APPLIED ENERGETICS, INC.

Previous wording

Applied Energetics, Inc. is a leader in developing the next generation optical sources exhibiting ever-increasing output energy, peak power and frequency agility while also providing decreased size, weight, and cost of these systems for customers. Applied Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture and wavelength- and pulse-agility capability, our USP technology can enable users to achieve specific effects across different use cases with an unmatched blend of size, weight, and power attributes. While initially designed to meet the emerging needs and priorities for the national security community, our directed energy technology also has potential commercial applications in both the biomedical and advanced manufacturing industries.

Current wording

Applied Energetics, Inc. is a leader in developing the next generation optical sources exhibiting ever-increasing output energy, peak power and frequency agility while also providing decreased size, weight, and cost of these systems for customers. Applied Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture and wavelength- and pulse-agility capability, our Ultrashort Pulse (“USP”) technology can enable users to achieve specific effects across different use cases with an unmatched blend of size, weight, and power attributes. While initially designed to meet the emerging needs and priorities for the national security community, our directed energy technology also has potential commercial applications in both the biomedical and advanced manufacturing industries.

Previous wording

Applied Energetics’ directed energy technologies are vastly different from conventional directed energy systems. Our proprietary fiber-based architecture is a key differentiator for our most recent technology demonstrators. Compared with traditional continuous wave laser technologies, with their larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables, for powerful, dual-use and agile systems that can fit a host of platforms while delivering very high-intensity, ultrashort pulses of light to the required target. This unique directed energy solution allows extremely high peak power and energy, with target and effects tunability, and is effective against a wide variety of potential targets.

Current wording

Applied Energetics’ directed energy technologies are vastly different from conventional directed energy systems. Our proprietary fiber-based architecture is a key differentiator for our most recent technology demonstrators. Compared with traditional continuous wave laser technologies, with their larger footprints, AE’s architecture enables orders of magnitude size-weight-power optimization on all deliverables, for powerful, dual-use and agile systems that can fit a host of platforms while delivering very high-intensity, ultrashort pulses of light to the required target. This unique directed energy solution allows extremely high peak power and energy, with target and effects tunability, and is effective against a wide variety of potential targets.

Previous wording

Applied Energetics’ optical fiber-based laser architectures also enable unmatched wavelength agility as well as pulse duration agility. Using innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the far infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature allows for optimization of laser performance for defense or commercial applications.

Current wording

Applied Energetics’ optical fiber-based laser architectures also enable unmatched wavelength agility as well as pulse duration agility. Using innovative and highly specialized frequency shifting techniques, wavelengths can be custom tuned from the deep ultraviolet to the far infrared. In addition, temporal outputs can be adjusted from continuous wave to sub-picoseconds. The technology enables the customer to adjust the lasers’ operating parameters, ultimately creating more flexibility to change wavelength and pulse width. This feature allows for optimization of laser performance for defense or commercial applications. For defense, in particular, our USPL technology has demonstrated effects we believe are well suited to counter Group 1 and Group 2 small unmanned aerial systems.

Previous wording

Our proprietary USP laser technology provides a significantly more compact solution than current continuous wave laser platforms while still delivering high peak power. Continuous wave laser systems are typically used to heat a target and, during continuous illumination, this heat transfer leads to melting or charring of the material. Using continuous wave output powers that now exceed 100 kilowatts (1kW = 1000 watts), it can take anywhere from seconds to tens of seconds to impact a target. By contrast, Applied Energetics has delivered USP lasers to national security users that exceed five terawatts (1 TW = 1 trillion watts) in peak power, with the difference being that this peak power from a USP laser is delivered in a pulse that is less than a trillionth of a second. During this short pulse duration, and having such a high peak intensity, near-instantaneous ablation of the surface of the threat takes place. The net result of our innovative USP approaches is highly effective lasers capable of jamming, damaging, and destroying certain surveillance and reconnaissance sensors with mountable footprints that require only a fraction of the size, weight, and power requirements of other-directed energy technologies. We believe the combination of both low size and weight, along with power characteristics of wavelength and pulse duration agility will help us achieve our vision statement of “Directed Energy, Anywhere.”

Current wording

Our proprietary USP laser technology provides a significantly more compact solution than current continuous wave laser platforms while still delivering high peak power. Continuous wave laser systems are typically used to heat a target and, during continuous illumination, this heat transfer leads to melting or charring of the material. Using continuous wave output powers that now exceed 100 kilowatts (1kW = 1000 watts), it can take anywhere from seconds to tens of seconds to impact a target. By contrast, Applied Energetics has delivered USP lasers to national security users that exceed five terawatts (1 TW = 1 trillion watts) in peak power, with the difference being that this peak power from a USP laser is delivered in a pulse that is measured in trillionths of a second or shorter. During this short pulse duration, and having such a high peak intensity, near-instantaneous ablation of the surface of the threat takes place. The net result of our innovative USP approaches is highly effective lasers capable of jamming, damaging, and destroying certain surveillance and reconnaissance sensors with mountable footprints that require only a fraction of the size, weight, and power requirements of other-directed energy technologies. We believe the combination of both low size, weight, and power, along wavelength and pulse duration agility will help us achieve our vision statement of “Directed Energy, Anywhere.”

Previous wording

AE owns and protects intellectual property that is integral and necessary for the development of Ultrashort Pulse (“USP™”) Lasers, Laser Guided Energy (“LGE®”) and Direct Discharge Electrical products for military and commercial applications. AE currently owns 26 patents and an additional nine Government Sensitive Patent Applications (“GSPA”). These GSPA’s are held under secrecy orders of the US government and allow the company greatly extended protection rights, including having no expiration date until such time as they are no longer classified after which they will have the normal 20-year patent protection. The company also has two pending patent applications and one provisional patent application which is undergoing conversion to its non-provisional form. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage. We conduct research and development efforts under contracts and on an internal basis as we move toward product development and testing.

Current wording

AE owns and protects intellectual property that is integral and necessary for the development of Ultrashort Pulse (“USP™”) Lasers, Laser Guided Energy (“LGE®”) and Direct Discharge Electrical products for military and commercial applications. AE currently owns 25 patents and an additional nine Government Sensitive Patent Applications (“GSPA”). These GSPA’s are held under secrecy orders of the US government and allow the company greatly extended protection rights, including having no expiration date until such time as they are no longer classified after which they will have the normal 20-year patent protection. The company also has two pending patent applications and one provisional patent application which is undergoing conversion to its non-provisional form. We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage. In addition to research we have performed under contracts, we have continued our internal research and development (IRAD) efforts as we transition to product development and testing.

Previous wording

AE continues to expand its technical capabilities and administrative capacity with the addition of employees, consultants and contractors, and agreements with leading laser and optics universities in the country. AE also works with a team of contractors to strengthen our compliance, IT, technical staff, human resources and public relations.

Current wording

AE continues to expand its technical capabilities and administrative capacity with the addition of employees, consultants and contractors, and agreements with leading laser and optics universities in the country. AE also works with a team of contractors to strengthen our compliance, IT, technical staff, human resources and public relations. During the quarter, AE added two new business developments contractors as well as a business development marketing agency to assist the company in raising awareness about the state and uniqueness of its technology in the market and among targeted customers.

Previous wording

Effective May 17, 2025, the company received a requisition from the University of Rochester in the amount of $181,639. This is part of a contractual arrangement with the university in the approximate amount of $250,000 to support its Laboratory for Laser Energetics (LLE) for ongoing efforts to explore pulsed laser technologies. Work on the contract commenced on July 10, 2025 with a meeting at Applied Energetics headquarters in Tucson, AZ with Dr. Jon Zuegel, Laser Development and Engineering Division Director and a Senior Scientist at the LLE to discuss the research to be provided by the company. We completed work under the requisition and then worked with the University of Rochester to plan and commence work on the next phase. In April 2026, we were awarded a follow-on contract in excess of $240,000 to support Phase 1 of the program.

Current wording

Effective May 17, 2025, the company received a requisition from the University of Rochester in the amount of $181,639. This is part of a contractual arrangement with the university in the approximate amount of $250,000 to support its Laboratory for Laser Energetics (LLE) for ongoing efforts to explore pulsed laser technologies. We completed work under the requisition, and in April 2026 we were awarded a follow-on contract in excess of $240,000 to support Phase 1 of the program. We have performed a significant amount of the work under Phase 1, and planning has begun for the next phase of the program.

Previous wording

During the three months ended March 31, 2025, we recognized revenues as we performed services under these contracts and recorded related costs under cost of revenues. During the three months ended March 31, 2026, on the other hand, the company was no longer performing services under these contracts so recorded no revenues or costs with respect to them. However, the company has continued working on related technologies as part of its ongoing internal research and development program.

Current wording

During the six months ended June 30, 2025, we recognized revenues as we performed services under these contracts and recorded related costs under cost of revenues. During the six months ended June 30, 2026, on the other hand, the company was no longer performing services under these contracts, so it recorded no revenues or costs with respect to them. However, the company has continued working on related technologies as part of its ongoing internal research and development program.

Previous wording

During the quarter ended March 31, 2026, the company has continued its work on the design and integration of USP technologies onto the Kord Firefly platform and has extended this work into the second quarter. With recent upgrades and advances to the FIREFLYTM system, the company looks to continue integration into the updated platform.

Current wording

During the quarter ended June 30, 2026, the company has continued its work on the design and integration of USP technologies to be tested on the Kord Firefly platform and has extended this work into the third quarter. With recent upgrades and advances to the FIREFLYTM system, the company looks to continue integration into the updated platform.

Previous wording

During the fourth quarter of 2025 and the first quarter of 2026, the company began conducting field tests of certain of its lasers. To do so, it has made arrangements to use existing testing facilities maintained by third parties, including a private entity and a research university. The costs and availability of these testing facilities vary, depending on prior reservations and the minimum length of time needed for each field test. To facilitate these testing outings and make the time spent in the field more efficient, the company purchased an ATC Command/Response Trailer which is outfitted with a ramp door for access to the laser being tested, air conditioning for climate control, a generator, and workstations to enable the team to make adjustments to the lasers being tested in real time in the field. Our team has conducted several such field tests, in one of which, we completely disabled the sensor on a drone at a range that meets specifications provided to us by prospective customers.

Current wording

During the fourth quarter of 2025 and the first half of 2026, the company conducted field tests of certain of its lasers. To do so, it has made arrangements to use existing testing facilities maintained by third parties, including a private entity and a research university. The costs and availability of these testing facilities vary, depending on prior reservations and the minimum length of time needed for each field test. To facilitate these testing outings and make the time spent in the field more efficient, the company purchased an ATC Command/Response Trailer which is outfitted with a ramp door for access to the laser being tested, air conditioning for climate control, a generator, and workstations to enable the team to make adjustments to the lasers being tested in real time in the field. Our team has conducted several such field tests, in one of which, we completely disabled the sensor on a drone at a range that meets specifications provided to us by prospective customers. During this period our team has also deployed a significant amount of the company’s R&D budget toward the purchase of supplies and equipment for the development and testing of prototypes.

Previous wording

The current budgetary and deficit funding environment, continuing inflation, tariffs and other ongoing supply chain disruptions, the appropriations process, federal government shutdowns, and budget cuts, among other items, all continue to create significant short and long-term challenges and risks to the company and its business development endeavors. It is difficult to forecast the effect that any future tariffs will have on our ability to source raw materials, supplies, and equipment needed to continue our operations both for the performance of our ongoing contractual obligations and our internal research and development efforts. Moreover, the cuts to funding and reductions in federal government personnel can impact our cash flows and ability to continue operating. Many of these cuts are proposed to the Departments of War and Homeland Security budgets which are the focus of much of our business development efforts. However, we remain optimistic that the innovative nature of our technology and its novel approach to addressable threats position the company for development, growth, and market opportunities.

Current wording

The current budgetary and deficit funding environment, continuing inflation, tariffs, and other ongoing supply chain disruptions, the appropriations process, federal government shutdowns, and budget cuts, among other items, all continue to create significant short and long-term challenges and risks to the company and its business development endeavors. It is difficult to forecast the effect that any future tariffs will have on our ability to source raw materials, supplies, and equipment needed to continue our operations both for the performance of our ongoing contractual obligations and our internal research and development efforts. Moreover, the cuts to funding and reductions in federal government personnel can impact our cash flows, contract award timing, and ability to continue operating. However, we remain optimistic that the innovative nature of our technology and its novel approach to addressable threats position the company for development, growth, and market opportunities.

Previous wording

Certain mitigating factors could blunt any potential impact of these changes on our industry. The DoW and others in the administration have indicated that funding for innovation and novel technologies will continue to be a priority, and directed energy has been discussed as part of this trend. Also, many of the cuts are being challenged in court and, in some cases, reversed either because of judicial rulings or policy reversals. However, it is difficult to predict precisely where funds will be cut or allocated, and even a general reduction in force can make administrative functions, such as finalizing contracts and government payment processing, challenging. These factors could severely impact our cash flows and our ability to continue operating.

Current wording

Certain mitigating factors could blunt any potential impact of these changes on our industry. The DoW and others in the administration have indicated that funding for innovation and novel technologies will continue to be a priority, and scaling directed energy has been discussed as part of this trend. Also, many of the cuts are being challenged in court and, in some cases, reversed either because of judicial rulings or policy reversals. However, it is difficult to predict precisely where funds will be cut or allocated, and even a general reduction in force can make administrative functions, such as finalizing contracts and government payment processing, challenging. These factors could severely impact our cash flows and our ability to continue operating.

Previous wording

Revenue decreased by approximately $210,000 to $0 for the three months ended March 31, 2026.from the three months ended March 31, 2025. In April 2025, the company was notified by a customer that two of its active contracts were currently unfunded and remain unfunded, resulting in a decrease in revenue for the period. Although the contracts remain open, the company suspended all work until funding is secured in the future. Despite the suspension, the company continues to advance the underlying technology through its internal research and development efforts. Both the customer and the company are actively seeking alternative sources of funding, including from within the original contracting agency and other departments of the U.S. Department of War.

Current wording

Revenue decreased by $8,335 to $62,000 for the three months ended June 30, 2026 from $70,335 for the three months ended June 30, 2025. In April 2025, the company was notified by a customer that two of its active contracts were currently unfunded and remain unfunded, resulting in a decrease in revenue for the period. Although the contracts remain open, the company suspended all work until funding is secured in the future. Despite the suspension, the company continues to advance the underlying technology through its internal research and development efforts. Both the customer and the company are actively seeking alternative sources of funding, including from within the original contracting agency and other departments of the U.S. Department of War.

Previous wording

Our operations for the three months ended March 31, 2026, resulted in a net loss of approximately $3,808,000 an increase of approximately $702,000 compared to a net loss of approximately $3,106,000 for the three months ended March 31, 2025, primarily due to an increase in general and administrative expense and research and development expenses partially offset by a decrease in selling and marketing expenses.

Current wording

Our operations for the three months ended June 30, 2026, resulted in a net loss of $4,278,762, an increase of approximately $493,013 compared to a net loss of $3,785,749 for the three months ended June 30, 2025, primarily due an increase in general and administrative expenses and research and development expenses partially offset by a decrease in selling and marketing expenses.

Previous wording

General and administrative expenses increased by approximately $673,000 to approximately $3,283,000 for the three months ended March 31, 2026, compared to approximately $2,610,000 for the three months ended March 31, 2025, primarily due to an increase in salaries and employee benefits of approximately $320,000, as well as an increase in stock based compensation of approximately $356,000.

Current wording

General and administrative expenses increased by $1,267,448 to $6,700,295 for the six months ended June 30, 2026, compared to approximately $5,432,847 for the six months ended June 30, 2025, primarily due to an increase in employees and a resulting increase in salaries, employee benefits, and consultants of approximately $725,000 and an increase in stock based compensation of $528,000.

Previous wording

Research and development expenses increased by approximately $52,000 to approximately $375,000 for the three months ended March 31, 2026, compared to approximately $323,000 for the three months ended March 31, 2025, primarily due to an increase in labor costs of $135,000 offset by a decrease in material costs of approximately $83,000 associated with continued development of our USP laser technologies.

Current wording

Research and development expenses increased by $415,050 to approximately $1,074,275 for the six months ended June 30, 2026, compared to $659,225 for the six months ended June 30, 2025, primarily due to an increase in labor costs of $236,000 as well as an increase in materials and supplies of $179,000 in connection with the design of prototypes for demonstrations as well as continued development of our USP laser technologies and programs.

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, 2026, the company incurred a net loss of approximately $3,808,000, had negative cash flows from operations of approximately $2,296,000 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, 2025, 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, 2026, the company incurred a net loss of approximately $8,086,000, had negative cash flows from operations of approximately $5,124,000 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, 2025, 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, 2026, the company had total current assets of approximately $4,649,000 and total current liabilities of approximately $937,000 resulting in working capital of approximately $3,712,000. At March 31, 2026, we had approximately $4,064,000 of cash and cash equivalents, a decrease of approximately $2,372,000 from approximately $6,436,000 at December 31, 2025.

Current wording

At June 30, 2026, the company had total current assets of approximately $2,210,000 and total current liabilities of approximately $1,398,000 resulting in working capital of approximately $812,000. At June 30, 2026, we had approximately $1,117,000 of cash and cash equivalents, a decrease of approximately $5,319,000 from approximately $6,436,000 at December 31, 2025.

Previous wording

During the first three months of 2026, the net cash outflow from operating activities was approximately $2,296,000. This amount was comprised primarily of our net loss of approximately $3,808,000, offset by non-cash stock-based compensation expense of approximately $1,348,000, amortization of ROU assets of approximately $70,000, depreciation and amortization of approximately $88,000, and amortization of prepaid assets of approximately $51,000 as well as cash used from changes in assets and liabilities of approximately $46,000 due to a decrease in other assets of approximately $102,000, a decrease in the ROU liability of approximately $75,000 and offset by an increase in accounts payable and accrued liabilities of approximately $131,000.

Current wording

During the first six months of 2026, the net cash outflow from operating activities was approximately $5,124,000. This amount was comprised primarily of our net loss of approximately $8,086,000, offset by non-cash stock-based compensation expense of approximately $2,682,000, depreciation and amortization of approximately $175,000, amortization of ROU assets of approximately $141,000 and amortization of prepaid assets of approximately $103,000 as well as cash used from changes in assets and liabilities of approximately $363,000 which was comprised of an increase in Other Assets of $282,000, a decrease in ROU liabilities of approximately $153,000, an increase in Accounts Receivable of approximately $81,000, a decrease in in Accrued Expenses of $42,000 offset by an increase in Accounts Payable of $319,000 and an increase in Deferred Revenue of $100,000.

Previous wording

During the first three months of 2026, the net cash outflow from investing activities was approximately $43,000. This was for the purchase of equipment.

Current wording

During the first six months of 2026, the net cash outflow from investing activities was approximately $80,000. This was for the purchase of equipment including a trailer for transporting equipment for testing.

Previous wording

During the first three months of 2026, the net cash outflow from financing activities was approximately $32,000. This amount consisted of approximately $20,000 received from the exercise of options and warrants offset by approximately $4,700 tax withholdings related to the share settlement of RSUs and approximately $48,000 of repayment of an insurance premium loan.

Current wording

During the first six months of 2026, the net cash outflow from financing activities was approximately $40,000. This amount consisted of approximately $69,000 of payments made on loans as well as $5,000 tax withholdings related to the share settlement of RSUs offset by $34,000 received from the exercise of options.

Previous wording

The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting significant time and effort to developing its business and raising capital, as needed, and cannot be certain that these efforts will be successful. Management’s business development efforts may not result in profitable operations. To fund its research and development and marketing efforts, the company’s management continues to explore possible financing opportunities through discussions with investment bankers and private investors. The company may not be successful in its effort to secure additional financing on terms it considers favorable. The accompanying consolidated financial statements do not include any adjustments that might result should the company be unable to continue as a going concern.

Current wording

The company’s existence depends upon management’s ability to develop profitable operations. Management is devoting substantially all of its time and effort to developing its business and raising capital, as needed, and cannot be certain that these efforts will be successful. Management’s business development efforts may not result in profitable operations. To fund its research and development and marketing efforts, the company’s management continues to explore possible financing opportunities through discussions with investment bankers and private investors. The company may not be successful in its effort to secure additional financing on terms it considers favorable. The accompanying consolidated financial statements do not include any adjustments that might result should the company be unable to continue as a going concern.

Previous wording

Additionally, international, macroeconomic events, including the military action in the Middle East, the Russian military action in Ukraine 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 our ability to continue as a going concern. These events may also impair our ability to raise capital, including as a result of increased market volatility, or decreased market liquidity, which also affects the company’s ability to continue as a going concern. Third-party financing may become unavailable on terms acceptable to the company or at all. The impact of such events on the world economy and the specific impact on the company’s financial position and results of operations are difficult to predict. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Current wording

Additionally, international, macroeconomic events, including the military action in the Middle East and South America, the Russian military action in Ukraine 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 our ability to continue as a going concern. These events may also impair our ability to raise capital, including as a result of increased market volatility, or decreased market liquidity, which also affects the company’s ability to continue as a going concern. Third-party financing may become unavailable on terms acceptable to the company or at all. The impact of such events on the world economy and the specific impact on the company’s financial position and results of operations are difficult to predict. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.