APPLIED ENERGETICS INC

Previous wording

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 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. The company also has nine pending patent applications. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage.

Current wording

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 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.

Previous wording

On July 3, 2024, Applied Energetics, Inc. 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 and laser manufacturing capacity to ensure it has the critical infrastructure in place to fulfill both current and possible future priority U.S. military programs. With this expansion, the Company will occupy approximately 26,000 sq. ft. of space at the Arizona Tech Park. 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.

Current wording

On July 3, 2024, Applied Energetics, Inc. 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 and laser manufacturing capacity to ensure it has the critical infrastructure in place to fulfill both current and possible future priority U.S. military programs. With this expansion, the Company will occupy, in the aggregate, approximately 26,000 sq. ft. of space at the Arizona Tech Park. 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.

Previous wording

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 effect revisions to update several by-law provisions to reflect the company’s current business, operations and conduct of its corporate affairs. These include conduct of stockholder meetings, titles and functions of officers, and board classification, the last of which will require approval of the stockholders before taking effect. Other revisions are intended to correspond with certain changes in Delaware law, including with respect to indemnification, and to modernize the by-laws to allow for such items as 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.

Current wording

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.

Previous wording

Effective March 12, 2024, the grant previously awarded to Applied Energetics, Inc. from a U.S. Department of Defense customer has been transitioned into a contract. The original grant had a two-year period of performance. The new contract supersedes the May 2022 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. The company intends to provide additional information in a Current Report on Form 8-K upon approval from the government agency.

Current wording

Effective March 12, 2024, the grant previously awarded to Applied Energetics, Inc. from a U.S. Department of Defense customer has been transitioned into a contract. The original grant had a two-year period of performance. The new contract supersedes the May 2022 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.

Previous 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.

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. On July 2, 2024, the Biden-Harris administration and the US EDA announced the award of approximately $51 million to the THETA consortium. 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, 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.

Current wording

For fiscal year 2025, which started on October 1, 2024, the National Defense Authorization Act (NDAA) was delayed and has not yet been approved. 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 26, 2024, President Biden signed a Continuing Resolution (CR), HR 9747, which extended the government operations through December 20, 2024. No new start programs can be approved for funding until the Defense Appropriations Bill is passed for FY25.

Previous wording

Revenue increased by $220,698 to approximately $780,643 for the three months ended June 30, 2024 from $559,945 for the three months ended June 30, 2023. The increase in revenue represents two additional contracts that we received and commenced performing in August 2023 and June 2024.

Current wording

Revenue increased by $34,910, or 4.90%, to $747,720 for the three months ended September 30, 2024, from $712,810 for the three months ended September 30, 2023. The increase in revenue represents two additional contracts that we received and commenced performing in August 2023 and June 2024.

Previous 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.

Current wording

Cost of revenue increased by $334,297, or 192.67%, to approximately $508,709 for the three months ended September 30, 2024, from $174,412 for the three months ended September 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

General and administrative expenses increased by $276,869 to approximately $2,343,511 for the three months ended June 30, 2024, compared to approximately $2,066,642 for the three months ended June 30, 2023, primarily due to an increase in salaries and employee benefits of approximately $182,000 mainly due to non-cash compensation, an increase in software and licenses of approximately $25,000, and an increase in depreciation expense of approximately $23,000.

Current wording

General and administrative expenses increased by $237,680, or 10.71%, to approximately $2,457,321 for the three months ended September 30, 2024, compared to $2,219,641 for the three months ended September 30, 2023, primarily due to an increase in salaries and employee benefits of approximately $143,000 mainly due to non-cash compensation, an increase in rent of approximately $35,000, and an increase in depreciation expense of approximately $20,000.

Previous 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.

Current wording

Selling and marketing expenses decreased by $7,694, or 8.18%, to approximately $86,398 for the three months ended September 30, 2024, compared to $94,092 for the three months ended September 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 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.

Current wording

Our operations for the three months ended September 30, 2024, resulted in a net loss of approximately $2,374,685 an increase of approximately $563,507, or 31.11%, compared to the approximately $1,811,178 net loss for the three months ended September 30, 2023, primarily due to an increase in general and administrative expense and research in development partially offset by a decrease in selling and marketing expenses.

Previous wording

Comparison of Operations for the Six Months Ended June 30, 2024 and 2023:

Current wording

Comparison of Operations for the Nine months Ended September 30, 2024 and 2023:

Previous 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.

Current wording

Revenue decreased by $96,835, or 5.50%, to approximately $1,662,598 for the nine months ended September 30, 2024 from $1,759,433 for the nine months ended September 30, 2023. The decrease in revenue was primarily the result of a contract modification which resulted in a decrease in a contract’s price and an increase in a contract’s term, offset by an additional one-year continuation for an existing contract and a new contract during 2024.

Previous wording

Cost of revenue increased by $340,200 to approximately $658,640 for the six months ended June 30, 2024 from $318,440 for the six 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 recent contract modifications.

Current wording

Cost of revenue increased by $674,497, or 136.86%, to approximately $1,167,349 for the nine months ended September 30, 2024, from $492,852 for the nine months ended September 30, 2023. This increase was primarily attributable to an increase in the cost of materials, supplies and direct labor cost incurred in connection with recent contract modifications.

Previous 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.

Current wording

General and administrative expenses increased by $716,181, or 11.19%, to approximately $7,117,731 for the nine months ended September 30, 2024, compared to approximately $6,401,550 for the nine months ended September 30, 2023, primarily due to an increase in salaries and employee benefits of approximately $720,000 mainly due to non-cash compensation, an increase in software and licenses of approximately $40,000, an increase in depreciation expense of approximately $70,000 and increase of rent of $204,000, partially offset by a decrease of approximately $377,000 in professional and consulting expenses.

Previous wording

Selling and marketing expenses decreased by $51,579 to approximately $151,776 for the six months ended June 30, 2024, compared to approximately $203,355 for the six 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.

Current wording

Selling and marketing expenses decreased by $59,273, or 19.93%, to approximately $238,174 for the nine months ended September 30, 2024, compared to approximately $297,447 for the nine months ended September 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

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.

Current wording

Research and development expenses increased by $21,989, or 13.17%, to approximately $188,947 for the nine months ended September 30, 2024, compared to approximately $166,958 for the nine months ended September 30, 2023, primarily due to an increase in labor and material cost associated with continued development.

Previous wording

Our operations for the six months ended June 30, 2024, resulted in a net loss of approximately $4,672,329 an increase of approximately $916,085 compared to the approximately $3,756,244 net loss for the six months ended June 30, 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 nine months ended September 30, 2024, resulted in a net loss of approximately $7,047,014 an increase of approximately $1,479,592, or 26.58%, compared to the approximately $5,567,422 net loss for the nine months ended September 30, 2023, primarily due to an increase in general and administrative expense and research and development expense partially offset by a decrease in selling and marketing expenses.

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 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.

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 nine months ended September 30, 2024, the company incurred a net loss of approximately $7,047,014, had negative cash flows from operations of approximately $3,734,000 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.

Previous 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.

Current wording

At September 30, 2024, the company had total current assets of $2,025,823 and total current liabilities of $888,684 resulting in a working capital surplus of $1,137,139. At September 30, 2024, we had $1,608,241 of cash and cash equivalents, an increase of $288,715 from $1,319,526 at December 31, 2023.

Previous 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.

Current wording

During the first nine months of 2024, the net cash outflow from operating activities was $3,734,000. This amount was comprised primarily of our net loss of $7,047,014 offset by non-cash stock-based compensation expense of $2,855,676, depreciation and amortization of $161,167, amortization of ROU assets of $152,192 and amortization of prepaid assets of $167,035, and cash used from changes in assets and liabilities of ($23,056) from the increase in accounts receivable of $377,349 and accrued expenses and compensation of $33,855 offset by the net decrease in prepaids and deposits of $56,534 operating lease liabilities of $127,428, deferred revenue of $288,690 and an increase in accounts payable of $38,392.

Previous wording

During the first six months of 2024, the net cash outflow from investing activities was $55,435. This was for the purchase of equipment.

Current wording

During the first nine months of 2024, the net cash outflow from investing activities was $55,435. This was for the purchase of equipment.

Previous 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.

Current wording

During the first nine months of 2024, the net cash inflow from financing activities was $4,078,150. 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 $82,299 of tax withholdings related to the share settlement of RSUs, offset by $94,651 from the repayments on notes payable.