the normal course of business.
NOTE 12 – INCOME TAXES
An analysis of the difference between the expected federal income tax for the years ended December 31, 2025, and 2024, and the effective income tax rate is as follows:
| Noncurrent deferred tax assets (liabilities): | 2025 | 2024 | ||||||
| Deferred Tax Assets | ||||||||
| Research and Development | $ | $ | ||||||
| Accrued Compensation | ||||||||
| Fixed Assets and intangibles | ( | ) | ( | ) | ||||
| Right of Use Asset | ||||||||
| Other Assets | - | |||||||
| Net Operating Loss Carryforwards and Credits | ||||||||
| Total Deferred Tax Assets | $ | $ | ||||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net deferred tax / (liabilities) | $ | - | $ | - | ||||
F-22
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Tax effects of temporary differences at December 31, 2025 and December 31, 2024 are as follows:
| As of December 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| US federal statutory income tax rate | ( | ) | % | ( | ) | % | ||||||||||
| Domestic state and local taxes, net of federal effect | ||||||||||||||||
| Arizona income tax effect | ( | ) | % | ( | ) | % | ||||||||||
| All other States income tax effect | ( | ) | % | ( | ) | % | ||||||||||
| State rate adjustment | % | - | % | |||||||||||||
| Tax Credits: | ||||||||||||||||
| Research credits | ( | ) | % | ( | ) | % | ||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||||
| Other Permanent Items | ( | )% | ( | )% | ||||||||||||
| Other Adjustments | ||||||||||||||||
| Return to Provision Adjustments: | ( | )% | ( | )% | ||||||||||||
| Expiration of Tax Attributes | - | - | % | ( | )% | |||||||||||
| Other, net | % | - | % | |||||||||||||
| Change in Domestic valuation allowance | ( | )% | ( | )% | ||||||||||||
| Income Taxes Provision (Benefit) | - | - | % | - | - | % | ||||||||||
Deferred tax assets and liabilities are computed by applying the federal
and state income tax rates in effect to the gross amounts of temporary attributes, such as net operating loss carry-forwards. In assessing
if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred
tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the period in which these deductible temporary differences reverse. During the year ended December 31, 2025, the deferred tax assets
and the valuation allowance increased by $
As of December 31, 2025,
we have cumulative federal, Arizona, and New Mexico net operating loss carryforwards of approximately $
F-23
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31,
2025, we had cumulative federal and state unused research and development tax credits of approximately $
Utilization of our USHG pre-merger net operating loss carryforwards and tax credits is subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards and tax credit carryforwards before utilization.
We have unrecognized tax benefits attributable to losses and minimum tax credit carryforwards that were incurred by USHG prior to the merger in March 2004 as follows:
| Balance at December 31, 2022 | $ | |||
| Additions related to prior year tax positions | - | |||
| Additions related to current year tax positions | - | |||
| Reductions related to prior year tax positions and settlements | - | |||
| Balance at December 31, 2023 | $ | |||
| Additions related to prior year tax positions | - | |||
| Additions related to current year tax positions | - | |||
| Reductions related to prior year tax positions and settlements | - | |||
| Balance at December 31, 2024 | $ | |||
| Additions related to prior year tax positions | - | |||
| Additions related to current year tax positions | - | |||
| Reductions related to prior year tax positions and settlements | - | |||
| Balance at December 31, 2025 | $ | |
These benefits are not recognized as a result of uncertainty regarding the utilization of the loss carryforwards and minimum tax credits. If in the future we utilize the attributes and resolve the uncertainty in our favor, the full amount will favorably impact our effective income tax rate.
The company considers the U.S. and Arizona to be major tax jurisdictions. As of December 31, 2025, for federal tax purposes the tax years 2022-2025 and for Arizona the tax years 2019 through 2025 remain open to examination. The company currently does not expect any material changes to unrecognized tax positions within the next twelve months.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2025, and 2024, we had no accrued interest or penalties related to our unrecognized tax benefits.
F-24
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – SEGMENT INFORMATION
The Company is currently
deemed to be comprised of only
| Years ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Cost of revenue | ||||||||
| Payroll and related | ||||||||
| Materials and supplies | ||||||||
| Other segment items | - | |||||||
| Total cost of revenue | ||||||||
| General and administrative | ||||||||
| Payroll and related | ||||||||
| Professional fees | ||||||||
| Board compensation | ||||||||
| Employee stock-based compensation | ||||||||
| Consulting stock-based compensation | ||||||||
| Materials and supplies | ||||||||
| Marketing and travel | ||||||||
| Investor relations | ||||||||
| Insurance | ||||||||
| Software and communications | ||||||||
| General and administrative, including rent | ||||||||
| Depreciation | ||||||||
| Total general and administrative | ||||||||
| Selling and marketing | ||||||||
| Professional fees | ||||||||
| Payroll and related | ||||||||
| Marketing and travel | ||||||||
| Total selling and marketing | ||||||||
| Research and development | ||||||||
| Payroll and related | ||||||||
| Materials and supplies | ||||||||
| Total research and development | ||||||||
| Operating loss | $ | $ | ||||||
As of December 31, 2025 and 2024, the Company’s segment assets, which are equal to the Company’s consolidated assets on the consolidated balance sheets, are owned and operated by United States entities and are classified within the United States.
F-25
APPLIED ENERGETICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – SUBSEQUENT EVENTS
The company’s management has evaluated subsequent events occurring after December 31, 2025, the date of our most recent balance sheet, through the date our financial statements were issued.
Subsequent to the year ended
December 31, 2025, certain holders of the Company’s outstanding stock options exercised their rights to purchase shares of the Company’s
common stock. As a result of these exercises, the Company issued an aggregate of
Subsequent to the year ended
December 31, 2025, the Company granted an employee an incentive stock option to purchase
Subsequent to December 31,
2025, restricted stock units covering
Subsequent to December 31, 2025, the Company granted incentive stock options to two employees to purchase shares of common stock as follows:
| ● | Options
to purchase up to |
| ● | Options
to purchase up to |
F-26
FAQ
How did Applied Energetics (AERG) perform financially in 2025?
Why did Applied Energetics’ auditor raise going concern doubts?
What is Applied Energetics’ cash position and working capital?
How reliant is Applied Energetics (AERG) on U.S. government business?
What intellectual property does Applied Energetics currently hold?
How many shares of Applied Energetics common stock are outstanding?
What are the key risks highlighted in Applied Energetics’ 10-K?
