APPLIED ENERGETICS INC

Previous wording

The Applied Energetics scientific team is continuously innovating and expanding our patent portfolio to cover these technological breakthroughs and further enhance our suite of solutions for threat disruption for the Department of Defense, the intelligence community, and for commercial, biomedical and space applications with optical sources operating from the deep ultraviolet to the far infrared portions of the electromagnetic spectrum.

Current wording

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.

Previous wording

On March 5, 2024, Applied Energetics entered into an Employment Agreement with James Harrison, PhD, pursuant to which Dr. Harrison is to serve as Director of New Product Innovation, commencing on April 3, 2024. In this new role, Dr. Harrison’s responsibilities are to include setting a vision and strategy that supports and accelerates the entire development lifecycle of optical and laser products, from conceptualization to commercialization. His work is to involve collaboration with leaders across business development, operations, and scientific to drive the company’s strategic goal of providing cutting-edge laser and optical products to national security and commercial customers. For his services, the company has agreed to pay Dr. Harrison a cash salary of $200,000 per year.

Current wording

On March 5, 2024, Applied Energetics entered into an Employment Agreement with James Harrison, PhD, pursuant to which Dr. Harrison is to serve as Director of New Product Innovation, commencing on April 3, 2024. In this new role, Dr. Harrison’s responsibilities are to include setting a vision and strategy that supports and accelerates the entire development lifecycle of optical and laser products, from conceptualization to commercialization. His work involves collaboration with leaders across business development, operations, and research and development to drive the company’s strategic goal of providing cutting-edge laser and optical products to national security and commercial customers. For his services, the company has agreed to pay Dr. Harrison a cash salary of $200,000 per year.

Previous wording

Applied Energetics has recently been involved with the Tulsa Innovation Labs (TIL) and Oklahoma State University (OSU) in defining opportunities to participate in the US Department of Commerce, Economic Development Administration (EDA) Tech Hubs program request for proposals. Tech Hubs was authorized by the bipartisan CHIPS and Science Act, a key part of President Biden’s Investing in America agenda, which he signed into law in August 2022. In August of 2023, Applied Energetics was a founding consortium member of the Tech Hub proposal submitted under the title of Tulsa Hub for Equitable and Trustworthy Autonomy (THETA). On October 23, 2023, the US EDA named the THETA Tech Hub as part of the historic $500 million investment in economic competitiveness and national security. This designation makes the THETA consortium eligible for $70 million or more in federal funding to accelerate the advanced development of autonomous technologies. The submitted papers specify that THETA will emphasize the development of UAS and counter-UAS (CUAS), artificial intelligence (AI), and cybersecurity technologies. As such, Applied Energetics anticipates working closely with the Unmanned Systems Research Institute (USRI) and the Oklahoma Aerospace Institute for Research and Education (OAIRE), both at Oklahoma State University, to partner on the UAS and counter-UAS technology research supporting the THETA TechHub. The completed Phase 2 proposal was submitted to the EDA on February 29, 2024 requesting funding for implementation projects to help propel the region into a self-sustaining, globally competitive TechHub.

Current wording

Applied Energetics was a founding consortium member of the Tech Hub proposal submitted under the title of Tulsa Hub for Equitable and Trustworthy Autonomy (THETA). On October 23, 2023, President Biden announced the designation of the inaugural 31 Tech Hubs and the THETA program was one of the 31entities selected as part of the historic $500 million investment in economic competitiveness and national security. The proposal submitted specifies that THETA will emphasize the development of UAS and counter-UAS (CUAS), artificial intelligence (AI), and cybersecurity technologies. As such, Applied Energetics anticipates working closely with the Unmanned Systems Research Institute (USRI) and the Oklahoma Aerospace Institute for Research and Education (OAIRE), both at Oklahoma State University, to partner on the UAS and counter-UAS technology research supporting the THETA TechHub. On July 2, 2024 the Biden-Harris administration and the US EDA announced the award of approximately $51 million to the THETA consortium, the highest amount awarded in this announcement. THETA was one of 12 Tech Hubs awarded funding out of the 31 regions to receive “Tech Hub” designations last fall. Applied Energetics is looking forward to contributing to the CUAS portion of the THETA program.

Previous wording

For fiscal year 2024, which started on October 1, 2023, the National Defense Authorization Act (NDAA) was delayed and finally approved on December 22, 2023 (HR 2670), but the Defense Appropriations bill was not approved at that time. The NDAA sets defense spending policies, and the appropriations bills fund government spending. This impacts all proposals under review by the Department of Defense. On September 30, 2023, President Biden signed a Continuing Resolution (CR), HR 5860, which extended the government operations through November 17, 2023, and he then signed three further CRs, including HR 6363 on November 11, 2023extending through January 19, 2024, HR 2872 extending through March 1, 2024, and HR 7463, extending through March 8, 2024, as to four of the 12 annual budget bills, and through March 22, 2024 for the remaining eight. On March 23, 2024, the Defense Appropriations Bill was passed and signed by President Biden which will ensure the US government is funded through September 30, 2024 and that new government contracts can be funded during the 2024 fiscal year.

Current wording

For fiscal year 2024, which started on October 1, 2023, the National Defense Authorization Act (NDAA) was delayed and finally approved on December 22, 2023 (HR 2670), but the Defense Appropriations bill was not approved at that time. The NDAA sets defense spending policies, and the appropriations bills fund government spending. This impacts all proposals under review by the Department of Defense. On September 30, 2023, President Biden signed a Continuing Resolution (CR), HR 5860, which extended the government operations through November 17, 2023, and he then signed three further CRs, including HR 6363 on November 11, 2023 extending through January 19, 2024, HR 2872 extending through March 1, 2024, and HR 7463, extending through March 8, 2024, as to four of the 12 annual budget bills, and through March 22, 2024 for the remaining eight. On March 23, 2024, the Defense Appropriations Bill was passed and signed by President Biden which will ensure the US government is funded through September 30, 2024 and that new government contracts can be funded during the 2024 fiscal year.

Previous wording

Cost of revenue increased by $133,160 to approximately $274,432 for the three months ended March 31, 2024 from $141,272 for the three months ended March 31, 2023. This increase was primarily attributable to an increase in the cost of materials, supplies and direct labor cost incurred in connection with the increased revenues.

Current wording

Cost of revenue increased by $207,040 to approximately $384,208 for the three months ended June 30, 2024 from $177,168 for the three months ended June 30, 2023. This increase was primarily attributable to an increase in the cost of materials, supplies and direct labor cost incurred in connection with the increased revenues.

Previous wording

Selling and marketing expenses decreased by $33,331 to approximately $75,559 for the three months ended March 31, 2024, compared to approximately $108,890 for the three months ended March 31, 2023, primarily due to the continuation of business development activities through our Master Services Agreement with Westpark Advisors as well as other consultants in this field.

Current wording

Selling and marketing expenses decreased by $18,249 to approximately $76,216 for the three months ended June 30, 2024, compared to approximately $94,465 for the three months ended June 30, 2023, primarily due to the continuation of business development activities through our Master Services Agreement with Westpark Advisors as well as other consultants in this field.

Previous wording

Our operations for the three months ended March 31, 2024, resulted in a net loss of approximately $2,611,379 an increase of approximately $673,359 compared to the approximately $1,938,020 net loss for the three months ended March 31, 2023, primarily due an increase in general and administrative expense and research and development expense partially offset by a decrease in selling and marketing expenses.

Current wording

Our operations for the three months ended June 30, 2024, resulted in a net loss of approximately $2,060,950 an increase of approximately $242,726 compared to the approximately $1,818,224 net loss for the three months ended June 30, 2023, primarily due an increase in general and administrative expense partially offset by a decrease in research and development expense and in selling and marketing expenses.

Previous wording

Revenue decreased by $352,443 to approximately $134,235 for the three months ended March 31, 2024 from $486,678 for the three months ended March 31, 2023. The decrease in revenue was primarily the result of a contract modification which resulted in a decrease in the contract’s price and an increase in the contract’s term. At the time of modification, the company recorded a catch-up adjustment as a reduction in revenue of approximately $700,000 during the three months ended March 31, 2024.

Current wording

Revenue decreased by $131,745 to approximately $914,878 for the six months ended June 30, 2024 from $1,046,623 for the six months ended June 30, 2023. The decrease in revenue was primarily the result of a contract modification which resulted in a decrease in the contract’s price and an increase in the contract’s term, offset by additional one year continuation for an existing contract and new contract in June 2024.

Previous wording

General and administrative expenses increased by $201,632 to approximately $2,316,899 for the three months ended March 31, 2024, compared to approximately $2,115,267 for the three months ended March 31, 2023, primarily due to an increase in salaries and employee benefits of approximately $650,000 mainly due to non-cash compensation, an increase in travel and meals of approximately $47,000, an increase in software and licenses of approximately $25,000, an increase in depreciation expense of approximately $19,000, partially offset by a decrease of approximately $252,000 in professional and consulting expenses and a change in other expense of $2,000.

Current wording

General and administrative expenses increased by $478,501 to approximately $4,660,410 for the six months ended June 30, 2024, compared to approximately $4,181,909 for the six months ended June 30, 2023, primarily due to an increase in salaries and employee benefits of approximately $600,000 mainly due to non-cash compensation, an increase in software and licenses of approximately $30,000, an increase in depreciation expense of approximately $50,000, partially offset by a decrease of approximately $252,000 in professional and consulting expenses.

Previous wording

Research and development expenses increased by $20,800 to approximately $80,780 for the three months ended March 31, 2024, compared to approximately $59,980 for the three months ended March 31, 2023, primarily due to an increase in labor cost associated with continued development of our USP laser technologies.

Current wording

Research and development expenses increased by $5,967 to approximately $118,703 for the six months ended June 30, 2024, compared to approximately $112,736 for the six months ended June 30, 2023, primarily due to an increase in labor cost associated with continued development of our USP laser technologies.

Previous wording

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2024, the company incurred a net loss of approximately $2,611,000, had negative cash flows from operations of approximately $1,542,000 and may incur additional future losses due to the possible reduction in government contract activity and the expenses discussed under Results of Operations. In their report accompanying our financial statements for the year ended December 31, 2023, our independent auditors stated that our financial statements were prepared assuming that we would continue as a going concern and that they have substantial doubt as to our ability to do so for one year from the date the financial statements are issued based on our recurring losses from operations and need to raise additional capital. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the company be unable to continue as a going concern.

Current wording

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2024, the company incurred a net loss of approximately $4,672,329, had negative cash flows from operations of approximately $2,670,374 and may incur additional future losses due to the possible reduction in government contract activity and the expenses discussed under Results of Operations. In their report accompanying our financial statements for the year ended December 31, 2023, our independent auditors stated that our financial statements were prepared assuming that we would continue as a going concern and that they have substantial doubt as to our ability to do so for one year from the date the financial statements are issued based on our recurring losses from operations and need to raise additional capital. The financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should the company be unable to continue as a going concern.

Previous wording

At March 31, 2024, the company had total current assets of $1,667,661 and total current liabilities of $2,154,058 resulting in working capital of ($486,396). At March 31, 2024, we had $1,007,840 of cash and cash equivalents, a decrease of $311,686 from $1,319,526 at December 31, 2023.

Current wording

At June 30, 2024, the company had total current assets of $3,301,638 and total current liabilities of $698,232 resulting in a working capital surplus of $2,603,406. At June 30, 2024, we had $2,793,973 of cash and cash equivalents, an increase of $1,474,447 from $1,319,526 at December 31, 2023.

Previous wording

During the first three months of 2024, the net cash outflow from operating activities was $1,542,327. This amount was comprised primarily of our net loss of $2,611,379, offset by non-cash stock-based compensation expense of $955,730, depreciation and amortization of $52,439, amortization of ROU assets of $47,124 and amortization of prepaid assets of $51,855, and cash used from changes in assets and liabilities of $38,096 from the increase in accounts receivable of $251,095 and accrued expenses and compensation of $36,607 off set by the net decrease in prepaids and deposits of $57,339 operating lease liabilities of $35,529, deferred revenue of $169,582 and a decrease in accounts payable of $63,348.

Current wording

During the first six months of 2024, the net cash outflow from operating activities was $2,670,374. This amount was comprised primarily of our net loss of $4,672,329 offset by non-cash stock-based compensation expense of $1,876,577, depreciation and amortization of $103,921, amortization of ROU assets of $95,044 and amortization of prepaid assets of $109,445, and cash used from changes in assets and liabilities of ($183,032) from the increase in accounts receivable of $356,615 and accrued expenses and compensation of $4,772 offset by the net decrease in prepaids and deposits of $68,293 operating lease liabilities of $75,628, deferred revenue of $308,908 and a decrease in accounts payable of $91,590.

Previous wording

During the first three months of 2024, the net cash inflow from financing activities was $1,230,641. This amount consisted of $1,221,600 in proceeds from stock subscriptions and $16,560 from the exercise of options and warrants, which were offset by $7,519 of tax withholdings related to the share settlement of RSUs.

Current wording

During the first six months of 2024, the net cash inflow from financing activities was $4,200,256. This amount consisted of $4,171,601 in proceeds from stock subscriptions, $83,499 from the exercise of options and warrants, which were offset by $7,519 of tax withholdings related to the share settlement of RSUs, offset by $47,325 from the repayments on notes payable.

Previous wording

On May 10, 2024, the company completed the placement of 1,896,182 shares of its common stock, par value, $0.001 per share, in a private sale to individual purchasers at a price of $2.20 per share, for aggregate proceeds in the amount of $4,171,600. All of the purchasers are accredited, sophisticated investors, and the issuance of the shares was not in connection with any public offering in accordance with Section 4(a)(2) of the Securities Act of 1933.

Current wording

On May 10, 2024, the company completed the placement of 1,896,182 shares of its common stock, par value, $0.001 per share, in a private sale to individual purchasers at a price of $2.20 per share, for aggregate proceeds in the amount of $4,171,601 All of the purchasers are accredited, sophisticated investors, and the issuance of the shares was not in connection with any public offering in accordance with Section 4(a)(2) of the Securities Act of 1933.