Applied Energetics (AERG) revenue plunges as losses widen and going concern risk flagged
Applied Energetics, Inc. reported very limited revenue and widening losses for the six months ended June 30, 2026. Revenue was $62,000, down sharply from $280,088 a year earlier as two U.S. government contracts remain unfunded and work under them is suspended.
The company recorded a net loss of $8,086,485, compared with $6,891,415 in the prior-year period, driven by higher general and administrative expenses of $6,700,295 and increased research and development spending of $1,074,275, partly offset by lower selling and marketing costs. Operating cash outflow was $5,124,054.
At June 30, 2026, cash and cash equivalents were $1,116,916, working capital was $811,352, and total assets were $4,069,180. Management states that recurring losses, negative operating cash flow and reliance on new capital raise substantial doubt about the company’s ability to continue as a going concern. The company is pursuing additional equity financing and continues to invest heavily in its ultrashort pulse laser and directed energy technologies.
Positive
- None.
Negative
- Substantial doubt about going concern: management and auditors state that recurring losses, negative operating cash flows and funding uncertainty raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance.
- Revenue dropped about 78%: six‑month revenue fell to $62,000 from $280,088 as key government contracts remain unfunded and work is suspended, leaving the business highly dependent on new awards and internal R&D.
- Net loss increased 17%: six‑month net loss widened to $8,086,485 from $6,891,415, reflecting higher general and administrative and R&D spending despite sharply lower revenue, pressuring capital needs.
- Material weakness in internal control: management concluded internal control over financial reporting was not effective as of June 30, 2026 due to lack of segregation of duties and formalized policies, with remediation still in progress.
Filing Explained
The reported $2 million financing remains an unclosed liability, so its equity terms and any related issuance are not yet established.
This Form 10-Q is an unaudited interim report. After
The proceeds are therefore recorded as a liability, not equity, and the final terms remain subject to change. The filing does not establish that this financing has become completed equity or that related issuance terms are fixed.
As of
The company also reported
Remediation has begun but is not complete and remains subject to testing. The financing’s status will be resolved through delivery of countersigned agreements, a closing, and finalization of its terms; separately, the litigation trial described in the filing is scheduled to begin on
Key Figures
Key Terms
going concern financial
restricted cash financial
stock-based compensation financial
Ultrashort Pulse technical
prefunded warrants financial
material weakness financial
FAQ
How much revenue did Applied Energetics (AERG) generate in the first half of 2026?
What was Applied Energetics’ (AERG) net loss for the six months ended June 30, 2026?
What is the liquidity position of Applied Energetics (AERG) as of June 30, 2026?
Does Applied Energetics (AERG) face going concern risks?
How much is Applied Energetics (AERG) spending on research and development?
What internal control issues did Applied Energetics (AERG) disclose?
Did Applied Energetics (AERG) raise any capital after June 30, 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _________ to ________
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
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| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer: | ☐ | Accelerated filer: | ☐ |
| ☒ | Smaller reporting company: | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| OTCQB |
As of August 12, 2026, there were
APPLIED ENERGETICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||
| ITEM 1. | Condensed Consolidated Unaudited Financial Statements | 1 |
| Condensed Consolidated Balance Sheets as of June 30, 2026 (Unaudited) and December 31, 2025 | 1 | |
| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2026 and 2025 (Unaudited) | 2 | |
| Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2026 and 2025 (Unaudited) | 3 | |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 (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 4. | Controls and Procedures | 27 |
| PART II. OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 28 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 |
| ITEM 5 | Other Information | 28 |
| ITEM 6. | Exhibits | 28 |
| SIGNATURES | 29 | |
i
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | - | |||||||
| Accounts receivable, net | ||||||||
| Other assets | ||||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property and equipment - net | ||||||||
| Right of use asset – operating lease | ||||||||
| Security deposits | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable | ||||||||
| Operating lease liability - current | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | - | |||||||
| 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 | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
1
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three months Ended | For the Six months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| 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 | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
2
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In |
Accumulated | Total Stockholders’ (Deficit) |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| 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 | - | - | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||
| Shares issued for consulting services | - | - | - | - | - | - | - | |||||||||||||||||||||
| Net loss for the period ended March 31, 2026 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Common stock issued on exercise of options | - | - | - | |||||||||||||||||||||||||
| Net loss for the period ended June 30, 2026 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 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 | - | - | - | |||||||||||||||||||||||||
Proceeds from issuance of prefunded warrants | ||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
3
APPLIED ENERGETICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six months Ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| 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 | ||||||||
| Amortization of prepaid assets | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid and deposits | - | ( | ) | |||||
| ROU liabilities | ( | ) | ( | ) | ||||
| Other assets | ( | ) | - | |||||
| Accounts payable | ||||||||
| Deferred Revenue | ||||||||
| 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 notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock under the market offering | - | |||||||
| Tax withholdings related to net share settlement of RSU’s | ( | ) | ( | ) | ||||
| Proceeds from the exercise of stock options and warrants | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash 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 | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
4
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(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, 2025, 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 six months ended June 30, 2026, 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
JUNE 30, 2026
(Unaudited)
Trade conditions, such as unusually high and fluctuating tariffs, exacerbated supply chain shutdowns and delays, contribute to this uncertainty. Additionally, Russia’s military action in Ukraine, war in the Middle East, 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 is 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
JUNE 30, 2026
(Unaudited)
Significant Concentrations and Risks
We maintain cash balances at a commercial bank, and, at times, balances exceed FDIC limits. As of June 30, 2026, $
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.
NOTE 3 – RESTRICTED CASH
In June 2026 the company deposited $
NOTE 4 – OTHER ASSETS
Other assets consisted of the following as of June 30, 2026 and December 31, 2025:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Prepaid Expenses | $ | $ | ||||||
| Prepaid Insurance | ||||||||
| Prepaid Consumables | - | |||||||
| Total other assets | $ | $ | ||||||
7
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
NOTE 5 – PROPERTY AND EQUIPMENT – NET
Property and equipment – net consisted of the following as of June 30, 2026 and December 31, 2025:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Lab equipment | $ | $ | ||||||
| Battle Lab Equipment | ||||||||
| Software | ||||||||
| Furniture and fixtures | ||||||||
| Computer equipment | ||||||||
| Other Property Used for Transportation | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the six months ended June 30, 2026 and 2025, was $
NOTE 6 – SECURITY DEPOSITS
As of June 30, 2026 and December 31, 2025, the company had security deposits totaling $
NOTE 7 – ACCRUED EXPENSES
Accrued expenses consisted of the following as of June 30, 2026 and December 31, 2025:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued PTO | ||||||||
| Accrued taxes | ||||||||
| Accrued other | ||||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 8 – NOTES PAYABLE
Premium Financing
On June 9, 2026, the company entered into an agreement with a lender to provide financing in the amount of $
On June 12, 2025, the company entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $
8
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
Notes Payable Reconciliation
The following reconciles notes payable as of June 30, 2026, and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| Beginning balance | $ | $ | ||||||
| Notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less-Notes payable – current | ||||||||
| Notes payable – non-current | $ | - | $ | - | ||||
NOTE 9 – STOCKHOLDERS’ EQUITY
Stock Issuances
During the six months ended June 30, 2026, the company issued
During the six months ended June 30, 2026, the company issued
During the six months ended June 30, 2026, the company issued
During the six months ended June 30, 2026, the company issued
During the six months ended June 30, 2025, the company completed the placement of
During the six months ended June 30, 2025, the company issued
During the six months ended June 30, 2025, restricted stock units covering
During the six months ended June 30, 2025, the company issued
During the six months ended June 30, 2025, the company issued
During the six months ended June 30, 2025, the company issued
During the six months ended June 30, 2025, the company issued
9
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
During the six months ended June 30, 2026, restricted stock units covering
Preferred Stock
As of June 30, 2026, and December 31, 2025, there were
The 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
JUNE 30, 2026
(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.
Stock Option and Stock Issuance Plan
Effective November 12, 2018, the company’s Board of Directors 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
The company has, 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 $
As of June 30, 2026, the company has $
11
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
The following table summarizes the activity of our stock options for the six months ended June 30, 2026:
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Term Outstanding | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2025 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited or expired | ( | ) | - | - | ||||||||||||
| Outstanding at June 30, 2026 | ||||||||||||||||
| Outstanding and exercisable at June 30, 2026 | ||||||||||||||||
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:
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2026 | 2025 | |||||||
| 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 recognized as an expense over the requisite service period.
| Restricted Stock Outstanding | ||||||||
| Shares | Weighted Average Fair Value per Share at Grant Date | |||||||
| Nonvested at December 31, 2025 | ||||||||
| Granted – restricted stock units and awards | - | - | ||||||
| Granted – performance-based stock units | - | - | ||||||
| Canceled | - | - | ||||||
| Vested | ( | ) | ( | ) | ||||
| Nonvested at June 30, 2026 | $ | |||||||
12
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
As of June 30, 2026, and December 31, 2025, there was $
On October 9, 2025, the company completed the placement of
Warrant stock activity for the six months ended June 30, 2026, was as follows:
| Warrant Activity | ||||||||||||
| Weighted Average Exercise | Weighted Average remaining Contractual Term | |||||||||||
| Shares | Price | (years) | ||||||||||
| Outstanding at December 31, 2025 | $ | |||||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding and exercisable at June 30, 2026 | $ | |||||||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Weighted Avg. Remaining | Weighted | Weighted | ||||||||||||||||||||
| Range of | Shares | Contractual Life in | Avg. Exercise | Shares | Avg. Exercise | |||||||||||||||||
| Exercise Prices | Outstanding | Years | Price | Exercisable | Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
13
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(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,
| June 30, 2026 | December 31, 2025 | |||||||
| Accounts receivable, net | $ | $ | ||||||
Concentrations
During the three months ended June 30, 2026, one customer accounted for a total of $
During the three months ended June 30, 2025, one customer accounted for a total of $
14
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(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, the company exercised its option to lease more than
The company incurred lease payments of $
At June 30, 2026, the company had $
| Operating Lease | ||||
| 2026, six months ended December 31: | $ | |||
| 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
JUNE 30, 2026
(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 obligations 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 June 30, 2026 and 2025.
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.
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APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
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 company is currently deemed to be comprised of only
| For the three months Ended | For the Six months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| 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 | ||||||||||||||||
| Professional fees | - | - | - | - | ||||||||||||
| Materials and supplies | ||||||||||||||||
| Total research and development | | | | | ||||||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
17
APPLIED ENERGETICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2026
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS
The company’s management has evaluated subsequent events occurring after June 30, 2026, the date of our most recent balance sheet, through the date our financial statements were issued.
Subsequent to the period ending June 30, 2026, the company issued
Subsequent to June 30, 2026, Restricted Stock Units covering
As of the reporting date, the company has received cash proceeds in the amount of $
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, 2025.
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, 2025. 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.
Overview
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 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 potential commercial applications in both the biomedical and advanced manufacturing industries.
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 optimization 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.
19
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. For defense, in particular, our USPL technology has demonstrated effects we believe are well suited to counter Group 1 and Group 2 small unmanned aerial systems.
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 measured in trillionths of a second or shorter. 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, along wavelength and pulse duration agility will help us achieve our vision statement of “Directed Energy, Anywhere.”
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 two 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. In addition to research we have performed under contracts, we have continued our internal research and development (IRAD) efforts as we transition to product development and testing.
During the past several years, substantially all of our operating revenues were 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. During the quarter, AE added two new business developments contractors as well as a business development marketing agency to assist the company in raising awareness about the state and uniqueness of its technology in the market and among targeted customers.
In accordance with our 2026 Priorities, we continue to focus our efforts on (i) prioritizing laser productization; increasing staff for systems integration, software development, and beam director design; (ii) increasing market awareness and credibility; converting business development pipeline into active contracts; and (iii) cultivating ongoing partner conversations into active teaming agreements for specific programs, layered systems integration architectures, direct investment and co-development agreements.
The company, with its USPL technology, is uniquely positioned with its SWAP profile and specialized applications for counter UAS, counter ISR, Golden Dome and other applications requiring scaled directed energy effects.
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. We completed work under the requisition, and in April 2026 we were awarded a follow-on contract in excess of $240,000 to support Phase 1 of the program. We have performed a significant amount of the work under Phase 1, and planning has begun for the next phase of the program.
20
During the first half of 2025, we were continuing work on two contracts with the Office of Naval Research (ONR), but both contracts were subsequently closed. Also, through November 14, 2025, we were continuing work on a Phase II Small Business Technology Transfer (STTR) contract with the U.S. Army. In the fourth quarter of 2025, we completed work on this contract and received full payment from the customer.
During the six months ended June 30, 2025, we recognized revenues as we performed services under these contracts and recorded related costs under cost of revenues. During the six months ended June 30, 2026, on the other hand, the company was no longer performing services under these contracts, so it recorded no revenues or costs with respect to them. However, the company has continued working on related technologies as part of its ongoing internal research and development program.
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. These supply issues similarly affect any internal research and development programs, and we anticipate that they will continue for at least the near term. Micro-electronic and semiconductor chip shortages are still impacting supply chains, and as such, can impact our ability to develop our technology in a timely manner and to execute and deliver technology to meet demands of our prospective customers. Certain optical transmitting components are also in short supply. The ongoing conflict in the Middle East is also putting upward pressure on shipping expenses for all of these products. Expenditures associated with internal research and development, such as supplies, equipment, and components, are recorded as expenses rather than cost of revenues.
Effective April 17, 2026, the company received a requisition from the University of Rochester in the amount of $243,000 for the next phase of an arrangement with the university to support its Laboratory for Laser Energetics (LLE) for ongoing efforts to develop pulsed laser technologies. The work is expected to be completed by September 30, 2026. Planning has also begun for the next phase of the program.
During the quarter ended June 30, 2026, the company has continued its work on the design and integration of USP technologies to be tested on the Kord Firefly platform and has extended this work into the third quarter. With recent upgrades and advances to the FIREFLYTM system, the company looks to continue integration into the updated platform.
During the fourth quarter of 2025 and the first half of 2026, the company conducted 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 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. Our team has conducted several such field tests, in one of which, we completely disabled the sensor on a drone at a range that meets specifications provided to us by prospective customers. During this period our team has also deployed a significant amount of the company’s R&D budget toward the purchase of supplies and equipment for the development and testing of prototypes.
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, contract award timing, and ability to continue operating. 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.
21
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 scaling 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.
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.
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Results of Operations
Comparison of Operations for the Three Months Ended June 30, 2026 and 2025:
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Revenue | $ | 62,000 | $ | 70,335 | (8,335 | ) | -11.85 | % | ||||||||
| Cost of revenue | (21,570 | ) | (47,490 | ) | 25,920 | -54.58 | % | |||||||||
| General and administrative | (3,417,507 | ) | (2,823,159 | ) | (594,348 | ) | 21.05 | % | ||||||||
| Selling and marketing | (223,330 | ) | (649,260 | ) | 425,930 | -65.60 | % | |||||||||
| Research and development | (699,234 | ) | (336,178 | ) | (363,056 | ) | 108.00 | % | ||||||||
| Other income | 20,879 | 3 | 20,876 | NM | ||||||||||||
| Net loss | $ | (4,278,762 | ) | $ | (3,785,749 | ) | (493,013 | ) | 13.02 | % | ||||||
Revenue
Revenue decreased by $8,335 to $62,000 for the three months ended June 30, 2026 from $70,335 for the three months ended June 30, 2025. 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 War.
Cost of Revenue
Cost of revenue decreased by $25,920 to $21,570 for the three months ended June 30, 2026 from $47,490 for the three months ended June 30, 2025. This decrease was primarily attributable to the corresponding decrease in revenue for the three months ended June 30, 2026.
General and Administrative
General and administrative expenses increased by $594,348 to $3,417,507 for the three months ended June 30, 2026, compared to $2,823,159 for the three months ended June 30, 2025, primarily due to an increase in employees and a resulting increase in salaries, employee benefits, and consultants of approximately $328,000, an increase in stock based compensation of $171,000, and an increase in recruiting expenses of $80,000.
23
Selling and Marketing
Selling and marketing expenses decreased by $425,930 to $223,330 for the three months ended June 30, 2026, compared to approximately $649,260 for the three months ended June 30, 2025, primarily due to expenses of approximately $450,000 to set up the Battle Lab that were incurred during the three months ended June 30, 2025.
Research and Development
Research and development expenses increased by $363,056 to $699,234 for the three months ended June 30, 2026, compared to $336,178 for the three months ended June 30, 2025 primarily due to an increase in labor costs of $134,735, including the hiring of new engineering staff as well as an increase in materials and supplies of $262,000, including highly specialized components and optical fibers for the design of prototypes for demonstrations as well as continued development of our USP laser technologies and programs.
Net Loss
Our operations for the three months ended June 30, 2026, resulted in a net loss of $4,278,762, an increase of approximately $493,013 compared to a net loss of $3,785,749 for the three months ended June 30, 2025, primarily due an increase in general and administrative expenses and research and development expenses partially offset by a decrease in selling and marketing expenses.
Results of Operations
Comparison of Operations for the Six Months Ended June 30, 2026 and 2025:
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Revenue | $ | 62,000 | $ | 280,088 | (218,088 | ) | -77.86 | % | ||||||||
| Cost of revenue | (21,570 | ) | (111,404 | ) | 89,834 | -80.64 | % | |||||||||
| General and administrative | (6,700,295 | ) | (5,432,847 | ) | (1,267,448 | ) | 23.33 | % | ||||||||
| Selling and marketing | (395,609 | ) | (968,044 | ) | 572,435 | -59.13 | % | |||||||||
| Research and development | (1,074,275 | ) | (659,225 | ) | (415,050 | ) | 62.96 | % | ||||||||
| Other income | 43,264 | 17 | 43,247 | NM | ||||||||||||
| Net loss | $ | (8,086,485 | ) | $ | (6,891,415 | ) | (1,195,070 | ) | 17.34 | % | ||||||
Revenue
Revenue decreased by $218,088 to $62,000 for the six months ended June 30, 2026 from $280,088 for the six months ended June 30, 2025. 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 War.
Cost of Revenue
Cost of revenue decreased by $89,834 to $21,570 for the six months ended June 30, 2026 from $111,404 for the six months ended June 30, 2025. This decrease was primarily attributable to the corresponding decrease in Revenue for the six months ended June 30, 2025.
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General and Administrative
General and administrative expenses increased by $1,267,448 to $6,700,295 for the six months ended June 30, 2026, compared to approximately $5,432,847 for the six months ended June 30, 2025, primarily due to an increase in employees and a resulting increase in salaries, employee benefits, and consultants of approximately $725,000 and an increase in stock based compensation of $528,000.
Selling and Marketing
Selling and marketing expenses decreased by $572,435 to approximately $395,609 for the six months ended June 30, 2026, compared to $968,044 for the six months ended June 30, 2025, primarily due to a decrease in expenses of $628,000 to set up the Battle Lab that were incurred for the 6 months ended June 30, 2025.
Research and Development
Research and development expenses increased by $415,050 to approximately $1,074,275 for the six months ended June 30, 2026, compared to $659,225 for the six months ended June 30, 2025, primarily due to an increase in labor costs of $236,000 as well as an increase in materials and supplies of $179,000 in connection with the design of prototypes for demonstrations as well as continued development of our USP laser technologies and programs.
Net Loss
Our operations for the six months ended June 30, 2026, resulted in a net loss of $8,086,485 an increase of $1,195,070 compared to a net loss of $6,891,415 for the six months ended June 30, 2025, primarily due an increase in general and administrative expenses and research and development expenses partially offset by a decrease in 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 six months ended June 30, 2026, the company incurred a net loss of approximately $8,086,000, had negative cash flows from operations of approximately $5,124,000 and may incur additional future losses due to the possible 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, 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 June 30, 2026, the company had total current assets of approximately $2,210,000 and total current liabilities of approximately $1,398,000 resulting in working capital of approximately $812,000. At June 30, 2026, we had approximately $1,117,000 of cash and cash equivalents, a decrease of approximately $5,319,000 from approximately $6,436,000 at December 31, 2025.
During the first six months of 2026, the net cash outflow from operating activities was approximately $5,124,000. This amount was comprised primarily of our net loss of approximately $8,086,000, offset by non-cash stock-based compensation expense of approximately $2,682,000, depreciation and amortization of approximately $175,000, amortization of ROU assets of approximately $141,000 and amortization of prepaid assets of approximately $103,000 as well as cash used from changes in assets and liabilities of approximately $363,000 which was comprised of an increase in Other Assets of $282,000, a decrease in ROU liabilities of approximately $153,000, an increase in Accounts Receivable of approximately $81,000, a decrease in in Accrued Expenses of $42,000 offset by an increase in Accounts Payable of $319,000 and an increase in Deferred Revenue of $100,000.
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During the first six months of 2026, the net cash outflow from investing activities was approximately $80,000. This was for the purchase of equipment including a trailer for transporting equipment for testing.
During the first six months of 2026, the net cash outflow from financing activities was approximately $40,000. This amount consisted of approximately $69,000 of payments made on loans as well as $5,000 tax withholdings related to the share settlement of RSUs offset by $34,000 received from the exercise of options.
Based on the company’s current business plan, we believe our cash balance as of the date of this report 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.
The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting substantially all of its time and effort 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.
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 appeared to be driving it back up during the first quarter of 2026 through the current date. 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, particularly given the highly skilled nature of this work. Inflation has also impacted the price of supplies and materials we must purchase. 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.
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ITEM 4. 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.
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 June 30, 2026, 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, in 2025, the company 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 controls over financial reporting was not effective as of June 30, 2026.
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 Controls Over Financial Reporting
Other than work on remedial measures set forth above under Management’s Report on Internal Controls over Financial Reporting, there has been no material change in Applied Energetics’ internal control over financial reporting for the quarter ended June 30, 2026, that materially affected or is reasonably likely to materially affect our internal control 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, 2025, the court issued an Opinion and Order denying both parties’ motions for Summary Judgment. The parties participated in a mediation on April 23, 2026, which did not result in a settlement. The court recently scheduled the trial to commence on December 1, 2026.
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 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 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
ITEM 6. EXHIBITS
| EXHIBIT
NUMBER |
DESCRIPTION | |
| 23 | Consent of RBSM LLP * | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a). | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a). | |
| 32.1 | Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | 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, 2025 |
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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: August 13, 2026 | ||
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