APPLIED ENERGETICS, INC.

NOTE 1 – ORGANIZATION OF BUSINESS, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Applied Energetics, Inc. and its wholly owned subsidiary North Star Power Engineering, Inc. (“North Star”) (collectively, “company,” “Applied Energetics,” “we,” “our” or “us”). All intercompany balances and transactions have been eliminated.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2025, balance sheet information was derived from the audited financial statements as of that date. The interim unaudited condensed consolidated financial statements should be read in conjunction with the company’s audited consolidated financial statements contained in our Annual Report on Form 10-K.

Going Concern

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, 2026, the Company incurred a net loss of $3,807,723, had negative cash flows from operations of $2,296,313 and may incur additional future losses due to limited contract activity. At March 31, 2026, the company had total current assets of $4,648,512 and total current liabilities of $936,873, resulting in working capital of $3,711,639. At March 31, 2026, the company had cash of $4,064,093.

Based on the Company’s current business plan, it believes its cash balance as of the date of this filing, together with anticipated revenues from government contracts, will be sufficient to meet its anticipated cash requirements for the near term. However, there can be no assurance that the current business plan will be achievable. Such conditions raise substantial doubts about the Company’s ability to continue as a going concern for one year from the date the financial statements are issued.

The Company’s existence depends upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that management’s efforts will result in profitable operations or enable it to overcome future liquidity concerns. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of assets, the amount or classification of liabilities or otherwise that might be necessary should the Company be unable to continue as a going concern.

Trade conditions, such as unusually high and fluctuating tariffs, exacerbated supply chain shutdowns and delays, contribute to this uncertainty. Additionally, Russia’s military action in Ukraine, war in the Middle East, and related economic sanctions around the globe, could impact the Company’s ability to source necessary supplies and equipment which could materially and adversely affect its ability to continue as a going concern. In addition, the Company’s ability to continue as a going concern may depend on its ability to raise capital, which may be impacted by these events, including as a result of increased market volatility, or decreased market liquidity. This may result in third-party financing being unavailable on terms acceptable to the company or at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

To further improve its liquidity position, the Company’s management continues to explore additional equity financing through discussions with investment bankers and private investors. The company may be unsuccessful in its effort to secure additional equity financing. 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.

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, including office and laboratory space, and our telephone number is (520) 628-7415.

Use of Estimates

The preparation of unaudited condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. Significant estimates include revenue recognition, carrying amounts of long-lived assets, valuation assumptions for share-based payments, evaluation of debt modification accounting, effective borrowing rate determinations, analysis of fair value transferred upon debt extinguishment, valuation and calculation of measurements of income tax assets and liabilities.

Net Loss Attributable to Common Stockholders

Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents. Diluted net loss per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to dilutive common stock equivalents. Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent. The number of options, restricted stock units, warrants, and our Series A Convertible Preferred Stock, which were not included in the computation of earnings per share because the effect was antidilutive, was 37,973,773 and 35,793,004 for the three months ended March 31, 2026 and 2025, respectively.

Significant Concentrations and Risks

We maintain cash balances at a commercial bank, and, at times, balances exceed FDIC limits. As of March 31, 2026, $3,809,644 was uninsured.

NOTE 2 – NEW ACCOUNTING STANDARDS

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s financial statement disclosures.

NOTE 3 – OTHER ASSETS

Other assets consisted of the following as of March 31, 2026 and December 31, 2025:

NOTE 4 – PROPERTY AND EQUIPMENT – NET

Property and equipment – net consisted of the following as of March 31, 2026 and December 31, 2025:

Depreciation expense for the three months ended March 31, 2026 and 2025, was $88,143 and $56,151, respectively. There were no material additions or disposals during the period ended March 31, 2026.

NOTE 5 – SECURITY DEPOSIT

As of March 31, 2026 and December 31, 2025, the Company had security deposit totaling $17,004 which primarily consist of amounts paid under office and facility lease agreements. These deposits are refundable upon lease termination, subject to the terms of the underlying agreements. The security deposits are classified as non-current assets, as the leases are not expected to terminate within the next twelve months.

NOTE 6 – ACCRUED EXPENSES

Accrued expenses consisted of the following as of March 31, 2026 and December 31, 2025:

NOTE 7 – NOTES PAYABLE

Premium Financing

On June 12, 2025, the Company entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $160,000 for the insurance premium associated with two D&O policies. Both policies commenced June 12, 2025, and provide coverage for the next 12 months, expiring June 11, 2026. The loan bears interest at a fixed rate of 9.250% per annum and required the company to prepay $45,000 and appears on the balance sheet as other asset. On July 12, 2025, the Company commenced monthly principal and interest payments of $16,686 which was the first payment of ten remaining months due of $166,861.50, the last payment of which was scheduled to be made on April 12, 2026. As of March 31, 2026, the outstanding balance on the note was $0.

On March 12, 2024, the Company entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $189,302 for the insurance premium associated with two D&O policies. Both policies commenced March 12, 2024, and provided coverage for the next 15 months, expiring June 11, 2025. The loan bears interest at a fixed rate of 9.50% per annum and required the company to prepay $41,057 and appears on the balance sheet as an “other asset.” On April 12, 2024, the Company commenced monthly principal and interest payments of $15,775 which was the first payment of twelve remaining months due of $189,302, the last payment of which was made on March 12, 2025. As of December 31, 2025, the outstanding balance on the note was $0.

Notes Payable Reconciliation

The following reconciles notes payable as of March 31, 2026, and December 31, 2025:

NOTE 8 – STOCKHOLDERS’ EQUITY

Authorized Capital Stock

During the three months ended March 31, 2025, the Company completed the placement of 8,010,652 shares of its common stock, par value, $0.001 per share, some of which were underlying pre-funded common stock purchase warrants, in a private sale to individual purchasers at a price of $0.75 per share (or $0.749 per underlying share for pre-funded warrants), for aggregate proceeds in the approximate amount of $6,004,250.

During the three months ended March 31, 2025, the company issued 30,000 shares of common stock upon the exercise of 30,000 options at an exercise price of $0.40 a share. As a result, the company received $12,000 in cash proceeds as part of the transaction.

During the three months ended March 31, 2025, restricted stock units covering 11,667 shares of the company’s common stock vested. The Company issued 11,667 and withheld 3,693 shares of common stock from the holder pursuant to their restricted stock unit agreements to cover its tax withholding obligation of $2,733.

During the three months ended March 31, 2025, the Company issued 80,000 shares of common stock to consultants in exchange for services rendered. During the three months ended March 31, 2026, the Company recognized stock compensation expense of $79,120.

During the three months ended March 31, 2026, the Company issued 217,463 shares of common stock upon the exercise of 217,463 options at an average exercise price of $0.09 a share. As a result, the Company received $20,380 in cash proceeds as part of the transaction.

During the three months ended March 31, 2026, restricted stock units covering 11,667 shares of the company’s common stock vested. The Company issued 11,667 and withheld 3,751 shares of common stock from the holder pursuant to their restricted stock unit agreements to cover its tax withholding obligation of $4,663.

Preferred Stock

As of March 31, 2026, and December 31, 2025, there were 13,602 shares of Series A Redeemable Convertible Preferred Stock (the “Series A Preferred Stock”) issued and outstanding, respectively. The company has not paid the dividends commencing with the quarterly dividend due August 1, 2013. Dividend arrearages as of March 31, 2026, including previously accrued dividends of $48,079 included in our balance sheet total approximately $439,521. The Company’s Board of Directors suspended the declaration of the dividend, commencing with the dividend payable as of February 1, 2015, since the Company did not have a surplus (as such term is defined in the Delaware general corporation Law) as of December 31, 2014, until such time as we have a surplus or net profits for a fiscal year.

The Series A Preferred Stock has a liquidation preference of $25.00 per Share. The Series A Preferred Stock bears dividends at the rate of 6.5% of the liquidation preference per share per annum, which accrues from the date of issuance, and is payable quarterly. Dividends may be paid in: (i) cash, (ii) shares of our common stock (valued for such purpose at 95% of the weighted average of the last sales prices of our common stock for each of the trading days in theten trading day period ending on the third trading day prior to the applicable dividend payment date), provided that the issuance and/or resale of all such shares of our common stock are then covered by an effective registration statement and the company’s common stock is listed on a U.S. national securities exchange or the Nasdaq Stock Market at the time of issuance or (iii) any combination of the foregoing. If the company fails to make a dividend payment within five business days following a dividend payment date, the dividend rate shall immediately and automatically increase by 1% from 6.5% of the liquidation preference per offered share of Series A preferred stock to 7.5% of such liquidation preference. If a payment default shall occur on two consecutive dividend payment dates, the dividend rate shall immediately and automatically increase to 10% of the liquidation preference for as long as such payment default continues and shall immediately and automatically return to the Initial dividend rate at such time as the payment default is no longer continuing.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder into a number of shares of common stock equal to the liquidation preference (plus any unpaid dividends for periods prior to the dividend payment date immediately preceding the date of conversion by the holder) divided by the conversion price (initially $12.00 per share, subject to adjustment in the event of a stock dividend or split, reorganization, recapitalization or similar event). If the closing sale price of the common stock is greater than 140% of the conversion price on 20 out of 30 trading days, the company may redeem the Series A Preferred Stock in whole or in part at any time through October 31, 2010, upon at least 30 days’ notice, at a redemption price, payable in cash, equal to 100% of the liquidation preference of the shares to be redeemed, plus unpaid dividends thereon to, but excluding, the redemption date, subject to certain conditions. In addition, beginning November 1, 2010, the company may redeem the Series A Preferred Stock in whole or in part, upon at least 30 days’ notice, at a redemption price, payable in cash, equal to 100% of the liquidation preference of the Series A Preferred Stock to be redeemed, plus unpaid dividends thereon to, but excluding, the redemption date, under certain conditions.

If a change of control occurs, each holder of shares of Series A Convertible Preferred Stock that are outstanding immediately prior to the change of control shall have the right to require the corporation to purchase, out of legally available funds, any outstanding shares of Series A Convertible Preferred Stock at the defined purchase price. The purchase price is defined as: per share of Preferred Stock,101% of the liquidation preference thereof, plus all unpaid and accumulated dividends, if any, to the date of purchase thereof. The purchase price is payable, at the corporation’s option, (x) in cash, (y) in shares of the common stock at a discount of 5% from the fair market value of Common Stock on the Purchase Date (i.e. valued at a 95% discount of the Common Stock on the Purchase Date), or (z) any combination thereof.

If the Corporation pays all or a portion of the Purchase Price in Common Stock, no fractional shares of Common Stock will be issued; instead, the company will round the applicable number of shares of Common Stock up to the nearest whole number of shares; provided that the Corporation may pay the Purchase Price (or a portion thereof), whether in cash or in shares of Common Stock, only if the Corporation has funds legally available for such payment and may pay the Purchase Price (or a portion thereof) in shares of its Common Stock only if (i) the Common Stock is listed on a U.S. national securities exchange or the Nasdaq Stock Market at the time of issuance and (ii) a shelf registration statement covering the issuance by the Corporation and/or resales of the Common Stock issuable as payment of the Purchase Price is effective on the Payment Date unless such shares are eligible for immediate resale in the public market by non-affiliates of the Corporation.

Stock Option and Stock Issuance Plan

Effective November 12, 2018, the Board of Directors of Applied Energetics, Inc. adopted the 2018 Incentive Stock Plan. The plan provides for the allocation and issuance of stock, restricted stock purchase offers and options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants of the company. The board reserved a total of 50,000,000 shares for possible issuance under the plan.

The Company has, from time to time, also granted non-plan options and restricted stock units to certain officers, directors, employees and consultants. Total stock-based compensation expense for grants to officers, employees and consultants was $1,348,232 and $991,793 for the three months ended March 31, 2026, and 2025, respectively, which was charged to general and administrative expense.

The $1,348,232 stock-based compensation for the three months ended March 31, 2026, was comprised of $929,673 option expense and $418,559 expense from the vesting of the restricted stock.

The Company recognized no related income tax benefit because our deferred tax assets are fully offset by a valuation allowance.

As of March 31, 2026, the company has $8,511,976 of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures. The cost is expected to be recognized on a weighted average basis over a period of approximately six years.

The following table summarizes the activity of our stock options for the three months ended March 31, 2026:

We determine the fair value of option grant share-based awards at their grant date, using a Black-Scholes- Merton Option- Pricing Model applying the assumptions in the following table:

The fair value of restricted stock and restricted stock units was estimated using the closing price of our common stock on the date of award and fully recognized upon vesting. Restricted stock activity for the three months ended March 31, 2026, was as follows:

As of March 31, 2026, and December 31, 2025, there was $1,124,196 and $1,542,756 respectively in unrecognized stock- based compensation related to unvested restricted stock agreements, net of estimated forfeitures. The cost is expected to be recognized on a weighted average basis over a period of approximately six years.

On October 9, 2025, the Company entered a private placement issued 5,995,674 shares of its common stock (or pre-funded warrants in lieu thereof) to a group of existing accredited investors at a purchase price of $1.80 per share. The pre-funded warrants are exercisable immediately upon issuance at a price of $0.001 per share until exercised. The Company assessed the pre-funded warrants for appropriate balance sheet classification and concluded that the pre-funded warrants are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. Accordingly, they are classified as equity and accounted for as a component of common stock at the time of issuance. The Company also determined that the prefunded warrants should be included in the determination of basic and diluted earnings per share in accordance with ASC 260,Earnings per Share.

Warrant stock activity for the three months ended March 31, 2026, was as follows:

NOTE 9 – REVENUE RECOGNITION

The company derives revenue from technical research detailing the findings of its investigations to its customers under contract for specific projects. Under Topic 606, revenue is recognized when control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. A performance obligation is a contractual promise to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations are satisfied. The company’s contracts require significant integrated services and are accounted for as a single performance obligation, and revenue is recognized by the company over the contract term at a fixed contract price.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.

As of March 31, 2026 and December 31, 2025, the Company had $0 of accounts receivable recorded on the balance sheet.

Concentrations

During the three months ended March 31, 2026, the Company had $0 in revenue recognized. As of March 31, 2026, the Company has $0 of accounts receivable recorded on the balance sheet. Accordingly, no allowance for doubtful accounts was recorded as of March 31, 2026.

During the three months ended March 31, 2025, two customers accounted for a total of $209,753 in revenue or 100% of revenue recognized. As of March 31, 2025, the Company has $90,334 or 100% of accounts receivable recorded as current assets on the balance sheet related to two customers. Based on the Company’s evaluation of credit risk, historical collection experience, and subsequent collections received, management concluded that these receivables are fully collectible. Accordingly, no allowance for doubtful accounts was recorded as of March 31, 2025. The accounts receivable balance was fully collected.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Operating Leases

In March 2021, the company signed a five-year lease for a 13,000 square foot laboratory/office space in Tucson. The initial base rent was $6.7626 per rentable square foot for year one and escalated to $9.2009 per rentable square foot in year two. It is to further escalate to $11.4806 per rentable square foot in year three, $13.1740 per rentable square foot in year four and $14.9306 per rentable square foot in year five, in addition to certain operating expenses and taxes.

On June 7, 2023, the company entered into an amendment to extend the term of the original lease from April 26, 2026 to July 31, 2028. Included in the lease amendment is extension space commencing on August 1, 2023. As of August 1, 2023 the Company has secured additional square footage in the amount of 9,805 rentable square feet (8,375 usable square feet). The initial base rent for expansion space was $9.10 per rentable square foot for year one, and escalated to $10.20 in year two, $11.30 in year three, $12.40 in year four and $13.50 in year five, plus certain operating expenses and taxes.

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. 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 Company incurred lease expense for its operating leases of $164,133 which was included in general and administrative expenses in the statements of operation for the period ended March 31, 2026. During the three months ended March 31, 2026, the Company made cash lease payments in the amount of $94,553.

At March 31, 2026, the Company had approximately $299,703 in future minimum lease payments due for the nine months ended. The below table presents the future minimum lease payments due reconciled to lease liabilities.

Guarantees

The Company agrees to indemnify its officers and directors for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The maximum amount of future payments that the company could be required to make under these indemnification agreements is unlimited. However, the Company maintains a director’s and officer’s liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result, it believes the estimated fair value of these indemnification agreements is minimal because of its insurance coverage, and it has not recognized any liabilities for these agreements as of March 31, 2026 and 2025.

Litigation

On January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan & Nusbaum (GKN) and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel to the company. On May 28, 2021, GKN and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021, the company filed an opposition to the motion. On July 13, 2021, GKN and Mr. Whalen filed their reply brief. On March 30, 2022, United States Magistrate Judge Debra Freeman signed an order denying the motion of GKN and Mr. Whalen to dismiss the company’s claim for malpractice and for rescission of the shares-for-fees agreement under which GKN and Whalen received 1,242,710 shares of the company’s common stock. The motion was partially granted as to the separate claim for violation of NYRPC 1.7 and 1.8 because the court found that it was duplicative of the malpractice claim. Motions for summary judgment in the case were fully briefed, and the judge held oral arguments on August 7, 2025. On September 17, 2025, the court issued an Opinion and Order denying both parties’ motions for Summary Judgment. The parties participated in a mediation on April 23, 2026 which did not result in a settlement. The court recently scheduled the trial to commence on December 1, 2026.

As with any litigation, the Company cannot predict the outcome with certainty, but the company expects to provide further updates on the status of the litigation as circumstances warrant.

The Company may, from time to time, be involved in legal proceedings arising from the normal course of business.

NOTE 11 – SEGMENT INFORMATION

ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance.

The CODM has been identified as the Chief Executive Officer, who reviews the assets, operating results, and financial metrics for the company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that there is only one reportable segment.

The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the statement of operations as net income or loss. When evaluating the Company’s performance and making key decisions regarding resource allocation, the CODM reviews each of the key metric included in net income or loss and set forth in the table below.

The Company is currently deemed to be comprised of onlyone operating segment andone reportable segment. The following table presents selected financial information with respect to the Company’s single reportable segment for the three months ended March 31, 2026 and 2025:

NOTE 12 – SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events occurring after March 31, 2026, the date of our most recent balance sheet, through the date our financial statements were issued.

Effective April 17, 2026, the company received a requisition from the University of Rochester in the amount of $243,000 for the next phase of an arrangement with the university to support its Laboratory for Laser Energetics (LLE) for ongoing efforts to develop pulsed laser technologies. The work is expected to be completed by June 30, 2026.

Subsequent to the period ended March 31, 2026, the Company issued an incentive stock option to purchase up to 100,000 shares of common stock, at an exercise price of $1.22, to one employee.

Subsequent to the period ended March 31, 2026, the Company granted an advisory board member a nonstatutory stock option to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $1.20 per share. The option vests as to 100,000 shares on the grant date, with the remaining 900,000 shares vesting in nine equal semi-annual installments beginning six months after the grant date and expires ten years from the grant date.

Subsequent to the period ended March 31, 2026, certain holders of the Company’s outstanding stock options exercised their rights to purchase shares of the Company’s common stock. As a result of these exercises, the Company issued an aggregate of 108,000 shares of common stock at exercise prices ranting from $0.07 to $0.40 per share, resulting in total cash proceeds to the Company of $10,300.