[10-Q] APPLIED ENERGETICS, INC. Quarterly Earnings Report
Applied Energetics (AERG) filed its Q3 2025 10-Q, highlighting a sharp revenue contraction and mounting losses as key government contracts paused funding. Q3 revenue was $108,984 versus $747,720 a year ago, producing a net loss of $3,971,157. For the first nine months, revenue was $389,072 versus $1,662,598 last year, with a net loss of $10,862,572.
Management disclosed “substantial doubt” about the company’s ability to continue as a going concern. Operating cash outflow was $6,617,654 year-to-date. The company ended the quarter with cash of $1,332,225 and working capital of $895,225. To support liquidity, AERG completed a private placement earlier in 2025 for approximately $6,004,250 and recorded $2,999,997 as deferred equity financing at quarter-end. Subsequent to quarter close, it raised a further $10,789,999 in a private sale.
Two defense-related contracts ceased receiving funds in Q2 2025, driving the revenue decline, while the company continued investing in its ultrashort pulse laser programs and disclosed a milestone exceeding one gigawatt peak optical power. As of November 11, 2025, 223,447,852 common shares were outstanding.
- $10,789,999 private placement completed after quarter-end, bolstering liquidity
- Delivered a technical milestone exceeding one gigawatt peak optical power in USP laser development
- Management disclosed substantial doubt about the ability to continue as a going concern
- Q3 revenue fell to $108,984 (down ~85% year over year) due to unfunded defense contracts
- Year-to-date net loss widened to $10,862,572 with operating cash outflow of $6,617,654
Insights
Going-concern risk rises as cash burn outpaces inflows.
AERG reports year-to-date operating cash use of
Equity financings—
Key items to track include progress on unfunded defense contracts and cash levels in future quarters. Actual impact will hinge on contract awards and timing of receipts disclosed in subsequent filings.
Funding pauses drove an 85% Q3 revenue drop.
Revenue fell to
The company continues internal development and reports a gigawatt-class ultrashort pulse milestone, but commercialization depends on customer funding. Cash-flow treatment for halted contracts remains uncertain until funding resumes.
Subsequent equity proceeds of
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APPLIED ENERGETICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 1 | |
| ITEM 1. | Condensed Consolidated Unaudited Financial Statements | 1 |
| Condensed Consolidated Balance Sheets as of September 30, 2025 (Unaudited) and December 31, 2024 | 1 | |
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024 (Unaudited) | 2 | |
| Condensed Consolidated Statements of Stockholders’ Equity(Deficit) for the nine months ended September 30, 2025 and 2024 (Unaudited) | 3 | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 (Unaudited) | 4 | |
| Notes to Condensed Consolidated Unaudited Financial Statements | 5 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
| ITEM 4. | Controls and Procedures | 28 |
| PART II. OTHER INFORMATION | 29 | |
| ITEM 1. | Legal Proceedings | 29 |
| ITEM 1A. | Risk Factors (Not applicable.) | 29 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
| ITEM 3. | Defaults Upon Senior Securities (Not applicable.) | 29 |
| ITEM 4. | Mine Safety Disclosures (Not applicable.) | 29 |
| ITEM 5 | Other Information | 29 |
| ITEM 6. | Exhibits | 29 |
| SIGNATURES | 30 | |
i
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (unaudited) | ||||||||
| 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 lease | ||||||||
| Security deposit | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Note payable | ||||||||
| Due to related parties | ||||||||
| Operating lease liability - current | ||||||||
| Accrued expenses | ||||||||
| Accrued dividends | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Operating lease liability - non-current | ||||||||
| Deferred Equity Financing | - | |||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ (Deficit) Equity | ||||||||
| Series A convertible preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
1
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, | FOR THE NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
| 2025 | 2024 | 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 | ||||||||||||||||
| Interest expense | - | - | - | - | ||||||||||||
| 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 | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
2
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
(Unaudited)
| 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 | - | - | - | |||||||||||||||||||||||||
| Issuance of common stock under the market offering | - | - | - | |||||||||||||||||||||||||
| Common stock issued for settlement of restricted stock units | - | - | ( | ) | - | - | ||||||||||||||||||||||
| Common stock withheld to cover income tax withholding obligations | - | - | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||
| Shares issued for consulting services | - | - | - | |||||||||||||||||||||||||
| Net loss for the period ended March 31, 2025 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issued on exercise of options | - | - | - | |||||||||||||||||||||||||
| Common stock issued on exercise of warrants | - | - | - | |||||||||||||||||||||||||
| Shares issued for consulting services | - | - | - | |||||||||||||||||||||||||
| Net loss for the period ended June 30, 2025 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Shares issued for consulting services | - | - | - | |||||||||||||||||||||||||
| Common stock issued on exercise of options | - | - | - | |||||||||||||||||||||||||
| Common stock issued for settlement of restricted stock units | - | - | ( | ) | - | - | ||||||||||||||||||||||
| Common stock withheld to cover income tax withholding obligations | - | - | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||
| Net loss for the period ended September 30, 2025 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 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 | - | - | - | - | - | |||||||||||||||||||||||
| 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 period ended March 31, 2024 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issued on exercise of options | - | - | - | |||||||||||||||||||||||||
| Common stock issued on exercise of warrants | - | - | - | |||||||||||||||||||||||||
| Issuance of common stock under the market offering | - | - | - | |||||||||||||||||||||||||
| Net loss for the period ended June 30, 2024 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issued for settlement of restricted stock units | - | - | ( | ) | - | - | ||||||||||||||||||||||
| Common stock withheld to cover income tax withholding obligations | - | - | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||
| Net loss for the period ended September 30, 2024 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
3
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Operating lease liabilities, net | ( | ) | ( | ) | ||||
| 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 | ||||||||
| Repayment on note payable | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock | ||||||||
| Proceeds received in advance of equity issuance | - | |||||||
| Proceeds from the exercise of stock options and warrants | ||||||||
| Tax withholdings related to net share settlement of RSU’s | ( | ) | ( | ) | ||||
| Net cash provided by 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 | $ | - | $ | |||||
See accompanying notes to condensed consolidated financial statements (unaudited).
4
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
NOTE 1 – ORGANIZATION OF BUSINESS, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed 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.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2024, balance sheet information was derived from the audited financial statements as of that date. The interim unaudited condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements contained in our Annual Report on Form 10-K.
Going Concern
The accompanying unaudited 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.
For the nine months ended
September 30, 2025, the company incurred a net loss of $
Based on the company’s current business plan, it believes its cash balance as of the date of this filing, together with anticipated revenues from government contracts, will be sufficient to meet its anticipated cash requirements for the near term. However, there can be no assurance that the current business plan will be achievable. Such conditions raise substantial doubts about the company’s ability to continue as a going concern for one year from the date the financial statements are issued.
The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that management’s efforts will result in profitable operations or enable it to overcome future liquidity concerns. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of assets, the amount or classification of liabilities or otherwise that might be necessary should the company be unable to continue as a going concern.
5
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
Trade conditions, such as unusually high and fluctuating tariffs, exacerbated supply chain shutdowns and delays, contribute to this uncertainty. Additionally, global tensions 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 its ability to continue as a going concern. In addition, the company’s ability to continue as a going concern may depend on its ability to raise capital, which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity. This may result in third-party financing being unavailable on terms acceptable to the company or at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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. 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.
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 unaudited condensed 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, 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
6
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
Significant Concentrations and Risks
We maintain cash balances
at a commercial bank, and, at times, balances exceed FDIC limits. As of September 30, 2025, $
NOTE 2 – NEW ACCOUNTING STANDARDS
The company has reviewed all issued accounting pronouncements. The company does not expect the adoption of any pronouncements to have an impact on its results of operations or financial position.
NOTE 3 – OTHER ASSETS
Other assets consisted of the following as of September 30, 2025 and December 31, 2024:
| As of September 30, | As of December 31, | |||||||
| 2025 | 2024 | |||||||
| Prepaid Expenses | $ | $ | ||||||
| Prepaid Insurance | ||||||||
| Prepaid Consumables | - | |||||||
| Total other assets | $ | $ | ||||||
NOTE 4 – PROPERTY AND EQUIPMENT – NET
Property and equipment – net consisted of the following as of September 30, 2025 and December 31, 2024:
| As of September 30, | As of December 31, | |||||||
| 2025 | 2024 | |||||||
| Lab equipment | $ | $ | ||||||
| Battle Lab Equipment | - | |||||||
| Computer equipment | ||||||||
| Software | ||||||||
| Other Property Used for Transportation | - | |||||||
| Furniture & Fixtures | ||||||||
| Equipment in process | - | |||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the
nine months ended September 30, 2025 and 2024, was $
7
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
NOTE 5 – SECURITY DEPOSIT
As of September 30, 2025 and
December 31, 2024, the company had security deposits totaling $
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following as of September 30, 2025 and December 31, 2024:
| As of September 30, | As of December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued PTO | - | |||||||
| Accrued taxes | ||||||||
| Accrued other | - | |||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 7 – NOTE PAYABLE
Premium Financing
On June 12, 2025, the company
entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $
On March 12, 2024, the company
entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $
Notes Payable Reconciliation
The following reconciles notes payable as of September 30, 2025, and December 31, 2024:
| September 30, 2025 | December 31, 2024 | |||||||
| Beginning balance | $ | $ | - | |||||
| Notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less-Notes payable – current | ||||||||
| Notes payable – non-current | $ | - | $ | - | ||||
8
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
NOTE 8 – DUE TO RELATED PARTIES
On July 31, 2018, our now deceased CEO deposited $
NOTE 9 – STOCKHOLDERS’ EQUITY
Authorized Capital Stock
During the nine months ended
September 30, 2024, the company completed the placement of
During the nine months
ended September 30, 2024, the company issued
During the nine months
ended September 30, 2024, the company issued
During the nine months
ended September 30, 2024, the company issued
During the nine months ended
September 30, 2024, the company issued
During the nine months ended
September 30, 2024, restricted stock units covering
During the nine months ended
September 30, 2025, the company completed the placement of
During the nine months ended
September 30, 2025, the company issued
During the nine months ended
September 30, 2025, restricted stock units covering
During the nine months ended
September 30, 2025, the company issued
During the nine months ended
September 30, 2025, the company issued
9
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
During the nine months ended
September 30, 2025, the company issued
During the nine months ended
September 30, 2025, the company issued
During the nine months ended
September 30, 2025, the company issued
During the nine months ended
September 30, 2025, restricted stock units covering
During the nine months ended
September 30, 2025, restricted stock units covering
Preferred Stock
As of September 30, 2025,
and December 31, 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,
10
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
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.
Share-Based Payments
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 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
We have, from time to time,
also granted non-plan options and restricted stock units to certain officers, directors, employees and consultants. Total stock-based
compensation expense for grants to officers, employees and consultants was $
The $
During the nine months ended
September 30, 2024, the company issued non-qualified stock options to purchase up to
During the nine months ended
September 30, 2025, the company issued incentive stock options to purchase up to
During the nine months ended
September 30, 2025, the company issued incentive stock options to purchase up to
During the nine months ended
September 30, 2025, the company issued incentive stock options to purchase up to
During the nine months ended September 30, 2025, the company issued
a non-qualified stock option to purchase up to
During the nine months ended September 30, 2025, the company issued
an incentive stock option to purchase up to
During the nine months ended
September 30, 2025, the company issued incentive stock options to purchase up to
The company recognized no related income tax benefit because our deferred tax assets are fully offset by a valuation allowance.
As of September 30, 2025,
the company has $
11
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
The following table summarizes the activity of our stock options for the nine months ended September 30, 2025:
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Term Outstanding | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2024 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | ||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Outstanding at September 30, 2025 | ||||||||||||||||
| Outstanding and exercisable at September 30, 2025 | ||||||||||||||||
We determine 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:
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2025 | 2024 | |||||||
| Assumptions: | ||||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life (in years) | ||||||||
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 | |||||||
| Nonvested at December 31, 2024 | $ | |||||||
| Granted – restricted stock units and awards | - | - | ||||||
| Granted – performance-based stock units | - | - | ||||||
| Canceled | - | - | ||||||
| Vested | ( | ) | ( | ) | ||||
| Nonvested at September 30, 2025 | $ | |||||||
12
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
As of September 30, 2025,
and December 31, 2024, there was $
Warrant stock activity for the nine months ended September 30, 2025, was as follows:
| Warrant Activity | ||||||||||||
| Weighted Average Exercise | Weighted Average remaining Contractual Term | |||||||||||
| Shares | Price | (years) | ||||||||||
| Outstanding at December 31, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding and exercisable at September 30, 2025 | $ | |||||||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
| Weighted Avg. Remaining | Weighted | Weighted | ||||||||||||||||||
| Shares | Contractual Life in | Avg. Exercise | Shares | Avg. Exercise | ||||||||||||||||
| Range of Exercise Prices | Outstanding | Years | Price | Exercisable | Price | |||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| $ | $ | |||||||||||||||||||
There were
13
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
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.
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,
| September 30, 2025 | December 31, 2024 | |||||||
| Accounts receivable | $ | $ | ||||||
Concentration
During the three months ended
September 30, 2025, one customer accounted for a total of $
During the three months ended
September 30, 2024, three customers accounted for a total of $
14
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
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 September 30, 2025, we
had approximately $
| Operating Lease | ||||
| 2025, three months ending December 31: | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | - | |||
| Thereafter | - | |||
| Total undiscounted lease payments | ||||
| Present value discount, less interest | ||||
| Lease Liability | $ | |||
15
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
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 September 30, 2025 and 2024.
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 (NYRPC) 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 – SEGMENT INFORMATION
ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance.
The CODM has been identified as the Chief Executive Officer, who reviews the assets, operating results, and financial metrics for the company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that there is only one reportable segment.
The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the statement of operations as net income or loss. When evaluating the company’s performance and making key decisions regarding resource allocation, the CODM reviews each of the key metric included in net income or loss and set forth in the table below.
16
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
The company is currently deemed
to be comprised of only
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, | FOR THE NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Payroll and related | ||||||||||||||||
| Materials and supplies | ||||||||||||||||
| Marketing and travel | - | - | ||||||||||||||
| 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
17
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS
The company’s management has evaluated subsequent events occurring after September 30, 2025, the date of our most recent balance sheet, through the date our financial statements were issued.
Effective October 3, 2025, the company entered into an Executive Employment
Agreement with David Spence, PhD., pursuant to which Dr. Spence is to serve as its Chief Product Officer. The agreement calls for Dr.
Spence to receive a base salary of $
Subsequent to the nine months ended September 30, 2025, the company
issued
On October 8, 2025, the company
completed the placement of
Effective October 8, 2025,
the company granted options to purchase up to
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related disclosures included elsewhere herein and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2024.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts and can be identified by the use of forward-looking words such as “may,” “believe,” “will,” “would,” “could,” “should,” “expect,” “project,” “anticipate,” “estimates,” “possible,” “plan,” “strategy,” “target,” “prospect,” or “continue,” and other similar terms and phrases. 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, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from our expectations are described in Item 1A (Risk Factors) of our Annual Report on Form 10-K, for the year ended December 31, 2024. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. 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.
Applied Energetics, Inc., (sometimes referred to as the “company”) is a corporation organized and existing under the laws of the State of Delaware. Our executive office is located at 9070 S. Rita Road, Suite 1500, Tucson, Arizona 85747, (520) 628-7415. Our website is www. appliedenergetics.com.
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.
Technology, Capabilities, and Patents
Applied Energetics, Inc. is a global leader in developing ultrashort pulse lasers as 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 Ultrashort Pulse (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 commercial applications in both the biomedical and advanced manufacturing industries.
Our UltraShort Pulse Lasers (USP) 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®) |
19
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 Defense, 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’ 27 issued patents and 9 Government Sensitive Patent Applications (GSPA). These GSPA’s are held under secrecy orders of the US government, providing the company with extended protection rights. The company also has nine pending patent applications. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage.
Applied Energetics’ directed energy technologies are vastly different from conventional directed energy systems, i.e. Applied Energetics’ 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, 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. 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’ unique 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 minutes 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 results of our innovative USP approaches are highly effective lasers with mountable footprints that require only a fraction of the size and weight of other-directed energy technologies.
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.
20
Recent Developments
Effective October 3, 2025, Applied Energetics has appointed Dr. David Spence to serve as its Chief Product Officer. 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. He has held leadership roles at Spectra-Physics, Newport Corporation, and most recently, was Senior Engineering Manager, Advanced Technology Development Group for MKS Instruments, where he directed cross-functional teams developing next-generation ultrashort pulse laser systems, nonlinear optical solutions, and diode-pumped solid-state amplifiers. 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.
We have entered into an Executive Employment Agreement with Dr. Spence for a term of three years, renewable thereafter for sequential one-year periods. The agreement calls for (i) a cash salary of $250,000 per annum, payable monthly, and eligibility for a discretionary bonus, and (ii) incentive stock options to purchase up to 500,000 shares of our common stock at an exercise price of $1.71 per share which vest in four equal annual installments commencing on the first anniversary of the grant date.
Effective October 1, 2025, we appointed two new members to serve on our Board of Advisors. For their services they are to receive compensation including a monthly cash stipend and/or stock options which are subject to vesting.
On June 3, 2025, our Board of Directors expanded its number to seven members and appointed Christopher Donaghey, its President and CEO, and Scott Andrews to serve as new directors, effective immediately.
On September 25, 2025, our board established an Audit Committee and a Compensation Committee. Members of both committees include Bradford Adamczyk, Michael Alber and Scott Andrews, with Mr. Andrews serving as Chairman of the Compensation Committee and Mr. Alber as Chairman of the Audit Committee.
In early July, the company generated over 1 billion watts (1 gigawatt) of peak optical power at near-infrared wavelengths in a laboratory-scale ultrashort pulse laser (USPL) system, marking a significant milestone in its technological development. This achievement marks the latest in a rapidly accelerating series of performance milestones. Since December 2023, Applied Energetics has advanced its systems from hundreds of thousands of watts, to multi-megawatt levels in late 2024, to 25 million watts in April 2025, and 400 million watts in May 2025. Surpassing the gigawatt threshold demonstrates the scalability and maturity of Applied Energetics’ proprietary technology and solidifies its leadership in next generation directed energy capabilities. This breakthrough was achieved using our proprietary USPL architecture, developed entirely in-house and protected by a growing portfolio of patents.
21
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 have completed work under the Requisition and are working with the university to plan and commence work on the next phase.
Ongoing Business Operations
In the three months ended September 30, 2025, the company continued work relating to its strategic collaboration with Kord Technologies, Inc., a wholly owned subsidiary of KBR, to explore the potential development and integration of an advanced pulsed laser system with Kord’s FIREFLYTM High Energy Laser Weapon System (HELWS). The current phase of the project began in the first quarter of 2025 with the purchase of a specially modified Firefly HELWS unit from Kord which the company is using to work on the development and integration of its proprietary Ultrashort Pulse technology in its newly opened Battle Lab, with the assistance of Kord personnel under a related services agreement.
Effective August 23, 2023, Applied Energetics executed a contract with the Department of the Navy, Office of Naval Research (ONR) with an aggregate contract price of $1.99 million payable over two years as the company performs its obligations under the contract. Under this contract, we have worked to develop a high-peak and high-average power USP optical system. The system is expected to demonstrate effects compatible with multiple Navy platforms and missions with an attractive size, weight, and power-cooling footprint. During the quarter ended June 30, 2025, the company was notified that no further funds are available for this contract and advised to stop work on it. Receipt of additional amounts under the contract, including for any work to be performed, is in doubt. The company intends to continue working in parallel on this technology as part of its ongoing internal research and development program.
Effective May 15, 2023, Applied Energetics 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 is 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 award follows 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. The company has continued its work under the contract, and provided all required reports, since its execution. 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.
22
Effective March 12, 2024, a grant previously awarded to the company from the Department of the Navy, Office of Naval Research, was transitioned into a contract. The original grant from May 2022 had a two-year period of performance. The new contract superseded the grant with a ceiling value of $1,217,535 under a base period of performance through November 11, 2024 and a 12-month unfunded option period that was to end November 11, 2025. On September 4, 2024, the company received a funding increase on this contract of $237,647 which brought the total funding on the contract to $1,455,182. Under this contract, we have worked to accelerate the development and testing of Infrared (IR) optical technology with an ultrashort pulse laser (USPL) system. The overall objective is to advance and ruggedize optical technologies that can be fielded on a variety of USMC platforms and are able to operate in harsh conditions. During the quarter ended June 30, 2025, the company was notified that funding has ceased for this contract. The contract is still in effect, and no stop-work order was received. The company has ceased recording revenue for this contract, and receipt of additional amounts under it is in doubt. The company intends to continue working in parallel on this technology as part of its ongoing internal research and development program.
Business Development Activities
We continue to submit proposals to, and attend briefings with, various defense and other government agencies who have expressed an interest in our technology and applications. Our efforts in this area of development have produced some results. In addition to the contracts which we have been awarded, our team has been invited to, and completed, multiple briefings focused on our capabilities and submissions. We intend to continue developing and submitting proposals and to be available to attend on-site briefings. We have also engaged in discussions with private entities and academic institutions with the objective of possibly collaborating on one or more projects. Some of these could result in further customer agreements or other opportunities to grow our business.
The National Defense Authorization Act (NDAA), which sets defense spending policies, is currently delayed for the federal government fiscal year 2026, which started on October 1, 2025. Moreover, the appropriations bills comprising the federal budget, which fund government spending, have not yet been passed by Congress. This impacts all proposals under review by the Department of Defense (DoD) as parts of the U.S. government are “unfunded” and operating under a government shutdown. Although certain mandatory programs and “excepted” activities continue to be funded, none of the programs for which we might submit proposals would fall under these exceptions.
The House and Senate reached a potential deal, on November 9, 2025, for a Continuing Resolution (CR) that would extend government funding through a specified date, which itself is being negotiated. The House initially passed a CR to keep the government funded until November 21. However, the Senate advanced a new agreement that includes a CR to fund the government through January 30, 2026, with the addition of three full-year appropriations bills (appropriations for the Veterans Affairs Department, Agriculture Department and the legislative branch). All other agencies would operate at their fiscal 2025 levels under the CR. Until a Continuing Resolution is adopted by both houses, many programs for which we or our prospective strategic partners have submitted proposals will remain unfunded and be unable to move forward.
In addition, the current administration has established the Department of Government Efficiency (DOGE) whose mission is to sharply reduce federal spending. In February 2025, President Trump stated that he has directed DOGE to review defense spending for possible waste, fraud and abuse. The administration has also indicated that it may pursue significant reductions to the U.S. defense budget, if both Russia and China would agree to similar cuts in their respective national security spending. The potential impact on the company of DOGE and possible cuts to the defense and national security industries, if any, is uncertain. Notwithstanding these budgetary concerns, the administration and Pentagon have indicated an interest in continuing to fund innovative defense related technologies, including in the area of directed energy.
The current budgetary and deficit funding environment, continuing inflation, tariffs and other ongoing supply chain disruptions, the appropriations process, federal government shutdown, and DOGE, among other items, all continue to create significant short and long-term challenges and risks to the company and its business development endeavors. 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.
23
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, science, modeling and simulation, marketing and finance. We have recently added, and are also contemplating adding additional, 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 Department of Defense, 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 partnerships 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.
As with many government contractors, we have experienced recent challenges with funding of our contracts by the DoD. While we continue to pursue contracts with DoD and other government agencies, we simultaneously conduct research and development of our technology on an internal basis and focus on strategic partnerships with other entities. Our goal is to continue to accelerate the technology readiness level of our solutions to be able to submit more proposals and be prepared to conduct more customer and partner demonstrations of our technology in our recently opened Battle Lab. Under the current state of cutbacks in government funding both by individual agencies and DOGE, we cannot be certain that any such contracts will be forthcoming.
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 Department of Defense 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 DOD budgets for directed energy will grow exponentially larger to support the technology insertion. Notwithstanding the funding cuts at the ONR as described above, 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.
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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.
Results of Operations
Comparison of Operations for the Three Months Ended September 30, 2025 and 2024:
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| Revenue | $ | 108,984 | $ | 747,720 | (638,736 | ) | (85.42 | )% | ||||||||
| Cost of revenue | (53,409 | ) | (508,709 | ) | 455,300 | (89.50 | )% | |||||||||
| General and administrative | (3,374,558 | ) | (2,457,321 | ) | (917,237 | ) | 37.33 | % | ||||||||
| Selling and marketing | (196,326 | ) | (86,398 | ) | (109,928 | ) | 127.23 | % | ||||||||
| Research and development | (455,850 | ) | (70,244 | ) | (385,606 | ) | 548.95 | % | ||||||||
| Other income | 2 | 267 | (265 | ) | (99.25 | )% | ||||||||||
| Net loss | $ | (3,971,157 | ) | $ | (2,374,685 | ) | (1,596,472 | ) | 67.23 | % | ||||||
Revenue
Revenue decreased by approximately $639,000 to approximately $109,000 for the three months ended September 30, 2025 from approximately $748,000 for the three months ended September 30, 2024. In April 2025, the company was notified by a customer that two of its active contracts were currently unfunded and remain unfunded, resulting in a decrease in revenue for the period. Although the contracts remain open, the company suspended all work until funding is secured in the future. 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 U.S. Department of Defense.
Cost of Revenue
Cost of revenue decreased by approximately $455,000 to approximately $53,000 for the three months ended September 30, 2025 from approximately $509,000 for the three months ended September 30, 2024. This decrease was primarily attributable to the suspension of funding of two contracts by a federal government customer . The cost of material, supplies and direct labor incurred were expensed to R&D while our programs and work remain active and in place.
General and Administrative
General and administrative expenses increased by approximately $917,000 to approximately $3,375,000 for the three months ended September 30, 2025, compared to approximately $2,457,000 for the three months ended September 30, 2024. The increase was primarily driven by an increase in payroll and related fees of approximately $257,000, and an increase in non-cash compensation of approximately $528,000.
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Selling and Marketing
Selling and marketing expenses increased by approximately $110,000 to approximately $196,000 for the three months ended September 30, 2025, compared to approximately $86,000 for the three months ended September 30, 2024, primarily due to an increase in business development costs as well as costs related to demonstrations of our technology to potential customers and joint venture partners.
Research and Development
Research and development expenses increased by approximately $386,000 to approximately $456,000 for the three months ended September 30, 2025, compared to approximately $70,000 for the three months ended September 30, 2024, primarily due to an increase in labor costs of approximately $247,000 and an increase in material costs of approximately $139,000 associated with continued development of our USP laser technologies.
Net Loss
Our operations for the three months ended September 30, 2025, resulted in a net loss of approximately $3,971,000 an increase of approximately $1,596,000 compared to a net loss of approximately $2,375,000 for the three months ended September 30, 2024, primarily due to a decrease in revenue as well as an increase in general and administrative expenses, selling and marketing and research and development expenses.
Comparison of Operations for the Nine months ended September 30, 2025 and 2024:
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| Revenue | $ | 389,072 | $ | 1,662,598 | (1,273,526 | ) | -76.60 | % | ||||||||
| Cost of revenue | (164,813 | ) | (1,167,349 | ) | 1,002,536 | -85.88 | % | |||||||||
| General and administrative | (8,807,405 | ) | (7,117,731 | ) | (1,689,674 | ) | 23.74 | % | ||||||||
| Selling and marketing | (1,164,370 | ) | (238,174 | ) | (926,196 | ) | 388.87 | % | ||||||||
| Research and development | (1,115,075 | ) | (188,947 | ) | (926,128 | ) | 490.15 | % | ||||||||
| Other income | 19 | 2,589 | (2,570 | ) | -99.27 | % | ||||||||||
| Net loss | $ | (10,862,572 | ) | $ | (7,047,014 | ) | (3,815,558 | ) | 54.14 | % | ||||||
Revenue
Revenue decreased by approximately $1,274,000 to approximately $389,000 for the nine months ended September 30, 2025 from approximately $1,663,000 for the nine months ended September 30, 2024. 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 we have been advised to stop work and accordingly have suspended all work under the contracts themselves. 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 U.S. Department of Defense.
Cost of Revenue
Cost of revenue decreased by approximately $1,002,536 to approximately $164,813 for the nine months ended September 30, 2025 from approximately $1,167,349 for the nine months ended September 30, 2024. This decrease was primarily attributable to the suspension of funding of two contracts by a federal government customer. The cost of material, supplies and direct labor incurred were expensed to R&D while our programs and work remain active and in place.
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General and Administrative
General and administrative expenses increased by approximately $1,690,000 to approximately $8,807,000 for the nine months ended September 30, 2025, compared to approximately $7,118,000 for the nine months ended September 30, 2024. The increase was primarily driven by an increase in non-cash compensation of approximately $806,000, an increase in payroll and related costs of approximately $372,000, an increase in professional fees of approximately $213,000, and an increase in materials and supplies of approximately $193,000.
Selling and Marketing
Selling and marketing expenses increased by approximately $926,000 to approximately $1,164,000 for the nine months ended September 30, 2025, compared to approximately $238,000 for the nine months ended September 30, 2024, primarily due to an increase of approximately $663,000 related to the development and installation of the Battle Lab and related demonstrations of our technology as well as an increase of approximately $189,000 for labor and the increase in business development activities.
Research and Development
Research and development expenses increased by approximately $926,000 to approximately $1,115,000 for the nine months ended September 30, 2025, compared to approximately $189,000 for the nine months ended September 30, 2024, primarily due to an increase in labor costs of approximately $602,000 and material cost of approximately $324,000 associated with continued development of our USP laser technologies and programs which remain in place as we continue to work on them.
Net Loss
Our operations for the nine months ended September 30, 2025, resulted in a net loss of approximately $10,862,000 an increase of approximately $3,816,000 compared to the approximately $7,047,000 net loss for the nine months ended September 30, 2024, primarily due to a decrease in revenue as well as an increase in general and administrative expenses, research and development expenses and selling and marketing expenses.
Liquidity and Capital Resources
The accompanying unaudited 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. For the nine months ended September 30, 2025, the company incurred a net loss of approximately $10,863,000, had negative cash flows from operations of approximately $6,617,654 and will likely incur additional future losses due to reduction in government contract activity and the expenses discussed under Results of Operations. In their report accompanying our financial statements for the year ended December 31, 2024, 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.
On September 30, 2025, the company had total current assets of $1,819,197 and total current liabilities of $3,923,969 resulting in working capital surplus of $895,225. Approximately $3,000,000 of current liabilities was attributable to deferred equity financing. At September 30, 2024, the company had total current assets of $2,025,823 and total current liabilities of $888,684 resulting in a working capital surplus of $1,137,139.
During the first nine months of 2025, the net cash outflow from operating activities was $6,617,654. This amount was comprised primarily of our net loss of $10,862,572, offset by non-cash stock-based compensation expense of $3,661,622, depreciation and amortization of $195,539, amortization of ROU assets of $195,352, amortization of prepaid assets of $51,250, and cash used from changes in assets and liabilities of $141,155 from the increase in accounts receivable of $226,855, increase in accounts payable of $15,659 and accrued expenses and compensation of $196,329 off set by the net decrease in prepaids and deposits of $105,110 and operating lease liabilities of $192,578.
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During the nine months ended September 30, 2025, the net cash outflow from investing activities was $1,181,630. This was for the purchase of equipment.
During the first nine months of 2025, the net cash inflow from financing activities was $8,966,697. This amount consisted of $9,004,247 in proceeds from stock subscriptions and $91,210 from the exercise of options and warrants, which were offset by $17,435 tax withholdings related to the share settlement of RSUs and $111,325 of repayment of an insurance premium loan.
On October 8, 2025, the company completed the placement of 5,995,675 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), for aggregate proceeds in the amount of $10,789,999. The pre-funded warrants are exercisable immediately at a price of $0.001 per share but may not be executed in any amount which would cause the holder thereof to beneficially own in excess of 4.99% of the company’s common stock. The company has agreed to use its best efforts to include the shares for registration with the Securities and Exchange Commission in the registration statement it files. All of the purchasers are accredited, sophisticated investors, and the issuance of the shares was not in connection with any public offering in accordance with Section 4(a)(2) of the Securities Act of 1933.
Based on the company’s current business plan, we believe our cash balance as of the date of this report, along with revenue from our current contracts and proceeds from the recently completed sale of common stock, 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 substantially all of its efforts to developing its business and raising capital, as needed, and 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure under this item is not required for a “smaller reporting companies.”
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act 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 our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer (and principal accounting and financial officer) (“CEO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO has concluded that as of September 30, 2025, our disclosure controls and procedures were not effective as of such date as a result of a material weakness in our internal control over financial reporting due to a lack of segregation of duties (resulting from limited personnel) and written policies and procedures with the accounting functions and evidence of control review. Under the direction of our CEO and guidance of an outside contractor, we are developing a plan to remediate this material weakness, including having hired additional personnel to implement and oversee the required policies and procedures.
Changes in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. 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, the court issued an Opinion and Order denying both parties’ motions for Summary Judgment. The pre-trial filing documents deadline, originally set for October, has been extended to January 15, 2026. 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 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The company has reported all information pertaining to issuances of equity securities sold during the period covered by this Quarterly Report on Form 10-Q in previously filed report on Forms 10-K, 10-Q and 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
On
ITEM 6. EXHIBITS
| EXHIBIT NUMBER |
DESCRIPTION | |
| 23 | Consent of RBSM LLP * | |
| 31.1 | Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a). | |
| 32.1 | Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 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). |
| * | Incorporated by reference to Exhibit 23.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 |
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SIGNATURES
Pursuant to the requirements 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.
| APPLIED ENERGETICS, INC. | ||
| By: | /s/ Christopher Donaghey | |
| Christopher Donaghey, President and Chief Executive Officer and Principal Financial Officer | ||
| Date: November 12, 2025 | ||
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FAQ
What were AERG’s Q3 2025 results?
Why did Applied Energetics (AERG) revenue drop in Q3 2025?
Did AERG raise capital in 2025?
What is the company’s cash position?
Is there a going concern warning for AERG?
How did expenses trend in Q3 2025?
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