# Applied Energetics, Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Applied Energetics, Inc.](/companies/aerg.md) (CIK 879911)
- Form: 10-Q
- Filed: 2022-05-16
- Accepted by EDGAR: May 16, 2022, 15:33 ET
- Period: 2022-03-31
- Accession: 0001213900-22-027024
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/879911/000121390022027024/f10q0322_applied.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/879911/000121390022027024/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $76.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$1.8m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 207,663,896 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$1.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $6.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $2.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $2.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $3.8m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $1.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $2.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-03-31 | $1.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,948 characters.

Our discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related disclosures included elsewhere herein and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2021, and Quarterly Report on Form 10-Q from the three months ended March 31, 2022.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts and can be identified by the use of forward-looking words such as “may,” “believe,” “will,” “would,” “could,” “should,” “expect,” “project,” “anticipate,” “estimates,” “possible,” “plan,” “strategy,” “target,” “prospect,” or “continue,” and other similar terms and phrases. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from our expectations are described in Item 1A (Risk Factors) of our Annual Report on Form 10-K, for the year ended December 31, 2021. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.

Applied Energetics, Inc., (the “Company”) is a corporation organized and existing under the laws of the State of Delaware. Our executive office is located at 9070 S. Rita Road, Suite 1500, Tucson, Arizona 85747, (520) 628-7415. www.aergs.com

Applied Energetics, Inc., specializes in the development and manufacture of advanced high-performance lasers, advanced optical systems, and integrated guided energy systems for prospective defense, national security, industrial, biomedical, and scientific customers worldwide.

### Technology, Capabilities and Patents

Applied Energetics, Inc. is recognized as a global 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 commercial applications in both the biomedical and advanced manufacturing industries.

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

AERG has developed, successfully demonstrated and holds all crucial intellectual property rights to a dynamic directed energy technology called Laser Guided Energy (“LGE®”) and Laser Induced Plasma Channel (“LIPC®”). LGE and LIPC are technologies that can be used in a new generation of high-tech directed energy systems. The Department of Defense (DOD) previously recognized only two key types of Directed Energy Weapon (“DEW”) technologies, High Energy Lasers (“HEL”), and High-Power Microwave (“HPM”). Neither the HEL nor the HPM intellectual property portfolio is owned by a single entity. The DOD then designated a third DEW technology, LGE. Applied Energetics’ LGE and LIPC technologies are wholly owned by Applied Energetics and patent protected with 26 current patents and an additional 11 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. The company also has seven provisional patents, and we continue to file patent applications as we deem appropriate.

Applied Energetics’ Directed Energy technologies are vastly different from conventional directed energy systems, i.e. HEL, and HPM. LGE uses Ultrashort Pulse (USP™) laser technology to combine the speed and precision of lasers with the overwhelming impact on targeted threats with high-voltage electricity. Applied Energetics’ proprietary fiber-based architecture is a key differentiator for our most recent technology demonstrators. Compared with traditional continuous wave technology with larger footprints, AE’s architecture enables orders of magnitude size-weight-power reductions on all deliverables, creating 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 tenability, and is effective against a wide variety of potential targets. A key element of LGE is its novel ability to offer selectable and tunable properties that can help protect non-combatants and combat zone infrastructure.

Applied Energetics’ unique optical fiber-based laser architectures 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.

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 minutes to impact a target. By contrast, AERG 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 are highly effective lasers with mountable footprints that require only a fraction of the size and weight of other directed energy technologies.

As Applied Energetics looks toward the future, our corporate strategic roadmap builds upon the significant value of the company’s USP capabilities and key intellectual property, including LGE and LIPC, to offer our prospective partners, co-developers and system integrators a variety of next-generation Ultrashort Pulse and frequency-agile optical sources, from the ultraviolet to the far infrared portion of the electromagnetic spectrum, to address numerous challenges within the military, medical device, and advanced manufacturing market sectors.

### Business Development

Over the past several quarters, we have submitted multiple proposals to various government agencies and attended briefings with various defense and other government agencies who have expressed an interest in our technology and applications. Due to the closures of multiple agencies and work-from-home orders during the Coronavirus pandemic, reviews and funding decisions on these proposals were delayed longer than anticipated as resources were focused on other matters within the government. AERG has received multiple notices from government agencies stating that “the vast number of proposals received, and the challenges posed by the COVID-19 pandemic, have impacted the government’s evaluation timelines.” Several of the government agencies that have received and are reviewing our proposals started to open their facilities to limited off-site briefings starting on June 1, 2021. Since that date, AERG’s team has been invited to, and completed, multiple briefings focused on our capabilities and submissions. Over time, the DOD has increased and reduced its facility occupancy limits and remote work requirements, and we have continued to make use of the time to submit proposals and attend briefings as and when permitted. We intend to continue developing and submitting proposals and to be available to attend on-site briefings to the extent possible.

In addition to these review-based delays, the US federal budget for 2022 was not approved by Congress by the October 1, 2021, start of the U.S. federal government fiscal year. The final appropriations bill was signed into law by President Biden on the night of March 11, 2022, and includes increases in areas of particular interest to the company.

### Recent Developments

Upon the successful examination, and with no opposition, the United States Patent and Trademark Office (USPTO) officially entered the marks LGE® (Reg. No. 6,289,892) and LIPC® (Reg. No. 6,316,069) on March 9, 2021, and April 6, 2021, respectively, in the principal register. AERG has applications pending before the USPTO for USP, USPL, AERG and AE and anticipates allowance and/or registration within the next 12 months. The company also has seven provisional patents, and we continue to file patent applications as we deem appropriate.

The team at Applied Energetics continued to expand during the first quarter of 2022, with the addition of in-house counsel and other contractors to strengthen our human resources, compliance, public relations, IT, and technical staff. On February 22, 2022, we hired an Executive Administrative Assistant to assist the CEO and CLO with organizational administration, and then on March 28, 2022, we hired an Engineering Project Manager to coordinate and oversee all research and development projects.

Christopher Donaghey serves on Applied Energetics’ Board of Advisors, on which he has input into the strategic direction of the company and provides assistance in building lasting relationships in our defense markets. Effective January 3, 2022, we agreed with Mr. Donaghey to further extend the term of his service for an additional five years, adding an exclusivity requirement which prohibits Mr. Donaghey from providing the same advisory services to other companies in the directed energy space. The company issued Mr. Donaghey options to purchase up to 750,000 shares of its common stock on exchange for his agreement to extend his term and such exclusivity. The options are exercisable at a price of $2.40 per share and are subject to vesting at a rate of 20% per year beginning on May 12, 2024.

Mr. Donaghey currently serves as the senior vice president and head of corporate development for Science Applications International Corporation (“SAIC”), a defense and government agency technology integrator. In his role on Applied Energetics’ Board of Advisors, Mr. Donaghey provides input into the strategic direction of the company and assistance in building relationships in the defense markets. Mr. Donaghey was originally appointed to the Board of Advisors, effective April 30, 2019, and effective May 12, 2021, we had agreed to extend his service for an additional one-year term plus a one-year automatic renewal in exchange for 70,000 shares of AERG’s common stock, and options to purchase an additional 200,000 shares at an exercise price of $0.61 per share, for each year of service. The shares and options are also subject to vesting over the term of his service.

Effective January 1, 2022, the board of directors of Applied Energetics appointed Mary P. O’Hara to serve as its General Counsel and Chief Legal Officer. The company and Ms. O’Hara entered into an Executive Employment Agreement, pursuant to which she is to serve for an initial term of three years, with automatic renewal for additional one-year periods thereafter unless either party terminates the agreement. The agreement calls for a salary of $250,000 per year, plus standard benefits and eligibility for a bonus at the discretion of the board. The company has also granted Ms. O’Hara additional options to purchase up to 640,000 shares of its common stock under its 2018 Incentive Stock Plan, which vest over four years, at an exercise price of $2.40 per share. Ms. O’Hara has been in private law practice for twenty-nine years and has broad experience in all facets of securities, corporate and commercial law. Ms. O’Hara has represented the company for several years and is a member of its board of directors.

We followed the guidelines set forth by the Small Business Administration on the Paycheck Protection Program loan, in the amount of $132,760 which we took out in 2020, partially using the proceeds for designated qualifying expenses, in particular, retaining employees. This qualified AERG for a waiver of a portion of the loan. Accordingly, on July 2, 2021, we received a letter from our bank, via the SBA, approving conversion of $80,593.55 of the loan to a grant. Since then, we have been repaying the balance of the loan in monthly installments at the 1% annual interest rate. As of March 31, 2022, $6,298 in principal and $472 in interest remained outstanding, and we repaid the remaining balance in April 2022.

### Strategic Plan and Analysis

We plan to continue building our management team with highly qualified individuals. We intend to recruit additional personnel in the areas of R&D, science and simulation, marketing and finance, and, possibly add members to our Board of Directors and our Board of Advisors. We have worked to align key innovations with our roadmap to encourage and enable internal filing for a broad, strategic and robust intellectual property portfolio and continue surveying the literature for acquisitions of parallel intellectual property to that end. We also intend to pursue strategic corporate acquisitions in related fields and technology. Although the company has achieved its near-term capital raising goals, we continue to explore any favorable equity financing opportunities.

Our goal with the AERG Strategic Plan is to increase the energy, peak power and frequency agility of USP optical sources while decreasing the size, weight, and cost of these systems. We are in the process of developing this breadth of very high peak power USP lasers and additional optical sources that have a very broad range of applicability for threat disruption for the Department of Defense, commercial, and medical applications. Although the historical market for AERG’s LGE and USP technology is the U.S. Government, the USP technologies are expected to provide numerous platforms for commercial additive and subtractive manufacturing and medical device and imaging markets, creating a substantially larger market for our products to address. Since 2020, the AERG team was able to develop partnership and teaming arrangements with the three leading laser and optics institutes in the United States, namely, the University of Arizona, the University of Central Florida, and the University of Rochester Laboratory for Laser Energetics. Our desire is to work on programs jointly where the strengths of each organization can assist in escalating knowledge and delivery of systems to the government sponsors, and to train the next generation of scientists and engineers to work in the Directed Energy fields.

Despite the challenges posed by COVID-19, we have continued to execute our business development plans, further our research and development program and submit filings for intellectual property and proposals for grants and contracts. During the past two fiscal years, we submitted multiple proposals and have been engaged in meetings on a daily and weekly basis with various agencies and departments both remotely and in person in Washington, DC and at various other government facilities. The interest in our technology and applications remains high, and we continue to submit proposals for all appropriate opportunities and share our vision of the disruptive capabilities of USP optical sources for both near- and far-term threats and dual-use commercial applications.

Through our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive and interested in directed energy technologies. According to the Department of Defense fiscal 2019 budget, its directed energy spending grew from approximately $500 million in 2017 to over $1 billion in 2019, an increase of 100%. The 2020 budget reflected directed energy spending of $1.2 billion, an additional increase of 20% over 2019, and from 2017 through 2020, the directed energy budget grew from approximately $500 million to approximately $1.2 billion, averaging approximately 40% per year. The government has allocated $1.4 billion for various directed energy programs in 2021, and market analysis and projections have estimated that this directed energy sector is anticipated to exceed $10.1 billion globally by 2026. The DOD budget for directed energy was essentially flat between 2021 and 2022, approaching $1.2 billion for each year. As a result, we continue to be optimistic about our future and the growing opportunities in directed energy applications. The AERG team anticipates a continuation of strong funding for the directed energy community. With our existing patent portfolio, and through further advancements of our technologies, we believe we have the substantial building blocks needed to become a significant and successful developer in our USP and LGE marketplaces.

### Results of Operations

### Comparison of Operations for the Three Months Ended March 31, 2022 and 2021:

|  | 2022 | 2021 |
| --- | ---: | ---: |
| Revenue | $— | $— |
| General and administrative | (1,628,489) | (943,619) |
| Selling and marketing | (76,670) | (94,328) |
| Research and development | (75,987) | (47,808) |
| Interest (expense) | (44) | (683) |
| Net loss | $(1,781,190) | $(1,086,438) |

### Revenue

We had no revenues for either of the quarters ended March 31, 2022, or 2021.

### General and Administrative

General and administrative expenses increased approximately $684,000 to $1,628,000 for the three months ended March 31, 2022, compared to approximately $944,000 for the three months ended March 31, 2021, primarily due to an increase of approximately $476,000 in professional expenses, an increase in salaries and employee benefits of approximately $147,000, in building costs of approximately $53,000, and in supplies and insurance of $8,000.

### Selling and Marketing

Selling and marketing expenses decreased approximately $18,000 to approximately $77,000 for the three months ended March 31, 2022, compared to approximately $95,000 for the three months ended March 31, 2021, primarily due to the continuation of business development activities through our Master Services Agreement with Westpark Advisors as well as other consultants in this field.

### Research and Development

Research and development expenses increased approximately $28,000 to approximately $76,000 for the three months ended March 31, 2022, compared to approximately $48,000 for the three months ended March 31, 2021 primarily due to the allocation of part of management’s pay from research and development to consulting expense in the 2021 quarter.

### Interest Expense

Interest expense decreased approximately $640 to $45 for the three months ended March 31, 2022, compared to $685 for the three months ended March 31, 2021, primarily due to a decrease in outstanding loans due from the Company.

### Net Loss

Our operations for the three months ended March 31, 2022, resulted in a net loss of approximately $1,781,000, an increase of approximately $695,000 compared to the approximately $1,086,000 net loss for the three months ended March 31, 2021, primarily due to a decrease in selling and marketing partially offset by increases in general and administrative and research and development.

### Liquidity and Capital Resources

The accompanying 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, 2022, the company incurred a net loss of approximately $1,781,000, had negative cash flows from operations of approximately $1,262,000 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, 2021, 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 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.

At March 31, 2022, the company had total current assets of $2,803,621 and total current liabilities of $1,526,499 resulting in working capital of $1,277,122. At March 31, 2022, we had $2,551,870 of cash and cash equivalents, a decrease of $1,110,745 from $3,662,615 at December 31, 2021.

During the first three months of 2022, the net cash outflow from operating activities was $1,262,305. This amount was comprised primarily of our net loss of $1,781,190, offset by noncash stock-based compensation expense of $554,877, depreciation and amortization of $6,209, amortization of future compensation payable of $208,333, and amortization of prepaid assets of $43,407, and cash used from changes in assets and liabilities of $293,941 from the increase in prepaid and deposits of $251,767, decrease in accounts payable of $54,442, and the decrease in accrued expenses and compensation of $2,261, off set by the net increase in operating lease liabilities of $14,529.

Investing activities reflected $6,455 for the acquisition of equipment.

During the first three months of 2022, the net cash inflow from financing activities was $158,015. This amount was compromised of $175,435 of proceeds from note payable, offset by $17,420 repayment on note payable.

Based on the Company’s current business plan, it believes its cash balance as of the date of this report will be sufficient to meet its anticipated cash requirements for the next twelve months. However, there can be no assurance that the current business plan will be achievable.

The company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts 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.

## Controls and procedures

As filed, 986 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. Based on that evaluation, our Principal Executive Officer has concluded that our disclosure controls and procedures as of March 31, 2022, are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

### Changes in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Filed May 16, 2022.
Source: SEC EDGAR, the filing index for accession 0001213900-22-027024. Last ingested by Listed: Nov 14, 2026, 15:45 ET. No prices; not investment advice.