APPLIED ENERGETICS, INC.

Previous wording

In their report accompanying our financial statements, our independent registered public accounting firm stated that our financial statements for the year ended December 31, 2024 were prepared assuming that we would continue as a going concern, and that they have substantial doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses and negative cash flow from operations and the concern that we may incur additional losses due to the reduction in government contract activity raise substantial doubt about our ability to continue as a going concern.

Current wording

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.

Previous wording

For the fiscal years ended December 31, 2024 and 2023, we had revenues of $2,426,609 and $2,631,443, respectively, and we had net losses of $9,174,958 and $7,350,435, respectively. We can give no assurances that our planned operations will generate revenues in the future or whether any such revenues will result in profitability.

Current wording

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.

Previous wording

As of December 31, 2024, we had $164,812 available cash and cash equivalents and working deficit of $67,639. We periodically conduct private bridge financings to cover certain short-term expenses, including raising approximately $6 million, in the aggregate, between January and February 2025. We believe our cash position is sufficient for the next several months, but we will likely need to raise additional capital in order to fund our operations beyond that. We must allocate funds toward SEC compliance as well as Defense Contract Audit Agency (DCAA), International Traffic in Arms Regulations (ITAR) and other federal regulatory compliance. We also need funds for general and administrative expenses, including salaries, benefits, supplies and equipment, lease expense on our headquarters, accounting, legal, and other professional fees and other miscellaneous expenses. Failure to secure sufficient financing could render us unable to fund these necessary costs and expenses. We also may require additional funding for research and development before we are able to commercialize our technology. We may secure additional government contracts or sub-contracts with larger contractors to fund additional research and development. However, we may need to raise additional capital to supplement these contracts even if we are able to secure them.

Current wording

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.

Previous wording

Our business, operating results, financial condition and liquidity may be adversely affected by changes in global economic conditions and geopolitical risks, including the inflationary environment in the United States and internationally, commodity prices, supply chain challenges, exchange rates, potential changes in policy positions or priorities, levels of government spending and deficits, the availability and cost of labor, the threat environment, trade policies, political conditions, national or international crises, including recurring global health emergencies, tariffs, trade embargoes, and other challenges that could affect the global economy, the demand for our technology and our ability to source materials and equipment. In recent years, inflationary pressures have increased labor and material costs at a higher rate higher than in prior years. Due to the nature of our government business, and the customer and supplier contracts within those businesses, we may not be able to increase our contract value or pricing to offset these cost increases, particularly with grants or fixed price contracts. This could adversely affect our operating profits and margins particularly if the increased inflation continues. Similarly, increases in interest rates from recent historical lows in the U.S. and internationally could negatively impact financial markets and tighten the availability of, and increase our cost of, capital, which could have an adverse effect on our operating results, financial condition and liquidity. Tightening credit in financial markets also could adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations. Similarly, such tightening credit may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. In addition, geopolitical and security risks could affect government priorities, budgets and policies, which could impact sales of defense and other products and services.

Current wording

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.

Previous wording

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 Department of Defense (DoD), 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.

Current wording

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.

Previous wording

The establishment of the Department of Government Efficiency (DOGE) whose mission is to sharply reduce federal spending, including to review defense spending for possible waste, fraud and abuse could make securing government contracts challenging. The administration has also indicated an interest in reducing spending on defense in general if Russia and China make similar commitments. 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.

Current wording

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.

Previous wording

Protecting our intellectual property rights is critical to our ability to maintain and protect the value of our intellectual property portfolio. We hold a number of United States patents and patent applications, as well as trademarks, and registrations which are necessary and contribute significantly to the preservation of our competitive position in the market. Any of these patents or future patent applications and other intellectual property could be challenged, invalidated or circumvented by third parties. In some instances, we may seek to augment our technology base by licensing the proprietary intellectual property of others, but we may be unable to obtain necessary licenses or to secure them on commercially reasonable terms. We have entered into confidentiality and invention assignment agreements with employees and consultants and nondisclosure agreements with suppliers, potential job candidates, and appropriate customers so as to limit access to and disclosure of our proprietary information. These measures may not suffice to deter misappropriation or independent third-party development of similar technologies. Based on our current financial condition, we may not have the funds available to enforce and protect our intellectual properties. Certain of our patents are Government Sensitive Patent Applications, meaning they are held under secrecy orders of the US government which limits our ability to develop technology under them although their expiration date is extended until such time as they are no longer classified.

Current wording

Protecting our intellectual property rights is critical to our ability to maintain and protect the value of our intellectual property portfolio. We hold a number of United States patents and patent applications, as well as trademarks, and registrations which are necessary and contribute significantly to the preservation of our competitive position in the market. Any of these patents or future patent applications and other intellectual property could be challenged, invalidated or circumvented by third parties. In some instances, we may seek to augment our technology base by licensing the proprietary intellectual property of others, but we may be unable to obtain necessary licenses or to secure them on commercially reasonable terms. We have entered into confidentiality and invention assignment agreements with employees and consultants and nondisclosure agreements with suppliers, potential job candidates, and appropriate customers so as to limit access to and disclosure of our proprietary information. These measures may not suffice to deter misappropriation or independent third-party development of similar technologies. Based on our current financial condition, we may not have the funds available to enforce and protect our intellectual properties. Certain of our patents are Government Sensitive Patent Applications, meaning they are held under secrecy orders of the US government which limits our ability to develop technology under them although their expiration date is extended until such time as they are no longer classified. We also hold many of our intellectual property in the form of trade secrets, which may be difficult or impossible to protect in certain circumstances. In order to manufacture products, we may need to contract with third parties who have manufacturing capabilities which we do not have. In such instances, we may face the risk of our intellectual property being misappropriated.

Previous wording

In addition, the market for our technologies and products may not develop or expand as we currently anticipate. The failure of our technology to gain market acceptance could significantly reduce any ability to generate revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing or differing technologies which gain market acceptance in advance of our products. The possibility that our competitors might develop new technology or products might cause our existing technology and products to become obsolete or create significant price competition. If we fail in our new product development and commercialization efforts, or our products fail to achieve market acceptance more rapidly than our competitors, our revenue will decline and our business, financial condition and results of operations will be negatively affected.

Current wording

In addition, the market for our technologies and products may not develop or expand as we currently anticipate. The failure of our technology to gain market acceptance could significantly reduce any ability to generate revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing or differing technologies which gain market acceptance in advance of our products. The possibility that our competitors might develop new technology or products might cause our existing technology and products to become obsolete or create significant price competition. If we fail in our new product development and commercialization efforts, or our products fail to achieve market acceptance more rapidly than our competitors, our revenue will decline and our business, financial condition and results of operations will be negatively affected. We rely on testing ranges owned and operated by third parties for outdoor testing of our technology. These outdoor testing facilities can be shut down, expensive, or offer only limited time slots for their use.

Previous wording

We are highly dependent upon Christopher Donaghey, our President and Chief Executive Officer (and Principal Accounting and Financial Officer) and Stephen McCahon, our Chief Science Officer. We depend on Dr. McCahon’s decades of expertise for the marketing and development of our technology. We also depend upon their global visibility and outreach as well as Mr. Donaghey’s and our directors’ networks of contacts and experience to recruit key talent to the company. We do not have key-person insurance on any of these individuals. Loss of the services of any of these key members of our management team, or of our Board of Directors’ ability to identify and hire key talent, could have a material adverse effect on our business prospects, financial condition and results of operations. Although a key component of our growth strategy is succession planning and hiring additional key personnel, we may be unable to achieve this in the near term given constraints in the labor market and our interest in recruiting highly qualified professionals.

Current wording

We are highly dependent upon Christopher Donaghey, our President and Chief Executive Officer and Stephen McCahon, our Chief Science Officer. We depend on Dr. McCahon’s decades of expertise for the marketing and development of our technology. We also depend upon their global visibility and outreach as well as Mr. Donaghey’s and our directors’ networks of contacts and experience to recruit key talent to the company. We do not have key-person insurance on any of these individuals. Loss of the services of any of these key members of our management team, or of our Board of Directors’ ability to identify and hire key talent, could have a material adverse effect on our business prospects, financial condition and results of operations. Although a key component of our growth strategy is succession planning and hiring additional key personnel, we may be unable to achieve this in the near term given constraints in the labor market and our interest in recruiting highly qualified professionals.

Previous wording

Given the highly specialized nature of our technology, the potential market for our products is limited to a relative few potential customers who tend to allocate significant budgeted amounts to selected projects. Currently, we are marketing our technology and focusing our research and development on the defense sector, in which demand is ultimately determined primarily by the US federal defense budget and the needs and priorities of the Department of Defense and its various agencies. The potential customers in this area are defense agencies for direct contracts and major defense contractors for subcontracts. Thus, the demand for our products depends on their needs for our technology and selecting us for research and development. Although we intend to diversify into other applications for our technology and markets, we cannot be certain that opportunities in those markets will present themselves when we are ready, or that we will otherwise be able, to do so.

Current wording

Given the highly specialized nature of our technology, the potential market for our products is limited to a relative few potential customers who tend to allocate significant budgeted amounts to selected projects. Currently, we are marketing our technology and focusing our research and development on the defense sector, in which demand is ultimately determined primarily by the US federal defense budget and the needs and priorities of the DoW and its various agencies. The potential customers in this area are defense agencies for direct contracts and major defense contractors for subcontracts. Thus, the demand for our products depends on their needs for our technology and selecting us for research and development. Although we intend to diversify into other applications for our technology and markets, we cannot be certain that opportunities in those markets will present themselves when we are ready, or that we will otherwise be able, to do so.

Previous wording

We maintain a large percentage of our cash balances with Western Alliance Bank. At times, our bank balances exceed FDIC limits. As of December 31, 2024, $0 of our cash balance was uninsured. Significant portions of our cash balance earn little, if any, interest. We continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest bearing cash equivalents and auxiliary cash accounts to maximize our insurance coverage.

Current wording

We maintain a large percentage of our cash balances with Western Alliance Bank. At times, our bank balances exceed FDIC limits. As of December 31, 2025, $6,180,178 of our cash balance was uninsured. From time to time, significant portions of our cash balance earn little, if any, interest. We continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest-bearing cash equivalents and auxiliary cash accounts to maximize our insurance coverage. We continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest bearing cash equivalents and auxiliary cash accounts to maximize our insurance coverage.

Previous wording

Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and adversely affect any market liquidity for our common stock.

Current wording

Rule 3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and adversely affect any market liquidity for our common stock.

Previous wording

Historically, the SEC staff has taken the position that Rule 144 under the Securities Act is not available for the resale of securities initially issued by companies that are, or previously were, shell companies, like AE. The SEC has codified and expanded this position in certain amendments to Rule 144 by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:

Current wording

Historically, the SEC staff has taken the position that Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) is not available for the resale of securities initially issued by companies that are, or previously were, shell companies, like AE. The SEC has codified and expanded this position in certain amendments to Rule 144 by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:

Previous wording

As of March 25, 2025, we had outstanding 218,242,805 shares of common stock. Approximately 100 million of our shares are currently freely trading without restriction under the Securities Act of 1933, as amended. Most of the remaining shares have been held by their holders for over one year and are thus eligible for sale under Rule 144(k) of the Securities Act. Sale of these shares into the market could depress our stock price. This is particularly true in an illiquid market characterized by limited trading volume. The market for shares of our common stock is subject to a limited trading volume and at times is volatile. The thinly traded nature of our common stock could make it difficult to sell shares at or near ask prices, if at all, particularly as additional shares enter the market for sale.

Current wording

As of March 27, 2026, we had outstanding 223,836,331 shares of common stock. Approximately 100 million of our shares are currently freely trading without restriction under the Securities Act. Most of the remaining shares have been held by their holders for over one year and are thus eligible for sale under Rule 144(k) of the Securities Act. Sale of these shares into the market could depress our stock price. This is particularly true in an illiquid market characterized by limited trading volume. The market for shares of our common stock is subject to a limited trading volume and at times is volatile. The thinly traded nature of our common stock could make it difficult to sell shares at or near ask prices, if at all, particularly as additional shares enter the market for sale.

Previous wording

Our Certificate of Incorporation authorizes our Board of Directors to issue up to 2,000,000 shares of “blank check” preferred stock without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable to each new series of preferred stock. In addition, our Certificate of Incorporation divides our board of directors into three classes, serving staggered three-year terms. At least two annual meetings, instead of one, will be required to effect a change in a majority of our board of directors. The designation of preferred stock in the future and the classification of our Board of Directors, could make it difficult for third parties to gain control of our company, prevent or substantially delay a change in control, discourage bids for our common stock at a premium, or otherwise adversely affect the market price of our common stock. Moreover, the holders of our outstanding Series A Preferred Stock have a right to put their shares to the company for an amount equal to the liquidation preference of approximately $340,000 plus unpaid dividends (approximately $397,000 as of December 31, 2024), in the event of a change of control. Such right could hinder our ability to sell our assets or merge with another company.

Current wording

Our Certificate of Incorporation authorizes our Board of Directors to issue up to 2,000,000 shares of “blank check” preferred stock without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable to each new series of preferred stock. In addition, our Certificate of Incorporation divides our board of directors into three classes, serving staggered three-year terms. At least two annual meetings, instead of one, will be required to effect a change in a majority of our board of directors. The designation of preferred stock in the future and the classification of our Board of Directors, could make it difficult for third parties to gain control of our company, prevent or substantially delay a change in control, discourage bids for our common stock at a premium, or otherwise adversely affect the market price of our common stock. Moreover, the holders of our outstanding Series A Preferred Stock have a right to put their shares to the company for an amount equal to the liquidation preference of approximately $340,000 plus unpaid dividends (approximately $433,000 as of December 31, 2025), in the event of a change of control. Such right could hinder our ability to sell our assets or merge with another company.

Previous wording

The company has redeemed substantially all of its outstanding preferred stock. At December 31, 2024, 13,602 shares were outstanding with a liquidation preference of approximately $340,000 and unpaid dividends of approximately $397,000. As of March 26, 2025, the liquidation preference of our outstanding preferred stock plus unpaid dividends thereon was approximately $408,000. If an event occurs that would require us to redeem the preferred stock, we may not have the required cash to do so.

Current wording

The company has redeemed substantially all of its outstanding preferred stock. At December 31, 2025, 13,602 shares were outstanding with a liquidation preference of approximately $340,000 and unpaid dividends of approximately $431,000. As of March 27, 2026, the liquidation preference of our outstanding preferred stock plus unpaid dividends thereon was approximately $442,000. If an event occurs that would require us to redeem the preferred stock, we may not have the required cash to do so.

Previous wording

Our certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock. As of March 25, 2025, we had approximately 218,242,805 shares of common stock issued and outstanding. If funding opportunities present themselves on favorable terms, we may issue additional shares to fund our business or in connection with our pursuit of new business opportunities and new business operations. To the extent that additional shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests. If we issue shares of common stock in connection with our intent to pursue new business opportunities, a change in control of our company could occur. The issuance of additional shares of common stock may also adversely affect the market price of our common stock, particularly given the historically low trading volume in the market for our common stock.

Current wording

Our certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock. As of March 27, 2026, we had approximately 223,836,331 shares of common stock issued and outstanding. If funding opportunities present themselves on favorable terms, we may issue additional shares to fund our business or in connection with our pursuit of new business opportunities and new business operations. To the extent that additional shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests. If we issue shares of common stock in connection with our intent to pursue new business opportunities, a change in control of our company could occur. The issuance of additional shares of common stock may also adversely affect the market price of our common stock, particularly given the historically low trading volume in the market for our common stock.