UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December
31, 2024
☐Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period
from __________ to __________
Commission File Number 001-14015
Applied Energetics,
Inc.
(Exact Name of Registrant
as Specified in Its Charter)
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including
area code: (520)628-7415
Securities registered
pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, $.001 par value AERG OTCQB
Securities registered
pursuant to Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller
reporting company” and “emerging growth company’ in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☐ Accelerated Filer ☐
Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
If securities are registered
pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark
whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last reported
sales price at which the stock was sold on June 30, 2024 (the last day of the registrant’s most recently completed second quarter)
was approximately $383,288,636.
The number of outstanding
shares of the registrant’s Common Stock, $.001 par value, as of March 25, 2025 was 218,242,805.
APPLIED ENERGETICS,
INC.
ANNUAL REPORT ON FORM
10-K
FOR THE YEAR ENDED
DECEMBER 31, 2024
INDEX
Page No.
PART I.
Item 1. Business 1
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 17
Item 1C. Cybersecurity 17
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Mine Safety Disclosure 19
PART II.
Item 6. [Reserved] 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9A. Controls and Procedures 28
Item 9B. Other Information 30
Item 9C. Disclosure regarding Foreign Jurisdictions that Prevent Inspections. 30
PART III.
Item 10. Directors, Executive Officers, and Corporate Governance 31
Item 11. Executive Compensation 35
Item 14. Principal Accountant Fees and Services 41
PART IV.
Item 15. Exhibits and Financial Statement Schedules 42
Signatures: 44
i
PART I
ITEM 1. BUSINESS
Cautionary Note Concerning Forward-Looking
Statements
Certain
statements in this Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical
or current facts and can be identified by the use of forward-looking words such as “may,” “believe,” “will,”
“expect,” “project,” “anticipate,” “estimates,” “plans,” “strategy,”
“target,” “prospects” or “continue,” and words of similar meaning. These forward-looking statements
are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results, performances or achievements expressed or implied by
such forward-looking statements. This Form 10-K contains important information as to risk factors under Item 1A. Although we believe that
the expectations reflected in such forward-looking statements are reasonable, such expectations may prove incorrect over time. We do not
assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other
factors affecting such forward-looking statements.
Available Information
Applied
Energetics, Inc. (“company,” “Applied Energetics,” “AE,” “we,” “our” or “us”)
makes available free of charge on its website at www.appliedenergetics.com its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, as soon as reasonably practical after electronically filing or furnishing such material to the Securities and
Exchange Commission (“SEC”).
This
report may be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549 or at www.sec.gov.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
General
Applied
Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070
S. Rita Road, Suite 1500, Tucson, Arizona, 85747 and our telephone number is (520) 628-7415. Our website is located at www.appliedenergetics.com.
Applied
Energetics, Inc. specializes in advanced laser and photonics systems, particularly fiber-based ultrashort pulse (USP) laser
technologies. With 26 patents and 8 patents pending, Applied Energetics’ proprietary
architecture enables orders of magnitude size-weight-power reductions, a key differentiator when compared with
traditional continuous wave (CW) laser technology with larger footprints. AE’s powerful,
dual-use systems are designed for integration and deployment on numerous potential
defense platforms for the delivery of high intensity, ultrashort pulses of light to disable or
destroy a target or disrupt a mission. These technologies have applications in both national
security and commercial markets. Today, AE's USP optical technologies are being designed to offer
flexibility and power for complex missions in national security such as enhancing layered defense strategies to
counter complex threats.
Technology, Capabilities,
and Patents
Applied Energetics, Inc.
is recognized as a global 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 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®)
1
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 result of our innovative USP approaches is highly effective lasers capable of jamming, damaging, and destroying certain surveillance
and reconnaissance sensors with mountable footprints that require only a fraction of the size, weight, and power requirements of other-directed
energy technologies. We believe the combination of both low size, weight, and power characteristics with wavelength and pulse duration
agility will help us achieve our vision statement of Directed Energy, Anywhere.
The Applied Energetics
scientific team is continuously innovating with an eye toward 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’ 26 issued patents and 11 Government Sensitive Patent Applications
(GSPA). These GSPA’s are held under secrecy orders of the US government, providing the company with extended protection rights.
More
recently, the company has been awarded a new patent for application in the national security domain (Pulsed Laser Thermal Excitation,
Patent No.: US 12,171,055 B2) and received notice of an allowed patent application in the healthcare domain (Pathogen Detection and Neutralization
Using Deep UV-C Generation Via Seeded Raman Amplification and Second Harmonic Generation, Patent Application No.: US 2023/01804590 A1).
The company also has eight pending patent applications. We continue to file patent applications as we deem appropriate to protect
our intellectual property and enhance our competitive advantage.
As
Applied Energetics looks toward the future, our corporate strategic roadmap builds upon the significant value of the company’s USP
laser capabilities and key intellectual property, including LGE and LIPC, to offer our prospective partners, co-developers and system
integrators a variety of next-generation ultrashort pulse and frequency-agile optical sources, from the ultraviolet to the far infrared
portion of the electromagnetic spectrum, to address numerous challenges within the national security, biomedical, and advanced manufacturing
market sectors.
2
Recent Developments
In
March 2025, the company moved to the next phase of 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). This phase is to begin with the purchase of a specially modified Firefly HELWS unit from Kord
which the company can use 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.
This
teaming effort is intended to advance innovative directed energy capabilities that may create future opportunities in defense and security
markets. The development and integration activities will focus on refining system performance, optimizing integration, and validating
operational effectiveness, by striving to achieve key technical milestones that could lead to additional customer interest, contract opportunities,
and expanded applications.
Applied
Energetics had previously entered into a Memorandum of Understand (MOU) with Kord, effective October 28, 2024, to further the development
and deployment of Applied Energetics’ ultrashort pulsed laser (USPL) technology for defense and national security applications.
The MOU outlines key areas of cooperation, including joint research and development, integration of Applied Energetics’ USPL technologies
into an existing high-energy laser directed energy platform, and the exploration of new opportunities to enhance both companies’
product portfolios.
On
February 10, 2025, Applied Energetics announced the opening of its new Battle Lab, a world-class facility designed to test, demonstrate,
and advance emerging laser technologies in dynamic environments. The facility, as planned, is also expected to provide the capacity to
manufacture and integrate advanced lasers as Applied Energetics makes the anticipated technology transition to the next stage of its
lifecycle. Over the coming months, the company intends to install and demonstrate multiple ultrashort pulse lasers with varying wavelengths
against relevant target packages. This announcement follows the July 3, 2024 announcement that Applied Energetics, Inc. had exercised
its option to lease more than 5,000 square feet of additional space at the University of Arizona Tech Park to support the company’s
investment in a new Battle Lab, with laser manufacturing capacity to ensure it has the critical infrastructure in place to fulfill both
current, and possible future, priority U.S. military programs. The company took the option to lease this additional space under the June
7, 2023, amendment (the “2023 Amendment”) to its Lease Agreement with Campus Research Corporation, as Landlord. With this
expansion, the company now occupies, in the aggregate, approximately 26,000 sq. ft. of space at the Arizona Tech Park. The Battle Lab
is intended to support laser system testing against relevant targets and emerging threats. The Battle Lab is expected to enable technology
maturation and be the venue for customer and partner demonstrations under realistic and controlled conditions. The facility, as planned,
will also provide the capability to manufacture, integrate, and test advanced lasers as Applied Energetics makes its anticipated transition
of its technology to the next stage of its lifecycle.
Effective
November 25, 2024, Applied Energetics elected Christopher Donaghey to serve as its President and Chief Executive Officer. The company’s
Board of Directors made this determination based on Mr. Donaghey’s deep understanding of the industry, our customers’ needs
and our operations. The company believes that his diverse defense industry experience and keen understanding of the need for cutting-edge
solutions to address the urgent threats to national security, position him to lead the company during its next phase of growth. Mr. Donaghey
served as the company’s Chief Operating and Financial Officer from August 2022, during which time he has led all aspects of Applied
Energetics financial strategy, performance, reporting and long-range business planning, as well as investor relations, treasury, controller,
and audit operations. He continues to serve as interim Principal Financial and Accounting Officer. Additional biographical information
for Mr. Donaghey appears under “Directors, Executive Officers, and Corporate Governance” elsewhere in this Form 10-K.
During
July 2024, the company’s Board of Directors, in consultation with counsel, embarked on a comprehensive review and revision to the
company’s By-laws resulting, on July 17, 2024, in the board’s adoption of the company’s First Amended and Restated By-laws.
The amended By-laws update several provisions to reflect the company’s current business, operations and conduct of its corporate
affairs as well as changes in Delaware law, including, without limitation conduct of stockholder meetings, titles and functions of officers,
board classification, indemnification, and conduct of remote stockholder meetings. A few revisions are ministerial such as that pertaining
to the company’s address of record in the State of Delaware.
Effective
April 1, 2024, Michael J. Alber joined our Board of Directors. A full discussion of Mr. Alber’s background, qualifications and compensation
appears in Part III of this Annual Report on Form 10-K.
Effective
March 12, 2024, the grant previously awarded to Applied Energetics, Inc. by the Department of the Navy, Office of Naval Research (ONR)
was transitioned into a contract, both of which are described in greater detail under “Ongoing Business Operations.” On September
4, 2024, the company received a funding increase on this contract of $237,647 bringing the total funding on the contract to $1,455,182.
On
March 5, 2024, Applied Energetics entered into an Employment Agreement with James Harrison, PhD, pursuant to which Dr. Harrison serves
as Director of New Product Innovation, commencing on April 3, 2024. Dr. Harrison continues to serve under this agreement and has been
a valuable addition to our lab team.
3
Ongoing Business
Operations
Effective
August 23, 2023, Applied Energetics executed a contract with the Department of the Navy, Office of Naval Research with an aggregate contract
price of $1.99 million payable over two years as the company performs its obligations under the contract. The objective of the contract
is 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. The company’s continuing development efforts
in collaboration with ONR signify the importance of sustained development and maturation of USP-based directed energy systems to support
the Navy’s technological priorities.
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.
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 supersedes the grant and carries
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
ends November 11, 2025. On September 4, 2024, the company received a funding increase on this contract of $237,647 bringing the total
funding on the contract to $1,455,182. The purpose of this research is 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. Research under the grant was completed and all
progress reported to the program manager.
4
Business Development
Activities
We
continue to submit proposals to, and attended 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.
For
fiscal year 2025, which started on October 1, 2024, the National Defense Authorization Act (NDAA) was delayed, but on December 23,
2024, then-President Biden signed the 2025 NDAA into law. 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 Department of Defense. On September 26, 2024, in the absence of an enacted federal budget,
then-President Biden signed a Continuing Resolution (CR), HR 9747, which extended government operations through December 20, 2024.
He then signed a second CR for FY25 on December 21, 2024, extending funding for the federal government through March 14, 2025. A
full year Continuing Resolution, H.H. 1968, was passed and signed into law by President Trump on March 15, 2025, and extends through
September 30, 2025.
In
addition, the newly elected 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, 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.
5
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 are also contemplating adding
members to our Board of Directors and our Board of Advisors. Our board and leadership team have worked to align key innovations with our
roadmap to encourage and enable internal filing for a broad, strategic, and robust intellectual property portfolio and continue surveying
the literature for acquisitions of parallel intellectual property to that end. We also intend to pursue strategic corporate acquisitions
in related fields and technology. The company’s management continues to explore any favorable equity financing opportunities.
Our
goal with the Applied Energetics Strategic Plan is to increase the energy, peak power and frequency agility of USP optical sources while
decreasing the size, weight, and cost of these systems. We are in the process of developing this breadth of very high peak power USP lasers
and additional optical sources that have a broad range of applicability for threat disruption for the 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 partnership and teaming arrangements with the three leading laser and
optics institutes in the United States, namely, the University of Arizona, the University of Central Florida, and the University of Rochester
Laboratory for Laser Energetics.
We
have continued to execute our business development plans, further our research and development program and submit filings for intellectual
property and proposals for grants and contracts. During the past several years, we continued to submit proposals and have been engaged
in meetings on a continuous basis with various agencies and departments both remotely and in person in Washington, DC and at various other
government facilities. Having received a significant research grant and several contracts as well as other indications in recent years,
we believe the interest in our technology and applications remains high, and we continue to submit proposals for all appropriate opportunities
and share our vision of the disruptive capabilities of USP optical sources for both near- and far-term threats and dual-use commercial
applications.
Through
our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive
and interested in directed energy technologies. According to the US 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. 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.
6
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.
Market for Our Technology
Unmanned
semi- and fully-autonomous aerial, ground, maritime and surface vehicle threats are dramatically increasing in number and
capability. As unmanned systems increasingly augment humans, sensors will saturate the battlefield. Most of these threats are
piloted through cameras mounted on the vehicle. We believe these emerging threats are ideally suited for directed energy effects.
The proliferation of commercial-off-the-shelf sensors and unmanned systems are providing both traditional and asymmetric forces with
improved intelligence gathering and improvised threat capabilities enabling low-cost and low-tech solutions against high value
targets.
Directed Energy Systems
Directed
energy systems involve the use of highly focused energy such as lasers or microwaves to incapacitate, damage, or destroy enemy equipment,
facilities, and assets. Previous to LGE, the only two viable directed energy systems were High Energy Laser (HEL), which uses heat to
burn targets and High Power Microwave (HPM) systems, that use electromagnetic energy at specific microwave and radio frequencies to disable
electronic systems.
HEL
and HPM directed energy technologies have been under development for decades with numerous DoD and other government contractors
participating. The unique attributes of directed energy weapon systems —the ability to create precise effects against multiple
targets near-instantaneously and at a very low cost per shot—have great potential to help the DoD in addressing future warfare
requirements. The DoD invests research and development dollars into directed energy solutions to fill gaps identified by
warfighters. For example, in future conflicts with capable enemies possessing large inventories of guided missiles or uncrewed
aerial drones, it may be operationally risky and cost-prohibitive for the U.S. military to continue to rely exclusively on a limited
number of kinetic missile interceptors. Such a competition could allow an adversary to impose costs on U.S. or allied forces by
compelling them to intercept each incoming missile or drone with far more expensive kinetic munitions. The DoD has made
technological advances in both performance and maturity as a result of many years of research with multiple threat-intercept
technologies and previously was directed by Congress, to increase funding and
evaluation of pulsed laser technology in future directed energy platforms.
The
main drawback to these systems tends to be the larger overall size and power requirements that makes them difficult to field more broadly.
The laser was invented in 1960, and yet today, directed energy capabilities are still in the early stages of development and adoption.
We believe that in order for directed energy capabilities to see an inflection point in adoption, three elements must converge: (1) increased
use of a widely proliferating threat uniquely suited to being countered by directed energy systems, (2) directed energy systems that can
deliver high-value effects against those threats, and (3) directed energy systems that have optimized size, weight, and power footprints
that enable widespread deployment across multiple platform types and fixed sites.
7
Applied
Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture
and wavelength- and pulse-agility capability, our ultrashort pulse technology enables users to achieve specific effects across different
use cases, with an unmatched blend of size, weight and power attributes. While initially designed to meet the emerging needs and priorities
for the national security community, Applied Energetics’ directed energy technology also has commercial applications in both the
biomedical and advanced manufacturing industries.
Our
Ultrashort Pulse Laser Systems have the following solution attributes:
1.
High Peak Power allows for sub-second kills,
2.
Laser wavelength can be matched to sensor wavelength,
3.
Allow for a common underlying architecture across all counter-ISR applications,
4.
Can be an efficient, compact and ruggedized optical fiber-based architecture.
Applied
Energetics’ proprietary fiber-based architecture is a key differentiator for our technology. Compared with traditional continuous
wave technology with larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables,
creating powerful, dual-use and agile systems that can fit a host of platforms while delivering very high intensity, ultrashort pulses
of light to the required target. Using this unique architecture as a laser source for an integrated system can enable Applied Energetics
to develop, integrate and deliver a suite of technologies that best meet the needs and requirements of its customers.
Applied
Energetics’ optical fiber-based laser architectures 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
Facilities
Our
26,800 sq ft. facility at the University of Arizona Tech Park features the following:
● Multiple integrated laser labs
● Secure server room with network capability
● Shop assembly area (outside of cleanroom)
8
Competition
AE’s
Ultrashort Pulse sources, including proprietary LIPC® based LGE® technology, are unique and can be integrated onto platforms being
developed for use by the U.S. Government. Over the past several years, a relatively small number of major defense contractors have received
significant funding for directed energy systems development, manufacturing and integration, using continuous wave, high energy laser and
microwave technologies. These contractors specialize in different directed energy system platforms to respond to a variety of threats.
Applied Energetics believes that its pulsed laser systems can be a part of a layered defense solution alongside these other technologies.
Although AE competes against other directed energy systems for funding, the uniqueness of our technologies should continue to support
their development into weapon platform programs. AE believes that there is renewed U.S. Government interest in directed energy applications
and believes that continued development of its USP capabilities and growing interest from all branches of the U.S. armed forces and other
government agencies will lead to increases in government spending on directed energy in the coming years. Likewise, there are multiple
new threats that must be addressed with unique and emerging technologies, and AE is working diligently to rapidly advance development,
demonstration, testing and engineering of the Advanced Ultrashort Pulse lasers throughout the spectrum from the ultraviolet to the far
infrared. We believe that USP technologies can rapidly accelerate in magnitude, as a percentage of the federal budget, compared with other
technologies over the next several years.
AE’s
primary direct USP optical source competition are corporations and contractors supported by foreign governments who may be attempting
to develop similar technologies. AE believes that such foreign activity will create additional U.S. Government funding for both USP sources
and LGE in order to maintain our country’s lead in pulsed directed-energy systems. Other companies with directed energy capabilities,
albeit in continuous wave, microwave and other areas within directed energy, are Raytheon Technologies, Lockheed Martin, Northrop Grumman,
Boeing, BAE Systems, nLight, General Atomics, DRS Daylight Solutions, L3Harris Technologies, BlueHalo, and Epirus. Although based on different
types of directed energy, we may compete with these companies to provide solutions to problems presented by potential customers.
Some
of AE’s biggest commercial competitors are Trumpf (German), Coherent (US), Thales (France). IPG (US), RAFAEL Advanced Defense Systems
Ltd. (Israel), and Light Conversion (Lithuania), most of which are billion-dollar market class companies that have substantially more
resources than AE.
Employees
As
of March 25, 2025, we had 21 employees. We also retain outside consultants and contractors for specific projects.
Supplies and Raw
Materials
Our
research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics
and other supplies. We depend upon the availability of materials and major electro-optical components as well as the performance and reliability
of our suppliers. Some of our products require relatively scarce fabricated materials. We have experienced delays in obtaining certain
of these supplies and materials and we have had difficulty accessing qualified suppliers of those materials. A significant, prolonged
increase in inflation could negatively impact the cost of materials and components, which could be a particular problem with respect to
our fixed price contracts. Within the current geopolitical context, there are ongoing embargos of exports from some global suppliers of
various materials that are used in electronics and some diode and laser materials, which can have negative effects on technology supply
chains. This, coupled with tariffs and other trade disruptions, could significantly impair our ability to source necessary supplies and
equipment when, and in quantities, needed.
We
continue to believe that conflicts overseas and related national security requirements, which limit the companies through which we can
source components, pose a substantial risk. The global supply chain remains a challenge for certain products. In addition, significant,
prolonged inflation could negatively impact the cost of materials and components. Our inability to procure the necessary supplies and
equipment could negatively affect our results of operations, financial condition and liquidity.
In
addition, our size coupled with our need for advanced, specialized components poses challenges in getting suppliers to prioritize our
orders or, in some cases, fulfill them. We currently seek to procure certain specialized materials in relatively low volume which sometimes
can lead to delays as we compete with larger volume customers for availability of these materials. Alternatively, as we execute our business
plan, higher volume purchases, particularly of customized components, may result in longer lead times and pose other difficulties due
to these and other supply constraints.
We
continuously monitor potential supply chain issues and work with our suppliers to mitigate delays in our receipt of necessary materials,
components and other supplies, and reduce costs, particularly in light of the supply chain issues outlined above. We also monitor supplier
liquidity and work continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions
through a number of mechanisms, including consolidating or re-sourcing our purchases, entering long-term agreements, reducing the number
of suppliers, strategic global sourcing and competition among suppliers, and the opportunity to develop and deliver scarce components
that have few contracts or suppliers. In some instances, we depend upon a single source of supply, but we are striving to develop multiple
sources to mitigate the risk. In some cases, we must comply with specific procurement and compliance requirements, which may limit the
suppliers and subcontractors we may utilize.
9
Regulatory Matters
Our
business is subject to extensive regulation in the industries we serve. We market our technology to numerous U.S. government agencies
and entities, including but not limited to all branches of the U.S. Department of Defense (DoD) and the Department of Homeland Security.
The
U.S. government represents all of our current revenues and likely a substantial portion of any projected revenues for the foreseeable
future. U.S. government contracts are subject to termination by the government, either for convenience or for default in the event of
our failure to perform under the applicable contract. In the case of a termination for convenience, we would normally be entitled to reimbursement
for our allowable costs incurred, termination costs and a reasonable profit. If terminated by the government as a result of our default,
we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered
goods or services from another source and any other damages it suffers.
U.S.
government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements
for the acquisition of goods and services by the U.S. government. Defense contracts are additionally subject to the Defense Federal Acquisition
Regulation Supplement (DFARS). Other applicable laws and regulations apply as well. These regulations impose a broad range of requirements,
many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost,
contract termination and adjustment, audit and product integrity requirements. Failure to comply with these regulations and requirements
could result in reductions to the value of contracts, contract modifications or termination, cash withholding on contract payments, forfeiture
of profits, and/or the assessment of civil or criminal penalties and fines and could lead to cause-based suspension or debarment from
U.S. government contracting or subcontracting for a period of time.
ITEM 1A. RISK FACTORS
Future
results of operations of Applied Energetics involve a number of known and unknown risks and uncertainties. Factors that could affect
future operating results and cash flows and cause actual results to vary materially from historical results include, but are not limited
to those risks set forth below:
Risk Related to Our
Company
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which
may hinder our ability to obtain future financing.
In
their report accompanying our financial statements, our independent registered public accounting firm stated that our financial statements
for the year ended December 31, 2024 were prepared assuming that we would continue as a going concern, and that they have substantial
doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses and negative cash flow from
operations and the concern that we may incur additional losses due to the reduction in government contract activity raise substantial
doubt about our ability to continue as a going concern.
10
Our
business has generated only limited revenues during the past two fiscal years and had a net operating loss during each period.
For
the fiscal years ended December 31, 2024 and 2023, we had revenues of $2,426,609 and $2,631,443, respectively, and we had net losses
of $9,174,958 and $7,350,435, respectively. We can give no assurances that our planned operations will generate revenues in the future
or whether any such revenues will result in profitability.
We
may need additional financing to fund our operations going forward. If we are unable to obtain additional financing on acceptable terms,
we may need to modify or curtail our development plans and operations.
As
of December 31, 2024, we had $164,812 available cash and cash equivalents and working deficit of $67,639. We periodically conduct private
bridge financings to cover certain short-term expenses, including raising approximately $6 million, in the aggregate, between January
and February 2025. We believe our cash position is sufficient for the next several months, but we will likely need to raise additional
capital in order to fund our operations beyond that. We must allocate funds toward SEC compliance as well as Defense Contract Audit Agency
(DCAA), International Traffic in Arms Regulations (ITAR) and other federal regulatory compliance. We also need funds for general and administrative
expenses, including salaries, benefits, supplies and equipment, lease expense on our headquarters, accounting, legal, and other professional
fees and other miscellaneous expenses. Failure to secure sufficient financing could render us unable to fund these necessary costs and
expenses. We also may require additional funding for research and development before we are able to commercialize our technology. We may
secure additional government contracts or sub-contracts with larger contractors to fund additional research and development. However,
we may need to raise additional capital to supplement these contracts even if we are able to secure them.
Our
operating plans and capital requirements are subject to change based on how we determine to proceed with respect to development programs
and if we pursue any strategic alternatives. We may seek to raise additional funds through the issuance of equity securities, but such
financing may not be available on terms acceptable to us if at all. Any equity financing would cause the percentage ownership by our
current stockholders to be diluted, and such dilution may be substantial. Also, any additional equity securities issued may have rights,
preferences or privileges senior to those of existing stockholders. If such financing is not available when required or is not available
on acceptable terms, we may be required to modify or curtail our operations, which could cause investors to lose the entire amount of
their investment.
Risk Related to Our
Industry and Business Activities
Economic,
geopolitical and other factors beyond our control can affect our business.
Our
business, operating results, financial condition and liquidity may be adversely affected by changes in global economic conditions and
geopolitical risks, including the inflationary environment in the United States and internationally, commodity prices, supply chain challenges,
exchange rates, potential changes in policy positions or priorities, levels of government spending and deficits, the availability and
cost of labor, the threat environment, trade policies, political conditions, national or international crises, including recurring global
health emergencies, tariffs, trade embargoes, and other challenges that could affect the global economy, the demand for our technology
and our ability to source materials and equipment. In recent years, inflationary pressures have increased labor and material costs at
a higher rate higher than in prior years. Due to the nature of our government business, and the customer and supplier contracts within
those businesses, we may not be able to increase our contract value or pricing to offset these cost increases, particularly with grants
or fixed price contracts. This could adversely affect our operating profits and margins particularly if the increased inflation continues.
Similarly, increases in interest rates from recent historical lows in the U.S. and internationally could negatively impact financial
markets and tighten the availability of, and increase our cost of, capital, which could have an adverse effect on our operating results,
financial condition and liquidity. Tightening credit in financial markets also could adversely affect the ability of our customers and
suppliers to obtain financing for significant purchases and operations. Similarly, such tightening credit may adversely affect our supplier
base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. In addition, geopolitical
and security risks could affect government priorities, budgets and policies, which could impact sales of defense and other products and