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, 2025
☐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: None.
Securities
registered pursuant to Section 12(g) of the Exchange Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, $.001 par value AERG OTCQB
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,
2025 (the last day of the registrant’s most recently completed second quarter) was approximately $ 423,421,492.
The number of outstanding shares of the registrant’s Common Stock,
$.001 par value, as of March 27, 2026 was 223,836,331.
APPLIED ENERGETICS,
INC.
ANNUAL REPORT
ON FORM 10-K
FOR THE YEAR
ENDED DECEMBER 31, 2025
TABLE
OF CONTENTS
Page No.
PART I.
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 16
Item 1C. Cybersecurity 16
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Mine Safety Disclosures 17
PART II.
Item 6. [Reserved] 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9A. Controls and Procedures 26
Item 9B. Other Information 27
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 27
PART III.
Item 10. Directors, Executive Officers, and Corporate Governance 28
Item 11. Executive Compensation 34
Item 14. Principal Accountant Fees and Services 40
PART IV.
Item 15. Exhibits and Financial Statement Schedules 41
i
PART
I
ITEM 1. BUSINESS
Cautionary Note Concerning Forward-Looking
Statements
Certain
statements in this Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical
or current facts and can be identified by the use of forward-looking words such as “may,” “believe,” “will,”
“expect,” “project,” “anticipate,” “estimates,” “plans,” “strategy,”
“target,” “prospects” or “continue,” and words of similar meaning. These forward-looking statements
are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results, performances or achievements expressed or implied by
such forward-looking statements. This Form 10-K contains important information as to risk factors under Item 1A. Although we believe
that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove incorrect over time. We
do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes
in other factors affecting such forward-looking statements.
Available
Information
Applied
Energetics, Inc. (the “company,” “Applied Energetics,” “AE,” “we,” “our”
or “us”) makes available free of charge on its website at www.appliedenergetics.com its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practical after electronically
filing or furnishing such material to the Securities and Exchange Commission (“SEC”). We also periodically provide other
information on our website such as investor presentations and status updates. We encourage investors, the media, our customers, business
partners and other stakeholders to review the information we post on our website, in addition to following our press releases, SEC filings,
public conference calls and webcasts. Website references in this Annual Report are provided as a convenience and do not constitute, and
should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such
information should not be considered part of this Annual Report.
This
report may be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549 or at www.sec.gov.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
General
Applied
Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070
S. Rita Road, Suite 1500, Tucson, Arizona, 85747 and our telephone number is (520) 628-7415. Our website is located at www.appliedenergetics.com.
Applied
Energetics, Inc. specializes in advanced laser and photonics systems, particularly fiber-based ultrashort pulse (USP) laser technologies. With 25
patents, nine Government Sensitive Patent Applications (GSPAs), and three other patents pending, Applied Energetics’ proprietary
architecture enables orders of magnitude size-weight-power reductions, a key differentiator when compared with continuous
wave (CW) and other high energy laser technology with larger footprints. AE’s powerful, dual-use technologies designed for
potential integration and deployment on numerous defense platforms for the delivery of high intensity, ultrashort
pulses of light to disable or destroy a target or disrupt a mission. These technologies have applications in both national
security and commercial markets. Today, AE’s USP optical technologies are being designed to offer
flexibility and power for complex missions in national security such as enhancing layered defense strategies to counter
complex threats.
Technology,
Capabilities, and Patents
Applied
Energetics, Inc. is a leader in developing the next generation optical sources exhibiting ever-increasing output energy, peak power and
frequency agility while also providing decreased size, weight, and cost of these systems for customers. Applied Energetics utilizes patented,
dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture and wavelength- and pulse-agility
capability, our USP technology can enable users to achieve specific effects across different use cases with an unmatched blend of size,
weight, and power attributes. While initially designed to meet the emerging needs and priorities for the national security community,
our directed energy technology also has potential commercial applications in both the biomedical and advanced manufacturing industries.
1
Our
USP lasers are designed to provide:
● Frequency Agile Optical Sources from Ultraviolet (UV) to Far Infrared (IR)
● Pulse Duration Agility
● Size, Weight, and Power Optimization
● Advanced Fiber Applications
● Laser Guided Energy (LGE®)
● Laser Induced Plasma Channel (LIPC®)
Applied
Energetics’ directed energy technologies are vastly different from conventional directed energy systems. Our proprietary fiber-based
architecture is a key differentiator for our most recent technology demonstrators. Compared with traditional continuous wave laser technologies,
with their larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables, for
powerful, dual-use and agile systems that can fit a host of platforms while delivering very high-intensity, ultrashort pulses of light
to the required target. This unique directed energy solution allows extremely high peak power and energy, with target and effects tunability,
and is effective against a wide variety of potential targets.
Applied
Energetics’ optical fiber-based laser architectures also enable unmatched wavelength agility as well as pulse duration agility.
Using innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the
far infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer
to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature
allows for optimization of laser performance for defense or commercial applications.
Our
proprietary USP laser technology provides a significantly more compact solution than current continuous wave laser platforms while still
delivering high peak power. Continuous wave laser systems are typically used to heat a target and, during continuous illumination, this
heat transfer leads to melting or charring of the material. Using continuous wave output powers that now exceed 100 kilowatts (1kW =
1000 watts), it can take anywhere from seconds to tens of seconds to impact a target. By contrast, Applied Energetics has delivered USP
lasers to national security users that exceed five terawatts (1 TW = 1 trillion watts) in peak power, with the difference being that
this peak power from a USP laser is delivered in a pulse that is less than a trillionth of a second. During this short pulse duration,
and having such a high peak intensity, near-instantaneous ablation of the surface of the threat takes place. The net result of our innovative
USP approaches is highly effective lasers capable of jamming, damaging, and destroying certain surveillance and reconnaissance sensors
with mountable footprints that require only a fraction of the size, weight, and power requirements of other-directed energy technologies.
We believe the combination of both low size, weight, and power characteristics with wavelength and pulse duration agility will help us
achieve our vision statement of “Directed Energy, Anywhere.”
The
Applied Energetics scientific team is continuously innovating and expanding our patent portfolio to cover these technological breakthroughs
and further enhance our suite of solutions for threat disruption for the Department of War (“DoW”), the intelligence community,
and for commercial, biomedical and space applications with optical sources operating from the deep ultraviolet to the far infrared portions
of the electromagnetic spectrum.
Applied
Energetics has developed, successfully demonstrated, and holds all crucial intellectual property rights to a dynamic directed energy
technology called Laser Guided Energy (LGE®) and Laser Induced Plasma Channel (LIPC®). LGE and LIPC are technologies that can
be used in a new generation of high-tech directed energy systems. Applied Energetics’ LGE and LIPC technologies are wholly owned
by Applied Energetics and protected by one or more of Applied Energetics’ 25 issued patents and nine GSPA’s. These GSPA’s
are held under secrecy orders of the US government, providing the company with extended protection rights.
More
recently, the company has been awarded new patents for application in the national security domain (Pulsed Laser Thermal Excitation,
Patent No.: US 12,171,055 B2), Selectable Wavelength Cascading Coherent Optical Pump Sources, Patent No.: US 12,548,971 B2, and Tunable
High Frequency Modulated Light Beam, Patent No.: US 12,562,545 B2) and a patent for a biomedical application (Pathogen Detection and
Neutralization Using Deep UV-C Generation Via Seeded Raman Amplification and Second Harmonic Generation, Patent No.: A1US 12,320,702
B2). The company has also received notice of an allowed patent application in the national security domain (Defensive Laser Amplification
System, Patent Application No.: 17/817,726). The company also has three pending patent applications. We continue to file patent
applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage.
As
Applied Energetics looks toward the future, our corporate strategic roadmap builds upon the significant value of the company’s
USP laser capabilities and key intellectual property, including LGE and LIPC, to offer our prospective partners, co-developers and system
integrators a variety of next-generation ultrashort pulse and frequency-agile optical sources, from the ultraviolet to the far infrared
portion of the electromagnetic spectrum, to address numerous challenges within the national security, biomedical, and advanced manufacturing
market sectors.
2
Strategic
Plan and Analysis
The
core of our strategy has been to continue growing our management and science teams with highly qualified individuals. This has driven
our recruitment efforts in the areas of R&D, software, mechanical, electrical, optical and, systems engineering, modeling and simulation,
marketing and finance. We are also contemplating adding members to our Board of Directors and our Board of Advisors. Our board and leadership
team have worked to align key innovations with our roadmap to encourage and enable internal filing for a broad, strategic, and robust
intellectual property portfolio and continue surveying the literature for acquisitions of parallel intellectual property to that end.
We also intend to pursue strategic corporate acquisitions in related fields and technology. The company’s management continues
to explore any favorable equity financing opportunities.
Our
goal with the Applied Energetics Strategic Plan is to increase the energy, peak power and frequency agility of USP optical sources while
decreasing the size, weight, and cost of these systems. We are in the process of developing this breadth of very high peak power USP
lasers and additional optical sources that have a broad range of applicability for threat disruption for the DoW, commercial, and biomedical
applications, such as biophotonic illumination and imaging. Although the historical market for Applied Energetics’ LGE and USP
technology is the U.S. Government, the USP technologies are expected to provide numerous platforms for commercial additive and subtractive
manufacturing and biomedical and imaging markets, creating a substantially larger market for our products to address. Since 2020, the
Applied Energetics team has been able to develop partnership and teaming arrangements with the three leading laser and optics institutes
in the United States, namely, the University of Arizona, the University of Central Florida, and the University of Rochester Laboratory
for Laser Energetics.
This vision aligns directly with the DoW’s designation of Scaled
Directed Energy asone of its six Critical Technology Areas, which prioritizes deployable, efficient, and operationally flexible directed
energy capabilities across a wide range of mission environments. Our ultrashort pulse laser architecture is designed to meet these priorities
by enabling high-intensity effects in compact, ruggedized form factors suitable for distributed and mobile deployment. By reducing size,
weight, and power requirements while maintaining mission-relevant lethality against electro-optical threats, we believe our technology
supports the DoW’s objective to proliferate directed energy systems at scale, accelerating the transition from specialized, platform-constrained
solutions to broadly fielded capabilities across the modern battlespace.
The
robotic warfare era requires an entire pillar of capability specifically designed to “take out the eyes” of the things that
stare at you or want to do you harm, at any altitude. We believe USP laser technology are ideally suited to achieve this as a result of
the following factors:
Unique Effects: USPLs deliver
high-peak power, enabling disruption/destruction of EO sensors through plasma formation or ablation with minimal collateral effects.
Compact and Scalable:
Fiber-based USPL technologies support optimal size weight and power (SWaP) footprints and deployment on land-based mobile and high-
to very high-altitude platforms.
Wavelength Agility: Effective across visible
to LWIR bands enhancing sensor denial capability.
Low Thermal Signature: Unlike CW or long-pulse
lasers, USPLs maintain a low thermal footprint
Speed-of-Light Engagement: Instantaneous
targeting of fast-moving threats with sub-second dwell times required to neutralize the target.
Difficult to Counter: Extremely short pulse
durations and tunable wavelengths challenge traditional filtering and hardening strategies.
We have
continued to execute our business development plans, further our research and development program and submit filings for intellectual
property and proposals for grants and contracts. During the past several years, we continued to submit proposals and have been engaged
in meetings on a continuous basis with various agencies and departments both remotely and in person in Washington, DC and at various other
government facilities around the U.S. We believe the interest in our technology and applications remains high, and we continue to submit
proposals for all appropriate opportunities and share our vision of the disruptive capabilities of USP optical sources for both near-
and far-term threats and dual-use commercial applications.
Through
our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive
and interested in directed energy technologies. According to the US DoW fiscal budgets from 2017 through 2023, its directed energy spending
grew from approximately $500 million in 2017 to over $1.695 billion in 2023, an increase of nearly 240%. Market analysis and projections
have estimated that this directed energy sector is anticipated to reach $32.1 billion globally by 2033. We continue to be optimistic about
our future and the growing opportunities in directed energy applications, especially since this growth to nearly $1.7 B annually is being
accomplished without a recognized Program of Record (POR) for directed energy platforms. We believe that once these technologies
are funded in production for a POR, or are approved to be integrated on fielded platforms in volumes to effect threat reduction, these
DoW budgets for directed energy will grow exponentially larger to support the technology insertion. The Applied Energetics team anticipates
a continuation of strong funding for the directed energy community. With our existing patent portfolio, and through further advancements
of our technologies, we believe we have the substantial building blocks needed to become a significant and successful developer in the
USP marketplace. These innovations could play a significant role in the efforts from the new administration to implement the Golden Dome
for America program by advancing directed energy and other integrated technological solutions for missile and other threat protection
for the country. Estimated budget requirements would exceed $50B annually.
Our
research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics
and other supplies. A significant, prolonged increase in inflation could negatively impact the cost of materials and components, which
could be a particular problem with respect to our fixed fee contracts. Within the current geopolitical context, there are ongoing embargos
of exports from some global suppliers of various materials that are used in electronics and some diode and laser materials, which can
have negative effects on technology supply chains. This, coupled with tariffs and other trade disruptions, could significantly impair
our ability to source necessary supplies and equipment when and in quantities needed. We continuously monitor potential supply chain
issues and supplier liquidity and work with our supply base to ensure adequate sources of materials at reasonable costs. In some instances,
we depend upon a single source of supply, but we are developing multiple sources, both internal to AE and externally where possible to
mitigate the risk. In some cases, we must comply with specific procurement requirements, which can limit the suppliers and subcontractors
we may utilize.
3
Market for
Our Technology
Unmanned
semi- and fully-autonomous aerial, ground, maritime and surface vehicle threats are dramatically increasing in number and capability.
As unmanned systems increasingly augment humans, sensors will saturate the battlefield. Most of these threats are piloted through cameras
mounted on the vehicle. We believe these emerging threats are ideally suited for directed energy effects. The proliferation of commercial-off-the-shelf
sensors and unmanned systems provide both traditional and asymmetric forces with improved intelligence gathering and improvised threat
capabilities enabling low-cost and low-tech solutions against high value targets.
Directed
Energy Systems
Directed
energy systems involve the use of highly focused energy such as lasers or microwaves to incapacitate, damage, or destroy enemy equipment,
facilities, and assets. Prior to LGE, the only two viable directed energy systems were High Energy Laser (HEL), which uses heat to burn
targets and High-Power Microwave (HPM) systems, that use electromagnetic energy at specific microwave and radio frequencies to disable
electronic systems.
HEL
and HPM directed energy technologies have been under development for decades with numerous DoW and other government contractors participating.
The unique attributes of directed energy weapon systems —the ability to create precise effects against multiple targets near-instantaneously
and at a very low cost per shot—have great potential to help the DoW in addressing future warfare requirements. The DoW invests
research and development dollars into directed energy solutions to fill gaps identified by warfighters. For example, in future conflicts
with capable enemies possessing large inventories of guided missiles or uncrewed aerial drones, it may be operationally risky and cost-prohibitive
for the U.S. military to continue to rely exclusively on a limited number of kinetic missile interceptors. Such a competition could allow
an adversary to impose costs on U.S. or allied forces by compelling them to intercept each incoming missile or drone with far more expensive
kinetic munitions. The DoW has made technological advances in both performance and maturity as a result of many years of research with
multiple threat-intercept technologies and previously was directed by Congress, to increase funding and evaluation of pulsed laser technology
in future directed energy platforms.
The
main drawback to these systems tends to be the larger overall size and power requirements that make them difficult to field more broadly.
The laser was invented in 1960, and yet today, directed energy capabilities are still in the early stages of development and adoption.
We believe that in order for directed energy capabilities to see an inflection point in adoption, three elements must converge: (1) increased
use of a widely proliferating threat uniquely suited to being countered by directed energy systems, (2) directed energy systems that
can deliver high-value effects against those threats, and (3) directed energy systems that have optimized size, weight, and power footprints
that enable widespread deployment across multiple platform types and fixed sites.
Our Technology
Differentiation
Applied
Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture
and wavelength- and pulse-agility capability, our ultrashort pulse technology enables users to achieve specific effects across different
use cases, with an unmatched blend of size, weight and power attributes. While initially designed to meet the emerging needs and priorities
for the national security community, Applied Energetics’ directed energy technology also has potential commercial applications
in both the biomedical and advanced manufacturing industries.
Our
Ultrashort Pulse Laser System Applications have the following solution attributes:
1.
High Peak Power allows for sub-second kills,
2.
Laser wavelength can be matched to sensor wavelength,
3.
Allow for a common underlying architecture across all counter-ISR applications,
4.
Can be an efficient, compact and ruggedized optical fiber-based architecture.
Applied
Energetics’ proprietary fiber-based architecture is a key differentiator for our technology. Compared with traditional continuous
wave technology with larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables,
creating powerful, dual-use and agile systems that can fit a host of platforms while delivering very high intensity, ultrashort pulses
of light to the required target. Using this unique architecture as a laser source for an integrated system can enable Applied Energetics
to develop, integrate and deliver a suite of technologies that best meet the needs and requirements of its customers.
Applied
Energetics’ optical fiber-based laser architecture enables unmatched wavelength agility as well as pulse duration agility. Using
innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the far
infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer
to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature
allows for optimization of laser performance for defense or commercial applications.
4
Competition
AE’s
Ultrashort Pulse sources, including proprietary LIPC® based LGE® technology, are unique and can be integrated onto platforms
being developed for use by the U.S. Government. Over the past several years, a relatively small number of major defense contractors have
received significant funding for directed energy systems development, manufacturing and integration, using continuous wave, high energy
laser and microwave technologies. These contractors specialize in different directed energy system platforms to respond to a variety
of threats. Applied Energetics believes that its pulsed laser systems can be a part of a layered defense solution alongside these other
technologies. Although AE competes against other directed energy systems for funding, the uniqueness of our technologies should continue
to support their development into weapon platform programs. AE believes that there is renewed U.S. Government interest in directed energy
applications and believes that continued development of its USP capabilities and growing interest from all branches of the U.S. armed
forces and other government agencies will lead to increases in government spending on directed energy in the coming years. Likewise,
there are multiple new threats that must be addressed with unique and emerging technologies, and AE is working diligently to rapidly
advance development, demonstration, testing and engineering of the Advanced Ultrashort Pulse lasers throughout the spectrum from the
ultraviolet to the far infrared. We believe that USP technologies can rapidly accelerate in magnitude, as a percentage of the federal
budget, compared with other technologies over the next several years.
AE’s
primary direct USP optical source competition are corporations and contractors supported by foreign governments who may be attempting
to develop similar technologies. AE believes that such foreign activity will create additional U.S. Government funding for both USP sources
and LGE in order to maintain our country’s lead in pulsed directed-energy systems. Other companies with directed energy capabilities,
albeit in continuous wave, microwave and other areas within directed energy, are Raytheon Technologies, Lockheed Martin, Northrop Grumman,
Boeing, BAE Systems, nLight, General Atomics, DRS Daylight Solutions, L3Harris Technologies, AV, and Epirus. Although based on
different types of directed energy technologies, we may compete with these companies to provide solutions to problems presented by common
potential customers.
Some
of AE’s biggest commercial competitors are Trumpf (German), Coherent (US), Thales (France). IPG (US), RAFAEL Advanced Defense Systems
Ltd. (Israel), and Light Conversion (Lithuania), most of which are billion-dollar market class companies that have substantially more
resources than AE.
Human Capital Resources
As
of March 25, 2026, we had 26 employees, including our leadership team, optical scientists, engineers, technicians, and administrative
staff. We also retain outside consultants and contractors for specific projects. We are currently actively recruiting additional scientists,
engineers and technicians.
We
strive to identify, recruit, train and incentivize employees based on our mission, values, growth strategy and technology and product
development levels. Our science and technology team consists of highly skilled and educated employees who demonstrate their dedication
to our endeavors on a daily basis. We rely on their scientific and engineering knowledge and expertise for the company’s success.
We have an equally skilled and dedicated team of legal, financial and accounting professionals who support our technology and product
development endeavors.
In
addition to knowledge and expertise, we seek to recruit and develop employees who embody our core values of Agility, Bold Leadership,
Mutual Trust, Quality and Innovation and to reinforce and instill these values in every facet of the organization. This is an ongoing,
iterative, and sometimes challenging process and requires dedication and leadership by our senior staff.
Our compensation structure
is designed to incentivize this highly qualified team with a combination of cash and equity, mostly in the form of stock options and
restricted stock units, to instill a sense of ownership and a share in the company’s successes. Our company’s membership
in the Arizona Technology Council and inclusion in its Association Health Plans give us access to a suite of benefits that are competitive
with those of larger companies. These include an array of health plans, HSAS’s, FSA’s and term life insurance. We also offer
employees participation in 401(k) and 529 plans.
5
Supplies
and Raw Materials
Our
research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics
and other supplies. We depend upon the availability of materials and major electro-optical components as well as the performance and
reliability of our suppliers. Some of our products require relatively scarce fabricated materials. We have experienced delays in obtaining
certain of these supplies and materials and we have had difficulty accessing qualified suppliers of those materials. A significant, prolonged
increase in inflation could negatively impact the cost of materials and components, which could be a particular problem with respect
to any fixed price contracts. Within the current geopolitical context, there are ongoing embargos of exports from some global suppliers
of various materials that are used in electronics and some diode and laser materials, which can have negative effects on technology supply
chains. This, coupled with tariffs and other trade disruptions, could significantly impair our ability to source necessary supplies and
equipment when, and in quantities, needed
We
continue to believe that conflicts overseas and related national security requirements, which limit the companies through which we can
source components, pose a substantial risk. The global supply chain remains a challenge for certain products. In addition, significant,
prolonged inflation could negatively impact the cost of materials and components. Our inability to procure the necessary supplies and
equipment could negatively affect our results of operations, financial condition and liquidity. In addition, the ongoing military action
in the Middle East has created a disruption in the flow of oil and liquid natural gas worldwide which affects the cost of supplies and
raw materials as well as shipping and related expenses.
In
addition, our size coupled with our need for advanced, specialized components poses challenges in getting suppliers to prioritize our
orders or, in some cases, fulfill them. We currently seek to procure certain specialized materials in relatively low volume which sometimes
can lead to delays as we compete with larger volume customers for availability of these materials. Alternatively, as we execute our business
plan, higher volume purchases, particularly of customized components, may result in longer lead times and pose other difficulties due
to these and other supply constraints.
We
continuously monitor potential supply chain issues and work with our suppliers to mitigate delays in our receipt of necessary materials,
components and other supplies, and reduce costs, particularly in light of the supply chain issues outlined above. We also monitor supplier
liquidity and work continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions
through a number of mechanisms, including consolidating or re-sourcing our purchases, entering long-term agreements, reducing the number
of suppliers, strategic global sourcing and competition among suppliers, and the opportunity to develop and deliver scarce components
that have few contracts or suppliers. In some instances, we depend upon a single source of supply, but we are striving to develop multiple
sources to mitigate the risk. In some cases, we must comply with specific procurement and compliance requirements, which may limit the
suppliers and subcontractors we may utilize.
Regulatory
Matters
Our
business is subject to extensive regulation in the industries we serve. We market our technology to numerous U.S. government agencies
and entities, including but not limited to all branches of the DoW and the Department of Homeland Security.
The
U.S. government and prime contractors to the U.S. government represent all of our current revenues and likely a substantial portion of
any projected revenues for the foreseeable future. U.S. government contracts are subject to termination by the government, either for
convenience or for default in the event of our failure to perform under the applicable contract. In the case of termination for convenience,
we would normally be entitled to reimbursement for our allowable costs incurred, termination costs and a reasonable profit. If terminated
by the government as a result of our default, we could be liable for payments made to us for undelivered goods or services, additional
costs the government incurs in acquiring undelivered goods or services from another source and any other damages it suffers.
U.S.
government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements
for the acquisition of goods and services by the U.S. government. DoW contracts are additionally subject to the Defense Federal Acquisition
Regulation Supplement (DFARS). Other applicable laws and regulations apply as well. These regulations impose a broad range of requirements,
many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost,
contract termination and adjustment, audit and product integrity requirements. Failure to comply with these regulations and requirements
could result in reductions to the value of contracts, contract modifications or termination, cash withholding on contract payments, forfeiture
of profits, and/or the assessment of civil or criminal penalties and fines and could lead to cause-based suspension or debarment from
U.S. government contracting or subcontracting for a period of time.
6
We
are subject to various laws and regulations relating to the export and import of products, services, and technology from and into the
US. In the US, these laws and regulations include, among others, the Export Administration Regulations (EAR) administered by the Department
of Commerce, the International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA) provisions administered by the
Department of State (DOS), embargoes and sanctions regulations administered by the Department of the Treasury, and import regulations
administered by the Department of Homeland Security and the Department of Justice (DOJ). Certain of our developing products and technologies
have military or strategic applications and are on the U.S. Munitions List of the ITAR, the Commerce Control List of the EAR, or are
otherwise subject to the EAR and/or the US Munitions Import List, and we will be required to obtain licenses and authorizations from
the appropriate US government agencies before exporting any of these products or technologies out of the US. This also includes export
of technical data and similar information and, potentially, provision of specifications of certain supplies or equipment which we may
seek to import from outside of the US to the suppliers of such articles. We may also be restricted in the types of materials and country
of origin for supplies or equipment which may not be readily available from US sources. Foreign policy of the US or other licensing jurisdictions
may affect the licensing process or otherwise prevent us from engaging in business dealings with certain individuals, entities, or countries.
Any failure by us, our customers, or our suppliers to comply with these laws and regulations could result in civil or criminal penalties,
fines, seizure of our products, adverse publicity, restrictions on our ability to engage in export or import transactions, or the suspension
or debarment from doing business with the U.S. government. For further discussion of risks related to exports and imports, see Item 1A.
“Risk Factors”.
Laser
Safety Regulations
As
we test and develop laser products, we become increasingly subject to laser safety regulations and industry standards. We are also subject
to workplace regulations and safety standards for employees working with and around laser products and technology. These regulations
and standards may include, among others, regulations promulgated by the US Federal Aviation Administration, the US Food and Drug Administration,
the Occupational Safety and Health Administration and standards set forth by the Laser Institute of America and approved by the American
National Standards Institute, Inc. (ANSI). We are also subject to various state and local regulations. We have appointed a laser safety
officer who works with senior members of our scientific and engineering staff to ensure that our employees understand and follow relevant
regulations and standards. However, these regulations and standards can be complex, vary significantly with different laser products,
and are subject to change from time to time. Our failure to comply with one or more of these regulations or standards could result in
civil or criminal penalties, including significant fines or bans, liability for injury to persons, some of which could be severe, or
loss of business. For further discussion of risks related to Laser Safety Regulations, see Item 1A. “Risk Factors”.
ITEM 1A. RISK FACTORS
Future
results of operations of Applied Energetics involve a number of known and unknown risks and uncertainties. Factors that could affect
future operating results and cash flows and cause actual results to vary materially from historical results include, but are not limited
to those risks set forth below:
Risk Related
to Our Company
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which
may hinder our ability to obtain future financing.
In
their report accompanying our financial statements, our independent registered public accounting firm stated that our financial statements
for the year ended December 31, 2025, were prepared assuming that we would continue as a going concern, and that they have substantial
doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses and negative cash flow from
operations and the concern that we may incur additional losses due to the reduction in government contract activity raises substantial
doubt about our ability to continue as a going concern.
7
Our
business has generated only limited revenues during the past two fiscal years and had a net operating loss during each period.
For
the fiscal years ended December 31, 2025 and 2024, we had revenues of $461,727 and $2,426,609, respectively, and we had net losses of
$14,872,730 and $9,174,958, respectively. We can give no assurances that our planned operations will generate revenues in the future
or whether any such revenues will result in profitability.
We
may need additional financing to fund our operations going forward. If we are unable to obtain additional financing on acceptable terms,
we may need to modify or curtail our development plans and operations.
As
of December 31, 2025, we had $6,436,082 in available cash and cash equivalents and working capital of $6,129,118. We periodically conduct
private bridge financings to cover certain short-term expenses, including raising approximately $10.8 million, in the aggregate, between
the second and third quarters of 2025. We believe our cash position is sufficient for the next several months, but we will likely need
to raise additional capital in order to fund our operations beyond that. We must allocate funds toward SEC compliance as well as Defense
Contract Audit Agency (DCAA), International Traffic in Arms Regulations (ITAR) and other federal regulatory compliance. We also need funds
for general and administrative expenses, including salaries, benefits, supplies and equipment, lease expense on our headquarters, accounting,
legal, and other professional fees and other miscellaneous expenses. Failure to secure sufficient financing could render us unable to
fund these necessary costs and expenses. We also will require additional funding for research and development before we are able to commercialize
our technology. We may secure additional government contracts or sub-contracts with larger contractors to fund additional research and
development. However, we may need to raise additional capital to supplement these contracts even if we are able to secure them.
Our
operating plans and capital requirements are subject to change based on how we determine to proceed with respect to development programs
and if we pursue any strategic alternatives. We may seek to raise additional funds through the issuance of equity securities, but such
financing may not be available on terms acceptable to us if at all. Any equity financing would cause the percentage ownership by our
current stockholders to be diluted, and such dilution may be substantial. Also, any additional equity securities issued may have rights,
preferences or privileges senior to those of existing stockholders. If such financing is not available when required or is not available
on acceptable terms, we may be required to modify or curtail our operations, which could cause investors to lose the entire amount of
their investment.
Risk Related
to Our Industry and Business Activities
Economic,
geopolitical and other factors beyond our control can affect our business.
Our
business, operating results, financial condition and liquidity may be adversely affected by changes in global economic conditions and
geopolitical risks, including the ongoing military action in Iran, the inflationary environment in the United States and internationally,
oil and other commodity prices, supply chain challenges, exchange rates, potential changes in policy positions or priorities, levels of
government spending and deficits, the availability and cost of labor, the threat environment, trade policies, political conditions, national
or international crises, including recurring global health emergencies, tariffs, trade embargoes, and other challenges that could affect
the global economy, the demand for our technology and our ability to source materials and equipment. In recent years, inflationary pressures
have increased labor and material costs at a higher rate than in prior years. Due to the nature of our government business, and the customer
and supplier contracts within that business, we may not be able to increase our contract value or pricing to offset these cost increases,
particularly with grants or fixed price contracts. This could adversely affect our operating profits and margins particularly if increased
inflation continues. Similarly, increases in interest rates from recent historical lows in the U.S. and internationally could negatively
impact financial markets and tighten the availability of, and increase our cost of, capital, which could have an adverse effect on our
operating results, financial condition and liquidity. Tightening credit in financial markets also could adversely affect the ability of
our customers and suppliers to obtain financing for significant purchases and operations. Similarly, such tightening credit may adversely
affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. In
addition, geopolitical and security risks could affect government priorities, budgets and policies, which could impact sales of defense
and other products and services.
Changes
in US government spending could negatively affect our business.
Substantially
all of our current and planned near-term revenues are or may be from US government contracts and grants awarded under various programs,
primarily with the DoW, prime contractors to the U.S. government, and, possibly, with intelligence, national security and other departments
and agencies. Changes in US government spending for various reasons, including as a result of potential changes in policy positions or
priorities, could negatively impact our results of operations, financial condition and liquidity. Our programs are subject to US government
policies, budget decisions and appropriation processes which are driven by macroeconomic and geopolitical factors as well as Congress’s
ability to enact, and the administration’s willingness to execute, appropriations bills and other legislation. In recent years,
the US government has been unable to complete its budget process before the end of its fiscal year, resulting in government shutdowns
and Continuing Resolutions emergency funding only at prior-year levels. In addition, failure to raise the debt ceiling could cause the
U.S. government to default on debts which it has already incurred. U.S. government spending levels and available program funding are
thus hard to estimate in the medium- and long-term. Significant changes in U.S. government spending or changes in U.S. government priorities,
policies and requirements could have a material adverse effect on our results of operations, financial condition and liquidity.
8
The
establishment of the Department of Government Efficiency (DOGE) whose mission was to sharply reduce federal spending, including reviewing
defense spending for possible waste, fraud and abuse has made securing funding for existing and new government contracts challenging.
Although DOGE was disbanded in November 2025, many of its functions and personnel were absorbed into various federal agencies, including
the DoW, and its principles and agenda to cut spending may continue in other forms. The termination of government employees responsible
for payment of invoices can slow down payments under our contracts and disrupt our cash flows from operating activities which, if prolonged,
could cause the loss of our business. The current budgetary and deficit funding environment, continuing inflation, tariffs and other
ongoing supply chain disruptions, and DOGE, among other items, pose significant risks to the company.
During
the quarter ended June 30, 2025, the company received notifications regarding loss of funding on two contracts. Funding ceased for one
of these contracts although it is still in effect, and no stop-work order was received. With respect to the second of these contracts,
the company was notified that no further funds are available and advised to stop work on it. Receipt of additional amounts under this
contract, including for any work to be performed, is in doubt. The company has ceased working under and recording revenue for each of
these contracts, and receipt of additional amounts under them is in doubt. The company intends to continue working in parallel on this
technology as part of its ongoing internal research and development program.
We
face risks relating to performance of our US government contracts and our ability to secure additional contracts and/or grants.
Our
success depends on our ability to complete timely and satisfactory performance on our existing customer projects and to secure additional
grants and contracts. Performance delays, cost overruns, technology failures, materials or components shortages, or contract delays,
could negatively impact our business prospects, results of operations, financial condition and liquidity. U.S. government contracts generally
permit the government to terminate the contract, in whole or in part, without prior notice, at the U.S. government’s convenience
or for default based on performance. Correspondingly, subcontracts which we may seek to enter with prime government contractors, may
be terminable by the prime contractor upon government termination of the prime contract. We may be unable to secure additional contracts
to offset any revenues lost as a result of the termination of any such contracts.
Because
the funding of U.S. government programs is subject to congressional appropriations made on a fiscal year basis even for multi-year programs,