SEC File No. 333-217513
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 3 to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT
Applied
Energetics, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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3812
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77-0262908
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(State
or other jurisdiction of incorporation or organization)
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer Identification Number)
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2480
W Ruthrauff Road, Suite 140Q
Tucson,
AZ 85705
P
520. 628-7415
(Address, including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
George
P. Farley
Chief
Executive Officer
2480
W Ruthrauff Road, Suite 140Q
Tucson,
AZ 85705
C
201 563-2263
(Name,
address, and telephone of agent for service)
Copies
to:
Mary
P. O’Hara
Masur
Griffitts + Co. LLP
65
Reade Street
New
York, NY 1007
(212)
209-5483
(Approximate
date of commencement of proposed sale to the public) As soon as practicable after the registration statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering.
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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☒
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(Do
not check if a smaller reporting company)
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Emerging growth company
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☐
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Calculation
of Registration Fee
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Title of each class to be registered
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Amount to be registered (1)
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Proposed Maximum Offering price
per share (2)
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Proposed maximum offering price (2)
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Amount of registration fee
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Common stock, $.001 par value
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99,053,068
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$
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0.10
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$
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9,905,307
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$
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1,148.03
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(3
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(1)
Pursuant to rule 416 under the Securities Act the shares of common stock being registered hereunder include such indeterminable
number of shares as may be issuable as a result of stock split, stock dividends, or similar transactions,
(2)
Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(c) under the Securities Act.
(3)
The Company is registering the following shares of common stock (i) 50,000,000 shares to be sold by the Company, (ii) 5,553,068
shares originally issued to a founder of the Company and (iii) 43,500,000 shares issued in private placement financings for cash
and services provided to the Company.
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting to said Section 8(a) may determine.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION
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DATED
SEPTEMBER 22, 2017
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Applied
Energetics, Inc.
99,053,068
Shares of Common Stock
Applied
Energetics, Inc., or the “Company” and “Selling Stockholders” named in this prospectus are offering to
sell up to an aggregate of 99,053,068 shares of the Company’s common stock as follows:
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(i)
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50,000,000
shares to be sold by the Company,
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(ii)
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5,553,068
shares originally issued to a founder of the Company and
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(iii)
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43,500,000
shares issued in private placement financings for cash and services provided to the Company.
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The
Company is offering its shares directly to the public at a price of $___ per share and has no prior arrangement with any underwriter.
The Company will receive all of the proceeds from its portion of this offering some of which will be used to pay expenses of this
offering as set forth elsewhere in this Prospectus.
Selling
stockholders owning 60,553,068 shares of our common stock have agreed not to sell any shares during the 180 day period following
the effectiveness of the registration statement.
The
founder and Selling Stockholders are also offering their shares at a price of $___ per share. We will not receive any proceeds
from the sale of securities by the founder or the Selling Stockholders. Information on the Selling Stockholders and the times
and manner in which they may offer and sell shares of our common stock under this prospectus is provided under “Selling
Stockholders” and “Plan of Distribution.”
Shares
of our common stock trade on the OTC Pink Market under the symbol “AERG”. On August 14, 2017 the closing
price of our common stock was $0.04 per share.
See
“Risk Factors” beginning on Page ___ for the factors you should consider before buying shares of our common stock.
Neither
the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved
of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
Information
on the Selling Stockholders and the times and manner in which they may offer and sell shares of our common stock under this Prospectus
is provided under “Selling Stockholders” and “Plan of Distribution.”
The
Date of this Prospectus is September , 2017
TABLE
OF CONTENTS
Please
read this prospectus carefully. It describes our business, our financial condition and our results of operations. We have prepared
this prospectus so that you will have the information necessary to make an informed investment decision.
You
may rely only on the information contained in this prospectus. We have not authorized anyone to provide information or to make
representations not contained in this prospectus. This prospectus is neither an offer to sell, nor a solicitation of an offer
to buy, these securities in any jurisdiction where an offer or solicitation would be unlawful. Neither the delivery of this prospectus,
nor any sale made under this prospectus, means that the information contained in this prospectus is correct as of any time after
the date of this prospectus. This prospectus may be used only where it is legal to offer and sell these securities.
For
investors outside the United States: We have done nothing that would permit this offering or possession or distribution of this
prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action
for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of
the United States.
USE
OF MARKET AND INDUSTRY DATA
This
prospectus includes market and industry data that has been obtained from third party sources, including industry publications,
as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which
we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s
knowledge of such industries has been developed through its experience and participation in these industries. While our management
believes the third-party sources referred to in this prospectus are reliable, neither we nor our management have independently
verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied
upon by such sources. Internally prepared and third party market forecasts, in particular, are estimates only and may be inaccurate,
especially over long periods of time. In addition, we have not independently verified any of the industry data prepared by management
or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus
to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete
findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article
is not incorporated by reference in this prospectus.
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This
prospectus contains certain statements relating to our future results that are considered “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed
or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions;
interest rate fluctuation; competitive pricing pressures within our market; equity and fixed income market fluctuation; technological
change; changes in law; changes in fiscal, monetary regulatory and tax policies; monetary fluctuations as well as other risks
and uncertainties detailed elsewhere in this prospectus or from time-to-time in our filings with the Securities and Exchange Commission.
Such forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect
the occurrence of unanticipated events.
CERTAIN
TERMS USED IN THIS PROSPECTUS
When
this prospectus uses the words “we,” “us,” “our,” “AERG,” and the “Company,”
they refer to Applied Energetics, Inc. and its subsidiary. “SEC” refers to the Securities and Exchange Commission.
PROSPECTUS
SUMMARY
This
summary highlights information contained throughout this prospectus and is qualified in its entirety by reference to the more
detailed information and financial statements in this prospectus and related notes included elsewhere herein. This prospectus
contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Cautionary
Note Regarding Forward-Looking Statements” and under “Risk Factors” and elsewhere in this prospectus. Since
this is only a summary, it does not contain all of the information that may be important to you in making your investment decision.
You should carefully read the more detailed information contained in this prospectus, including our financial statements in this
prospectus and related notes. Our business involves significant risks. You should carefully consider the information under the
heading “Risk Factors” beginning on page 9 of this prospectus.
As
used in this prospectus, unless context otherwise requires, the words “we,” “us,” “our,” the
“Company” and “AERG” refer to Applied Energetics, Inc. and its subsidiary. Also, any reference to “common
stock” refers to our common stock, par value $0.001 per share.
General
Applied
Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our executive office is located
at 2480 W Ruthrauff Road, Suite 140 Q, Tucson, Arizona, 85705 and our telephone number is (520) 628-7415.
Starting
in the fourth quarter of 2014 and through the first quarter of 2017, the Company reported as a “shell company” as
such term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended due to the suspension of its previous business
activities in October, 2014. The Company has developed a comprehensive research and development program and commenced R&D
Activities in April, 2017. Accordingly, the Company is no longer a “shell company” and is reporting as a “smaller
reporting company”.
AERG
has reactivated its previous business activities pursuant to Teaming and Consulting Agreements with (i) Applied Optical Sciences,
Inc. (“AOS”), (ii) Stephen W. McCahon, Ph.D., one of the Company’s founders, a significant stockholder of the
Company and owner of AOS, who was primarily responsible for development of the Company’s existing Intellectual Property
portfolio, and (iii) each of the members of the Scientific Advisory Board.
The
members of the Scientific Advisory Board (‘SAB”) have agreed to assist in our Strategic Roadmap Development, expected
R&D activities, and provide a sound technical basis for future teaming, investment, and market analysis. These members have
been chosen based upon their areas of subject matter expertise and senior experience levels that span both the Department of Defense
(“DOD”) and commercial sectors.
AERG
owns intellectual property that is integral and necessary for the development of Ultra-Short Pulse (“USP”) Lasers,
Laser Guided Energy (“LGE”) and Direct Discharge Electrical products for military and commercial applications. AERG
owns 40 patents of which 10 are classified by the DoD. The classified patents have no expiration date until such time as they
are no longer classified after that they will have the normal 17-year patent protection.
We
are in discussions with and expect to team with a major Defense Contractor for co-development and manufacture of military products.
We will also anticipate teaming with a leading commercial laser technology manufacturer for co-development of commercial products
resulting from our research and development efforts.
Applied
Optical Sciences
AOS
and Dr. McCahon have the facilities and together with the SAB, the technical knowhow to utilize the Company’s intellectual
property in the development of a next generation of Ultra-Short Pulse Lasers (“Advanced Ultra-Short Pulse Lasers”
or “AUSP Lasers”). The parties have agreed to cooperate in the Company’s research and development activities
and in the proposal and fulfillment of research and development contracts for branches of the Department of Defense, agencies
of the federal government and other defense contractors and in other research and development activities relating to lasers. The
Company and AOS have a research and development program for the next stage of LGE development that involves the development of
AUSP Laser Technologies. These lasers technologies are designed to eventually allow for LGE weapon systems to be mounted on mobile
platforms for multiple anti-terrorist missions including counter measures against Improvised Explosive Devices (“IED”),
vehicle stopping, and many others. Importantly, the AUSP laser technologies required for successful LGE deployment leads to many
new and unique emerging market opportunities in the commercial, medical, and other military applications.
AOS
was founded in April 2010 to focus on the long-term research and development of advanced optical materials, photonic devices,
Ultra-Short Pulse (USP) lasers and their applications. AOS is self-funded by Dr. McCahon. AOS has made significant investments
to establish an approximately 3500 sq. ft. R&D facility that is divided into the three primary areas, Photonic devices, Ultra-Short
Pulse (USP) laser development, Optical Thin Films and Material Science. AOS funded R&D activities have resulted in numerous
proprietary advanced concepts and technical knowhow. Recently AOS executed advanced USP laser hardware development under
DoD funding using existing AOS proprietary concepts. Additionally, AOS has prepared laboratory space, hardware, and is re-configuring
existing developmental testbeds in order to apply its proprietary technical knowledge to High Energy and Average Power USP lasers
that will support the continued development of Company’s Laser Guided Energy technologies. This will allow for an immediate
start on the Company’s R&D plan without significant capital investment or staffing.
Scientific
Advisory Board
The
members of the Scientific Advisory Board are:
Dr.
Gregory Quarles
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Chief
Scientific Officer for The Optical Society (OSA) in Washington, DC.
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Ph.D.
M.S., Physics, University of Oklahoma, 1987.
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30
years’ experience Optical Physics, Executive and Management Positions and Major
Scientific Advisory Boards.
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100
Publications, 5 Patents issued.
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Dr.
L. A. Schlie
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Ph.D.
EE , 1970, MSEE, 1966, BSEE, University of Illinois, 1965.
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40
years’ experience In Optical Physics, Sr. Gov’t Scientist for Directed Energy
Weapons.
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70
journal papers, 2 book chapters and 21 patents.
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Member
of Various Steering Committees for DoD, DOE, DARPA, NSF and DHS.
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Advisor
for DoD, DOE, NASA and NSF on laser technology, applications and effects.
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Dr.
Charles Hale
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Director
of Research and Development, Daylight Solutions.
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Ph.D.
Engineering, Purdue University, 1999, MBA, University of Arizona. 2006.
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21
years’ experience in engineering and program management in commercial and DoD environments.
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14
publications, 1 patent issued.
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Dr.
James Harrison
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Senior
Independent Consultant.
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Ph.D.,
M.S., B.S. Electrical Engineering, M.I.T., 1986.
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30
years’ experience in Lasers, Optical Physics, Electronic materials, Program and
Executive Management.
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60
scientific publications; 10 patents issued or pending,
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Path
Forward
Our
goal is to increase the energy and power while decreasing the size, weight, and cost of USP lasers. We expect to develop very
high energy and power scaled USP lasers that have a very broad range of applicability for Department of Defense, commercial, and
medical applications. Although the historical market for AERG’s LGE technology is the U.S. Government, the AUSP technologies
will provide numerous platforms for commercial and medical, markets creating a substantially larger product market.
Military
Applications
Directed
Energy Weapons
Directed
Energy (“DE”) weapon system means military action involving the use of directed energy to incapacitate, damage, or
destroy enemy equipment, facilities, or personnel. Previous to LGE, the only two viable DE weapon systems were High Energy Laser
(HEL), which uses heat to burn targets and High Power Radio Frequency (HP-RF), weapons that use electromagnetic energy at specific
electro-magnetic frequencies to disable electronic systems.
HEL
and HP-RF DE technologies have been under development for decades with numerous DoD and other government contractors participating.
The unique attributes of Directed Energy (DE)
weapon systems —the ability to create precise effects against multiple targets near-instantaneously and at a very low cost
per shot—have great potential to help the DoD in addressing future warfare requirements. The DoD invests research and development
dollars into directed energy solutions to fill gaps identified by warfighters. For example, in future conflicts with capable enemies
possessing large inventories of guided missiles, it may be operationally risky and cost-prohibitive for the U.S. military to continue
to rely exclusively on a limited number of kinetic missile interceptors. Such a “missile competition” could allow
an adversary to impose costs on U.S. forces by compelling them to intercept each incoming missile with far more expensive kinetic
munitions. The DoD as made significant leaps in both performance and maturity as a result of many years of research. Recent developments
in solid-state lasers have allowed the Navy to field in 2016 the first operational tactical laser system to offer weapon grade
power in a compact system.
Laser
Guided Energy
AERG’s
Patented LGE weapon technology works like “man-made lightning”, via wireless electrical energy transmission through
the atmosphere, to disable vehicles and other threats to our security. AERG has developed the underlying technologies that allow
a user to precisely control where the man-made lightning goes in both direction, range, and magnitude. AERG’s LGE technologies
are combined to create “laser filaments” as the laser passes through the atmosphere. The filaments in turn create
Laser Induced Plasma Channels (“LIPC”) which enable the transmission of electrical energy.
The
Company’s development of LGE has thus led to a third DE technology creating a generational opportunity for a completely
new weapon system development. The Company uniquely owns the critical intellectual property for LGE and therefore singularly owns
the new third type of DE. The unique properties and demonstrated target effects of LGE allow for mission areas and applications
that are not accessible to either HEL or RF DE. Therefore, LGE fills numerous requirements in the urban and asymmetric warfare
environment. There is a very broad range of targets and effects that LGE addresses that are uniquely different from HEL and RF
DE and therefore we do not compete directly within those application spaces
Commercial
Applications
Our
AUSP laser technology has potential applications in the rapidly developing advanced manufacturing processes and market spaces,
such as 3D additive and subtractive processes. Examples of currently existing advanced 3D manufacturing includes the melting of
plastic feed materials using high temperature extruders, photo-polymer cross-linking using UV lasers or patterned light sources,
and melting or sintering of metals from powders using high power lasers. These processes generally produce individual parts with
a single or simply mated second material or coarsely alloyed combination of like materials (e.g., metals). Additionally, many
of these processes are designed to rapidly produce large volumes using relatively coarse starting materials and deposition resolutions
resulting in rough finished surfaces and poor tolerances compared to traditional manufacturing methods. To accommodate for these
drawbacks, post-processing using traditional Computer Numerical Control (“CNC”) machines are required for final fit
and finish thus resulting in hybrid processes. It is expected that these hybrid processes will be refined over time and form an
extremely important set of core capabilities for smart factory environments going forward many years.
In
contrast, our existing underlying protected IP, knowledge, and technology base will allow for combining a very broad range of
dissimilar basic materials such as metals, dielectrics, organic and inorganic molecules, and even live biological elements using
a common set of deposition and processing technologies. Furthermore, the same basic underlying technologies and processes allow
for in-situ and hybrid post-processing such as surface nano-structuring, ultra-precise 3D photo-polymerization and athermal machining
at the micrometer spatial dimension. These capabilities will allow Applied Energetics to create novel new fabrication processes
and systems that will be required for very fine 3D additive and subtractive manufacturing processes at the atomic/nano material
level and micrometer physical dimensions.
We
will apply our knowledge base and IP to further advance the areas of lasers, electrical energy transport, material vaporization,
plasma generation and control, and optical physics to the next generation of advanced manufacturing. This includes novel processes
for fundamental material combinatorial control to the atomic level, electric and magnetic field controlled mass transport, deposition
and surface structuring, on-demand combinatorial alloying of thin films, and hybrid in-situ and post-processing of the resultant
materials for final shaping and functionality. Under separate AOS investment and contracts, AOS is currently re-configuring a
significant amount of equipment and laboratory capability to develop and demonstrate several advanced laser and manufacturing
technologies and processes. It is expected that these technologies and processes will be directly applicable to the AERG’s
future market spaces.
The
aforementioned technologies and fundamental processes can be applied to advanced manufacturing areas including mixed material
3D fabrication, nanoparticle generation and deposition, on-demand mixed and gradient alloys, precision fabrication including athermal
material removal, dielectric modification including sub-surface refractive index change and welding, and advanced optical sensing
for process and quality control.
The
aforementioned capabilities will be applied to the currently emerging Technologies 4.0, and inherently Manufacturing 4.0, which
are multi-generational growth opportunities that will include highly advanced 3D fabrication capabilities, adaptation of exotic
new materials and devices, and on-demand flexible and efficient manufacturing processes. Examples of expected product areas accessible
by AE include mixed Photonic/RF/biological functions on a single chip for medical and environmental sensing that are directly
linkable at the Cyber-Physical level and Internet of Things. These and similar products and applications will encompass large
emerging market areas and greatly impact nearly all aspects of society for many generations to come.
History
AERG
was formed in 2002 as a response to the Secretary of Defense call to use innovation to combat terror. The founders privately funded
the Company with the strategy to bring viable “new” products to market that did not rely on previous “programs
of record” and that were highly unique. AERG developed and has patents for its LGE technology as a reliable and humane alternative
to conventional weapons used for defense against many types of terror attacks. AERG’s Joint Improvised Explosive Device
Neutralizer (JIN) units, which are used to detect, diffuse and/or explode hidden bombs, are an outgrowth of certain technologies
used in the LGE technology and were AERG’s first product deployed to the battlefield. Working with the US Marine Corps (“USMC”),
AERG developed and delivered a system (“Banshee”) that demonstrated significant capability in over 200 missions in
Afghanistan countering IEDs, a major threat to military operations throughout the world. The Department of Defense has not issued
any contracts for JIN or similar products since 2008 due to the wind down of the war in Iraq and Afghanistan. AERG is not aware
of any current DOD proposals or interest for JIN type of Counter Improvised Explosive Devices. Between 2005 and 2010, AERG billed
and collected $38,550,698 pursuant to contracts with U.S. Navy and U.S. Marine Corp.
In
2004, AERG developed laboratory versions of its LGE weapons and was then contracted by the U.S. government for demonstrations
and testing of the technologies against a very broad range of threats and within a broad range of operating environments. AERG
has met with and demonstrated its LGE technology to all branches of the U.S. Military, as well as, other government organizations
involved in various defense, anti-terrorism, and offensive military type operations. From these demonstrations, AERG received
government support with increased security guidelines. Between 2003 and 2009, AERG billed and collected $48,078,031 for L
GE
applications and demonstrations pursuant to contracts from various branches of the U.S. Armed Forces and other branches
of the Federal Government.
AERG
developed potential applications for its LGE devices for numerous aspects of defense, whether it is sea, land, or air applications.
Some possible sea applications are: Opposed boarding of a ship, warship protection against suicide craft, and high value terrorist
target protection such as oil tankers. Land opportunities include use in the battlefield to disable vehicles and improvised explosive
devices, base and perimeter defense against car bombs and terrorist attacks, Security and Sentry Operations such as check points
and crowd control, and protection within nuclear facilities, embassies, and other critical protection areas.
Planned
Research and Development Activities
AERG
has created a 3 year plan to develop and demonstrate various unique critical underlying laser technologies that if successful
will allow for USP laser energy scaling toward the 1 J / pulse level and power scaling to the kW regime average power level. While
the focus is directed towards LGE mobile DoD platform integration, requiring reduced volume, weight, and military level ruggedization,
the commercial market space for such advanced USP lasers is a rapidly growing market segment. A primary driver for the commercial
USP market spaces is high average power output allowing for an increase in manufacturing throughput. It is expected that AERG
will adapt the advanced USP laser technology developed under the R&D plan to the commercial markets and specifically to the
emerging Technology 4.0 manufacturing environment. To fully develop the commercial potential for expected AERG USP laser performance,
AERG expects to team with existing major laser manufacturers and other companies that possess critically related advanced fabrication
technologies to allow for shared system development costs and rapid market penetration.
Our
proprietary and confidential Research and Development plan will initially focus on development of a laser with 10-watt average
power followed by development of lasers with 100-watt average power and 1-kilowatt average power. The lasers with higher power
scaling are intended to be used for LGE and other military applications. We estimate that we will expend a minimum of $3.75 million
over three years. We have acquired the materials and commenced work on the development of the 10 Watt average power laser.
Any funds derived from this offering will be primarily used for our planned research and development activities. We are also
actively seeking funding for our defense related research and development activities from the U. S. Navy and other branches
of the Department of Defense. We are also seeking funding through strategic alliances for our industrial and medical laser
applications. Any funds received from the Department of Defense or strategic partners will reduce the Company’s cost of
its planned research and development activities.
Competition
AERG’s
proprietary LIPC based LGE technology is a unique directed energy weapon, with products that can be integrated onto platforms
being developed for use by the U.S. Government. In the fiscal year 2013, five major defense contractors, Boeing, United Defense,
Northrop/Grumman, L-3 Communications Holdings, Inc. and Lockheed Martin, received about $80 billion for weapons manufacturing
and development. These contractors specialize in different DE weapon system platforms and have had discussions with AERG to utilize
LGE technology. Although AERG competes against other weapon systems for funding, the uniqueness of the LGE technology should continue
to support its development into weapon platform programs. AERG like many other small defense contractors was adversely affected
by cut backs in U.S. Government spending after 2011. AERG believes that there is renewed U.S. Government interest in DE and its
LGE technology and believes that continued development of its LIPC technology and growing interest from all branches of the U.S.
armed forces and other government agencies will lead to increases in government spending on LGE weaponry in the coming years.
(See Recent Congressional Activity on Directed Energy Weapons below.)
Furthermore,
AERG’s only direct LGE competition is foreign governments, China, Russia and the European Community, may be attempting to
develop similar technologies. AERG believes that such foreign activity will create additional U.S. Government funding for LGE
in order to maintain our country’s lead in directed-energy weapons.
AERG’s
biggest commercial competitors are Trumpf (German), Rofin-Sinar (just purchased by Coherent, US), Coherent (US), and IPG (US),
all billion dollar market class companies that have substantially more resources than AERG.
Recent
Congressional Activity on Directed Energy Weapons
In
December 2016 Congress passed the fiscal year 2017 “National Defense Authorization Act” (NDAA) that includes provisions
indicating that Congress has taken a strong interest in efforts to perfect and implement directed energy weapons, a category that
encompasses lasers, microwave weapons, and related technologies. The new NDAA requires DoD to establish a new position for a senior
official with principal responsibility for directed energy weapons. Supported by DoD’ s existing High Energy Laser Joint
Technology Office, now re-designated the Joint Directed Energy Transition Office, that will develop a strategic plan for moving
directed energy weapons through development and prototyping into acquisition, and will otherwise support DOD’s efforts in
the field. The new official may use funds for basic research, applied research, advanced technology development, prototyping,
studies and analyses, and organizational support. The legislation authorized all requested funds for directed energy weapons.
(https://www.aip.org/fyi/2016/congress-passes-national-defense-authorization-act)
Recent
Financing
On
September 15, 2017 the Company borrowed $53,000 under a convertible note maturing June 20, 2018. The Note is convertible into
shares of the Company’s $0.001 par value common stock after March 24, 2018 (the “Initial Conversion Date”).
The Conversion rate is variable and will be 58% of the Average of the lowest one day trading price during the twenty trading days
preceding the holders notice of conversion. The number of shares issuable on conversion is limited to 4.99% of the Company’s
then issued and outstanding Common Stock. The Company at the request of the Note Holder has reserved 36,369,879 share of its $0.001
common stock for conversion. The Note is prepayable at the Company’s option until the Initial Conversion Date.
The
Company issued the Note Holder warrants to purchase 1,320,598 shares of it’s $0.001 par value common stock at an exercise
price of $0.0301, The Warrants are exercisable at any time over a 7 year period commencing on the date of issuance.
The
Offering
Common
stock offered by the Company
|
50,000,000
shares of our common stock
|
|
|
Offering
Price
|
$0.10
per share
|
|
|
Common
stock offered by selling stockholders
|
49,053,068
shares of our common stock of which:
(i) 5,553,068 shares by a Founder and former
executive of the Company.
(ii) 43,500,000 shares issued in private placement
financings for cash and services provided to the Company;
|
|
|
Use
of Proceeds by the Company
|
The
proceeds from the sale of 50,000,000 shares of our common stock estimated to be [$5,000,000] will be used to fund our planned
research development activities and corporate overhead.
|
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(492,605
|
)
|
|
$
|
(223,851
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(526,610
|
)
|
|
$
|
(257,856
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common stockholders
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
For the three months ended June 30,
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(166,417
|
)
|
|
$
|
(100,219
|
)
|
|
$
|
(283,481
|
)
|
|
$
|
(248,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(174,918
|
)
|
|
$
|
(108,720
|
)
|
|
$
|
(300,484
|
)
|
|
$
|
(273,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common stockholders
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total assets
|
|
$
|
992
|
|
|
$
|
136,840
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Of
|
|
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Total assets
|
|
$
|
12,883
|
|
|
$
|
992
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
Please
refer to the Financial Statements beginning on page F - 3 of this report for a more complete description of the numbers contained
in the table above.
RISK
FACTORS
Future
results of operations of Applied Energetics involve a number of known and unknown risks and uncertainties. Factors that could
affect future operating results and cash flows and cause actual results to vary materially from historical results include, but
are not limited to those risks set forth below:
Risk
Related to Our Company
Our
independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability
to obtain future financing.
In
their report accompanying our financial statements, our independent auditors stated that our financial statements for the years
ended December 31, 2015 and 2016 were prepared assuming that we would continue as a going concern, and that they have substantial
doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses from operations and
negative cash flow from operations and the concern that we may incur additional losses due to the reduction in Government contract
activity raise substantial doubt about our ability to continue as a going concern.
Our
business has generated no revenues during the past two fiscal years and had a net operating loss during each period.
For
each of the Company’s fiscal years ended December 31, 2016 and 2015, we had no revenues, and we had net operating losses
of $495,169 and $225,323 for fiscal years 2016 and 2015, respectively. We can give no assurances that our planned operations will
generate revenues in the future or whether any such revenues will result in profitability.
Risk
Related to Our Previous Business Activities
We
may be unable to adequately protect our intellectual property rights, which could affect our ability to sustain the value of such
assets.
Protecting
our intellectual property rights is critical to our ability to maintain the value of our intellectual property. We hold a number
of United States patents and patent applications, as well as trademark, and registrations which are necessary and contribute significantly
to the preservation of our competitive position in the market. There can be no assurance that any of these patents or future patent
applications and other intellectual property will not be challenged, invalidated or circumvented by third parties. In some instances,
we have augmented our technology base by licensing the proprietary intellectual property of others. In the future, we may not
be able to obtain necessary licenses on commercially reasonable terms. While we have entered into confidentiality and invention
assignment agreements with our former employees, and entered into nondisclosure agreements with suppliers and appropriate customers
so as to limit access to and disclosure of our proprietary information. These measures may not suffice to deter misappropriation
or independent third party development of similar technologies. Based on our current financial condition, we may not have the
funds available to enforce and protect our intellectual properties.
We
may face claims of infringement of proprietary rights.
There
is a risk that a third party may claim our products and technologies infringe on their proprietary rights. Whether or not our
products infringe on proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against
us and we could incur significant expense in defending them. If any claims or actions are asserted against us, we may not have
the funds necessary to defend against such claims. Our failure to do so could adversely affect the value of our intellectual property.
We
are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive
disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in
the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Rule
3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant
to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and
adversely affect any market liquidity for our common stock.
For
any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s
account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction
setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account
for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives
of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that
that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions
in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating
to the penny stock market, which, in highlight form, sets forth:
|
●
|
The
basis on which the broker or dealer made the suitability determination; and
|
|
●
|
That
the broker or dealer received a signed, written agreement from the investor prior to
the transaction
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission
payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because
of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or
may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders
or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in
any secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock. In
addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our
common stock, in all probability, will be subject to such penny stock rules for the foreseeable future and our stockholders will,
in all likelihood, find it difficult to sell their shares of common stock.
A
large number of shares of our common stock could be sold in the market in the near future, which could depress our stock price.
As
of September 3, 2017, we had outstanding approximately 158 million shares of common stock. Approximately 92 million of our shares
are currently freely trading without restriction under the Securities Act of 1933, having been held by their holders for over
one year and are eligible for sale under Rule 144(k) of the Securities Act
Provisions
of our corporate charter documents could delay or prevent change of control.
Our
Certificate of Incorporation authorizes our Board of Directors to issue up to 2,000,000 shares of "blank check" preferred
stock without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable
to each new series of preferred stock. In addition, our Certificate of Incorporation divides our board of directors into three
classes, serving staggered three-year terms. At least two annual meetings, instead of one, will be required to effect a change
in a majority of our board of directors. The designation of preferred stock in the future, the classification of our Board of
Directors, its three classes and the rights agreement could make it difficult for third parties to gain control of our Company,
prevent or substantially delay a change in control, discourage bids for our common stock at a premium, or otherwise adversely
affect the market price of our common stock. Moreover, the holders of our outstanding Series A Preferred Stock have a right to
put their shares to the Company for an amount equal to the liquidation preference of approximately $340,000 plus unpaid dividends
(approximately $119,000 as of December 31, 2016), in the event of a change of control. Such right could hinder our ability to
sell our assets or merge with another Company.
The
redemption and dividend provisions of our outstanding preferred stock are onerous due to our current financial condition.
The
Company has redeemed substantially all of its outstanding preferred stock. At June 30, 2017, 13,602 shares were outstanding with
a liquidation preference of approximately $340,000 and unpaid dividends of $136,000. As of August 1, 2017, the liquidation preference
of our outstanding preferred stock plus unpaid dividends thereon was approximately $485,000. If an event occurs that would require
us to redeem the preferred stock, we may not have the required cash to do so.
In
addition, our annual dividend payment on the preferred stock is approximately $34,000, which will further deplete our cash. We
have not paid the dividends commencing with the quarterly dividend due August 1, 2013 and, as a result, the dividend rate has
increased to 10% per annum and will remain at that level until such failure no longer continues. Dividends in arrears as of August
1, 2017 were approximately $145,000. These terms may also make it more difficult for us to sell equity securities or complete
an acquisition.
We
may require additional financing to maintain our reporting requirements and administrative expenses
We
have no meaningful revenues and are dependent on our cash on hand to fund the costs associated with the reporting obligations
under the Securities Exchange Act of 1934, as amended, and other administrative costs associated with our corporate existence.
For the years ended December 31, 2016, 2015 and 2014, we incurred net losses of $492,605, $223,851 and $718,826, respectively.
General and administrative expenses include salaries, accounting fees other professional fees and other miscellaneous expenses.
We do not expect to generate any revenues unless and until the commencement of business operations. In the event that our available
funds prove to be insufficient, we will be required to seek additional financing. Our failure to secure additional financing could
have a material adverse effect on our ability to pay the accounting and other fees in order to continue to fulfill our reporting
obligations and pursue our business plan. We do not have any arrangements with any bank or financial institution to secure additional
financing and such financing may not be available on terms acceptable and in our best interests.
Management
has broad discretion over the selection of our prospective business and business opportunities
Any
person who invests in our securities will do so without an opportunity to evaluate the specific merits or risks of our prospective
business and business opportunities. As a result, investors will be entirely dependent on the broad discretion and judgment of
management in connection with the selection of a prospective business. The business decisions made by our management may not be
successful.
Stockholders
may not receive disclosure or information regarding a prospective business and business opportunities
As
of the date of this Prospectus, we have not yet identified any prospective business or industry in which we may seek to become
involved and at present we have no information concerning any prospective business. Management is not required to and may not
provide stockholders with disclosure or information regarding any prospective business opportunities. Moreover, a prospective
business opportunity may not result in a benefit to stockholders or prove to be more favorable to stockholders than any other
investment that may be made by stockholders and investors.
Restrictions
on the reliance of rule 144 by shell companies or former shell companies
Historically,
the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies
that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments
discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business
combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided
an important exception to this prohibition, however, if the following conditions are met:
|
●
|
The
issuer of the securities that was formerly a shell company has ceased to be a shell company;
|
|
●
|
The
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act;
|
|
●
|
The
issuer of the securities has filed all Exchange Act reports and material required to
be filed, as applicable, during the preceding 12 months (or such shorter period that
the issuer was required to file such reports and materials), other than Current Reports
on Form 8-K; and
|
|
●
|
At
least one year has elapsed from the time that the issuer filed current comprehensive
disclosure with the SEC reflecting its status as an entity that is not a shell company.
|
As
a result, pursuant to Rule 144, stockholders who receive our restricted securities in a business combination may not be able to
sell our shares without registration for up to one year after we have completed the business combination.
We
may issue additional securities in conjunction with a business opportunity which will result in a dilution of present stockholder
ownership
Our
certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock. As of September 1, 2017, we have 157,285,520
shares issued and outstanding. We may be expected to issue additional shares in connection with our pursuit of new business opportunities
and new business operations. To the extent that additional shares of common stock are issued, our stockholders would experience
dilution of their respective ownership interests. If we issue shares of common stock in connection with our intent to pursue new
business opportunities, a change in control of our Company is expected to occur. The issuance of additional shares of common stock
may adversely affect the market price of our common stock, in the event that an active trading market commences.
We
depend on the recruitment and retention of qualified personnel, and failure to attract and retain such personnel could seriously
harm our business.
Due
to the specialized nature of our businesses, our future performance is highly dependent upon the continued services of our key
engineering and scientific personnel. To the extent we obtain Government contracts or significant commercial contracts our prospects
depend upon our ability to attract and retain qualified engineering, scientific and manufacturing personnel for our operations.
Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel. Our failure
to compete for these personnel could seriously harm our business, results of operations and financial condition. Additionally,
since the majority of our business involves technologies that are classified due to national security reasons, we must hire U.S.
Citizens who have the ability to obtain a security clearance. This further reduces our potential labor pool.
Our
future success will depend on our ability to develop and commercialize technologies and applications that address the needs of
our markets.
Both
our defense and commercial markets are characterized by rapidly changing technologies and evolving industry standards. Accordingly,
our future performance depends on a number of factors, including our ability to:
|
●
|
identify
emerging technological trends in our target markets;
|
|
●
|
develop
and maintain competitive products;
|
|
●
|
enhance
our products by improving performance and adding innovative features that differentiate
our products from those of our competitors;
|
|
●
|
develop
and manufacture and bring products to market quickly at cost-effective prices;
|
|
●
|
obtain
commercial scale production orders from our Government and other customers;
|
|
●
|
meet
scheduled timetables and enter into suitable arrangements for the development, certification
and delivery of new products;
|
|
●
|
enter
into suitable arrangements for volume production of mature products.
|
We
believe that, in order to be competitive in the future, we will need to continue to develop and commercialize technologies and
products, which will require the investment of financial and engineering resources. Due to the design complexity of our products,
we may in the future experience delays in completing development and introduction on a commercial scale of new products. Any delays
could result in increased costs of development, deflect resources from other projects or incur loss of contracts.
In
addition, there can be no assurance that the market for our technologies and products will develop or continue to expand as we
currently anticipate. The failure of our technology to gain market acceptance could significantly reduce our revenue and harm
our business. Furthermore, we cannot be sure that our competitors will not develop competing or differing technologies which gain
market acceptance in advance of our products. The possibility that our competitors might develop new technology or products might
cause our existing technology and products to become obsolete or create significant price competition. If we fail in our new product
development and commercialization efforts or our products fail to achieve market acceptance more rapidly than our competitors,
our revenue will decline and our business, financial condition and results of operations will be negatively affected.
UNRESOLVED
STAFF COMMENTS
None.
PROPERTIES
As
of June 30, 2017, we have a month-to-month agreement to lease approximately 165 square feet of office space in Tucson, Arizona.
Our
aggregate rent expense, including common area maintenance costs, was approximately $4,000 and $12,000 for 2016 and 2015, respectively.
We
believe our facilities are adequate for our currently expected level of operations.
See
Note 5 to our 2016 Consolidated Financial Statements contained elsewhere in this Prospectus, for information with respect to our
lease commitments at December 31, 2016.
LEGAL
PROCEEDINGS
On
August 4, 2017, the previously reported legal proceeding, an action entitled Superius Securities Group, Inc.et. al. vs George
Farley, et.al. (CA No. 2017-0024-VCMR) in the Court of Chancery of the state of Delaware was dismissed. We may also from time
to time be involved in legal proceedings arising from the normal course of business.
USE
OF PROCEEDS
The
following table sets forth anticipated use of proceeds, estimated at $5,000.000 less $500,000 of offering expenses, of the portion
of this offering being made by the Company, assuming sale of a sufficient number of shares to realize 25%, 50% 75% and 100% of
the expected proceeds Company hereby:
|
|
|
25%
|
|
|
|
50%
|
|
|
|
75%
|
|
|
|
100%
|
|
Offering
Expenses
|
|
$
|
125,000
|
|
|
$
|
250,000
|
|
|
$
|
375,000
|
|
|
$
|
500,000
|
|
Working
Capital
|
|
$
|
1,125,000
|
|
|
$
|
2,250,000
|
|
|
$
|
3,375,000
|
|
|
$
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Proceeds:
|
|
$
|
1,250,000
|
|
|
$
|
2,500,000
|
|
|
$
|
3,750,000
|
|
|
$
|
5,000,000
|
|
We
cannot be certain that the Company will sell any of the shares offered hereby at the offering price.
The
Net Proceeds from this offering will be used to fund our operations which are expected to primarily consist of our research and
development activities.
We
will not receive any of the proceeds from the sale of the shares of our common stock offered by this Prospectus for the account
of the Selling Stockholders.
DETERMINATION
OF OFFERING PRICE
The
offering price of $___ per share for shares sold by the Company and Selling Stockholders hereunder is based on several factors
including the historic market for our common stock, anticipated future market conditions, and receptiveness of the market to our
business and plan of operations. It reflects our management’s best estimate based on these factors, but it is not necessarily
an indication of the intrinsic value of the shares being offered nor can we be certain that the Company or Selling Stockholders
will be able to sell shares at this price.
The
Selling Stockholders will determine from time to time at what price they may sell the shares of common stock offered by this Prospectus,
and such sales may be made at prevailing market prices, or at privately negotiated prices.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents and capitalization as of December 31, 2016:
|
●
|
on
an actual basis; and
|
|
●
|
on
an as adjusted basis to give effect to the sale and issuance of 50,000,000 shares of
our common stock by the Company in this offering, based upon the receipt by us of the
estimated net proceeds from this offering at the assumed public offering price of $0.10
per share, after deducting estimated offering expenses payable by us and the application
of the net proceeds from this offering as described in “Use of Proceeds.”
|
You
should read this information together with our consolidated financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this Prospectus.
|
|
As
of December 31, 2016
|
|
|
|
Actual
|
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
680
|
|
|
$
|
4,500,680
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
$
|
14
|
|
|
$
|
14
|
|
Common
stock
|
|
|
154,785
|
|
|
|
204,785
|
|
Additional
paid-in capital
|
|
|
79,179,432
|
|
|
|
83,629,432
|
|
Accumulated
deficit
|
|
|
(79,682,138
|
)
|
|
|
(79,682,138
|
)
|
Total
stockholders’ (deficit) equity
|
|
$
|
(347,907
|
)
|
|
$
|
4,152,093
|
|
The
number of shares of common stock to be outstanding after this offering is based on 154,785,520 shares of common stock outstanding
as of December 31, 2016, and excludes the following:
|
●
|
8,000,000
options to purchase our common stock at $0.05 per share which expire on March 31, 2022.
|
|
●
|
6,000,000
performance options to purchase out common stock at $0.25 per when the Company has reported
$5,000,000 of cumulative revenues. These options expire on March 31, 2022.
|
DILUTION
Investors
purchasing shares of our common stock in this offering will experience immediate and substantial dilution in the as adjusted net
tangible book value of their shares of common stock. Dilution in pro forma as adjusted net tangible book value represents the
difference between the public offering price per share and the pro forma as adjusted net tangible book value per share of our
common stock immediately after the offering.
The
offering will not result in further dilution to existing stockholders. Similarly, no dilution will result from sales of shares
by the Selling Stockholders because such shares are already outstanding, and the Company will receive none of the proceeds of
such sales.
Our
net tangible book value as of December 31, 2016 was approximately ($347,907), or approximately ($0.002) per share. Net tangible
book value per share represents our total shareholders’ equity less total intangible assets, divided by the number of shares
of common stock outstanding as of June 30, 2017. Our adjusted post offering net tangible book value assuming $4.500,000 of net
proceeds will be $4,152,093 or approximately $_______ per share.
This represents an immediate
increase in as adjusted net tangible book value of $_____ per share to our existing stockholders and an immediate dilution of
$_____ per share to investors purchasing common stock in this offering.
The
following table illustrates this dilution to new investors on a per share basis:
Assumed public
offering price per share
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Net
tangible book value per share as of December 31, 2016
|
|
$
|
(0.002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in net tangible book value per share attributable to new investors in this offering
|
|
$
|
0.020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
adjusted net tangible book value per share immediately after this offering
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Dilution
in net tangible book value per share to new investors in this offering
|
|
|
|
|
|
$
|
—
|
|
DIVIDEND
POLICY
Our
Board of Directors determines any payment of dividends. We have never declared or paid cash dividends on our common stock. We
do not expect to authorize the payment of cash dividends on our shares of common stock in the foreseeable future. Any future decision
with respect to dividends will depend on our future earnings, operations, capital requirements and availability, restrictions
in future financing agreements and other business and financial considerations.
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
Market
price per share
Our
common stock is currently quoted for trading on the OTC Pink, trading under the symbol “AERG”. The following table
sets forth information as to the price range of our common stock for the period January 1, 2015 through June 30, 2017. No dividends
on common stock were declared for these periods.
|
|
|
|
|
|
|
Quarterly
Periods
|
|
High
|
|
|
Low
|
|
2015
|
|
|
|
|
|
|
First
|
|
|
0.025
|
|
|
|
0.0033
|
|
Second
|
|
|
0.016
|
|
|
|
0.0043
|
|
Third
|
|
|
0.0069
|
|
|
|
0.002
|
|
Fourth
|
|
|
0.005
|
|
|
|
0.0017
|
|
2016
|
|
|
|
|
|
|
|
|
First
|
|
|
0.013
|
|
|
|
0.002
|
|
Second
|
|
|
0.146
|
|
|
|
0.012
|
|
Third
|
|
|
0.100
|
|
|
|
0.048
|
|
Fourth
|
|
|
0.020
|
|
|
|
0.017
|
|
2017
|
|
|
|
|
|
|
|
|
First
|
|
|
0.024
|
|
|
|
0.019
|
|
Second
|
|
|
0.03
|
|
|
|
0.0276
|
|
Holders
of Record
As
of August 1, 2017, there were approximately 338 holders of record of Applied Energetics’ common stock.
Unregistered
Sale of Securities and Use of Proceeds
In
March 2017, the Company issued 2,500,000 shares of common stock in exchange for $62,500 received from five individuals. The company
also issued 500,000 shares of common stock in April 2017 to a consultant for services with a value of $10,000 or $0.02 a share.
In
February, 2016, the Company issued 55 million shares to consultants and individuals in exchange for services with a value of $55,000:
10,000,000 shares to Stein Riso Mantel McDonough, LLP, 5,000,000 shares to Duft, Bornsen & Fettig LLP, 20,000,000 shares to
Stephen W McCahon and 20,000,000 shares to George P Farley. On March 25, 2016 Mr. Farley was granted 5,000,000 shares of common
stock under the 2007 Plan, additionally, two contractors were granted a total of 3,000,000 shares of common stock under the 2007
Plan.
Dividends
Dividends
on our Preferred Stock are payable quarterly on the first day of February, May, August and November, in cash or shares of Common
Stock. We paid dividends via the issuance of shares of Common Stock on our 6.5% Series A Convertible Preferred Stock in 2011.
We paid cash dividends on our 6.5% Series A Convertible Preferred Stock in 2012 and February and May 2013. The Company has not
paid the dividends commencing with the quarterly dividend due August 1, 2013. Dividend arrearages as of December 31, 2016 and
February 28, 2017 were approximately $119,000 and $128,000, respectively. Our Board of Directors suspended the declaration of
the dividend, commencing with the dividend payable as of February 1, 2015 since we 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.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following management discussion and analysis (“MD&A”) together with the risk factors set forth
in Item 1A and with our audited Consolidated Financial Statements and Notes thereto included elsewhere herein.
Overview
The
Company has reactivated its previous business activities pursuant to Teaming and Consulting Agreements with (i) Applied Optical
Sciences, Inc. (“AOS”), (ii) Stephen W. McCahon, Ph.D., one of the company’s founders, a significant stockholder
of the Company and owner of AOS, who was primarily responsible for development of the Company’s existing Intellectual Property
portfolio, and (iii) each of the members of the Scientific Advisory Board. (collectively the “Consultants”).
The
members of the Scientific Advisory Board (‘SAB”) have agreed to assist in our Strategic Roadmap Development, expected
R&D activities, and provide a sound technical basis for future teaming, investment, and market analysis. These members have
been chosen based upon their areas of subject matter expertise and senior experience levels that span both the Department of Defense
(“DOD”). and commercial sectors
The
company is engaged in the design, development of applied energy systems for military and commercial applications and Advanced
Ultra Short Pulse lasers and high voltage lasers for commercial applications. Our goal is to increase the energy and power while
decreasing the size, weight, and cost of AUSP lasers. We expect to develop very high energy and power scaled AUSP lasers that
have a very broad range of applicability for Department of Defense, commercial, and medical applications. Although the current
market for AERG’s LGE technology is the U.S. Government, the AUSP technologies will provide numerous platforms for commercial
and medical, markets creating a substantially larger product market.
The
Company owns intellectual property that is integral and necessary for the development of Laser Guided Energy and Direct Discharge
Electrical products for military and commercial uses and the Consultants have the facilities and technical knowhow to utilize
the Company’s intellectual property in the development of a next generation of Advanced Ultra-Short Pulse Lasers. The Parties
have also agreed to cooperate in the proposal and fulfillment of research and development contracts for branches of the Department
of Defense, agencies of the Federal Government and other Defense contractors and in other research and development activities
relating to lasers. We are preparing for the next stage of LGE development that involves the development of Advanced USP Laser
Technologies. These lasers will allow for LGE weapon systems to be mounted on mobile platforms for multiple Anti-Terrorist missions
including Counter Optical Measures, Counter-Improvised Explosive Devices (“C-IED”), Vehicle Stopping, and many others.
We
expect to team with a major Defense Contractor for co-development and manufacture of military products. We also intend to team
with a leading commercial laser technology manufacturer for co-development of commercial products resulting from our research
and development efforts.
Critical
Accounting Policies
Use
of Estimates
The
preparation of consolidated financial statements in conformity with United States generally accepted accounting principles 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 inputs and estimates 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 relevant 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 under the percentage of completion method of contract accounting, estimate to forecast loss on contracts under
the completed contract method of accounting, the valuation of inventory, estimates of long-lived asset value, and estimate to
forecast expected forfeiture rate on stock-based compensation and stock-based compensation expense.
Revenue
Recognition
Revenue
has been derived from ongoing contract work for systems development, effects testing and the design and development of demonstration
systems and sub-systems for our Government and commercial customers. This work is expected to be generally performed under cost-plus
contracts with Government customers.
Revenue
under long-term Government contracts is generally recorded under the percentage of completion method. Revenue, billable monthly,
under cost plus fixed fee contracts is recorded as costs are incurred and includes estimated earned fees in the proportion that
costs incurred to date bear to total estimated costs. Costs include direct labor, direct materials, subcontractor costs and overhead.
General and administrative expenses allowable under the terms of the contracts are allocated per contract depending on its direct
labor and material proportion to total direct labor and material of all contracts. As contracts can extend over one or more accounting
periods, revisions in earnings estimated during the course of work are reflected during the accounting period in which the facts
become known. When the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period
in which the facts become known. Management evaluates many variables and makes various assumptions related to the estimation of
total cost of completion of long-term contracts. Management reviews the progress and performance of all contracts monthly.
The
asset caption “accounts receivable” includes costs and estimated earnings in excess of billings on uncompleted contracts,
which represents revenue recognized in excess of amounts billed. Such revenue is billable under the terms of the contracts at
the end of the year, and is generally expected to be collected within one year. The liability “billings in excess of costs
and estimated earnings on uncompleted contracts” represents billings in excess of revenue recognized.
Revenue
for other products and services is recognized when such products and services are delivered or performed and, in connection with
certain sales to certain customers, when the products and services are accepted, which is normally negotiated as part of the initial
contract. Revenue from commercial, non-Governmental customers has historically been based on fixed price contracts where the sale
is recognized upon acceptance of the product or performance of the service and when payment is probable. Contract costs are accumulated
in the same manner as inventory costs and are charged to operations as the related revenue from contract is recognized. When the
current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period in which the facts
become known.
Inventories
Inventories
include material, direct labor and related manufacturing and administrative overhead and are stated at the lower-of-cost (determined
on a weighted average basis) or market for raw materials and work-in-process inventory. When actual contract cost and the estimate
to complete exceed the estimated contract revenues, a loss provision is recorded. Due to the nature of our inventory, we analyze
inventory on an item-by-item basis compared to future usage and sales for obsolescence quarterly.
Share-Based
Payments
Stock-based
compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the requisite
service period.
The
fair value of each option grant is estimated at the date of grant using the Black-Scholes-Merton option valuation model. We make
the following assumptions relative to this model: (i) the annual dividend yield is zero as we do not pay dividends on our common
stock, (ii) the weighted-average expected life is based on a midpoint scenario, where the expected life is determined to be half
of the time from grant to expiration, regardless of vesting, (iii) the risk free interest rate is based on the U.S. Treasury security
rate for the expected life, and (iv) the volatility is based on the level of fluctuations in our historical share price for a
period equal to the weighted-average expected life. We estimate forfeitures when recognizing compensation expense and adjust this
estimate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures
are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized
compensation expense to be recognized in future periods.
Recoverability
of Property and Equipment
We
assess recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable.
We
assess the recoverability of property and equipment by determining whether the amortization of the balances over their remaining
lives can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows. The assessment of the recoverability of long-lived assets will be impacted if
estimated future operating cash flows are not achieved.
Income
Taxes
Deferred
tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences
between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected
to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more
likely than not that such assets will not be realized.
Results
of Operations
Our
consolidated financial information for the years ending December 31, 2016, and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
General
and administrative
|
|
$
|
(495,169
|
)
|
|
$
|
(225,323
|
)
|
Other
income:
|
|
|
|
|
|
|
|
|
Gain
on asset disposal
|
|
|
—
|
|
|
|
1,000
|
|
Other
income
|
|
|
2,542
|
|
|
|
—
|
|
Interest
income
|
|
|
22
|
|
|
|
472
|
|
Loss
before provision for income taxes
|
|
|
(492,605
|
)
|
|
|
(223,851
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
$
|
(492,605
|
)
|
|
$
|
(223,851
|
)
|
General
and Administrative
General
and administrative expenses increased approximately $270,000 to $495,000 for the year ended December 31, 2016 compared to $225,000
for the year ended December 31, 2015. Consulting and professional services increased by approximately $451,000, miscellaneous
expense increased by $3,000 and travel related expenses increased by $3,000. Insurance & miscellaneous fees decreased by $39,000
and building related expenses decreased by approximately $17,000.
At
December 31, 2016, there were no unrecognized compensation costs related to unvested restricted stock awards.
Other
Income
Other
income for the year ended December 31, 2016 increased from the year ended December 31, 2015 primarily due to an approximate $3,000
refund from the LGE product line. Net interest income for 2016 was lower by approximately $1,000 from 2015 primarily due to interest
income on our bank deposits.
Net
Loss
Our
operations in 2016 resulted in a net loss of approximately $493,000, an increase of approximately $269,000 compared to the approximately
$224,000 million net loss for 2015. Our net loss attributable to common stockholders per common share – basic and diluted
remained level at approximately ($0.01) per share.
Comparison
of Operations for the Three Months Ended June 30, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
General and administrative
|
|
$
|
(166,417
|
)
|
|
$
|
(100,227
|
)
|
Interest income
|
|
|
-
|
|
|
|
8
|
|
Net loss
|
|
$
|
(166,417
|
)
|
|
$
|
(100,219
|
)
|
GENERAL
AND ADMINISTRATIVE
General
and administrative expenses increased approximately $66,000 to $166,000 for the three months ended June 30, 2017 compared to $100,000
for the three months ended June 30, 2016 primarily due to an increase in professional expenses of $72,000 partially offset by
a $6,000 reduction of supplies, insurance and miscellaneous fees.
INTEREST INCOME
Interest
income for the three months ended June 30, 2017 reduced $8 from the three months ended June 30, 2016 due to our reduced interest
bearing balances.
NET
LOSS
Our
operations for the three months ended June 30, 2017 resulted in a net loss of approximately $166,000, an increase of approximately
$66,000 compared to the $100,000 loss for the three months ended June 30, 2016.
Comparison of Operations for the Six Months Ended June 30, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
General
and administrative
|
|
$
|
283,481
|
|
|
$
|
250,971
|
|
Other
income:
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
—
|
|
|
|
2,543
|
|
Interest
income
|
|
|
—
|
|
|
|
28
|
|
Net
loss
|
|
$
|
(283,481
|
)
|
|
$
|
(248,400
|
)
|
GENERAL
AND ADMINISTRATIVE
General
and administrative expenses increased approximately $32,000 to $283,000 for the six months ended June 30, 2017 compared to $251,000
for the six months ended June 30, 2016 primarily due to an increase in professional expenses of $45,000 partially offset by a
$11,000 reduction of supplies, insurance and miscellaneous fees.
OTHER
INCOME
Other
income for the six months ended June 30, 2017 reduced $3,000 from the six months ended June 30, 2016 due to our reduced interest
bearing balances.
NET
LOSS
Our
operations for the six months ended June 30, 2017 resulted in a net loss of approximately $283,000, an increase of approximately
$35,000 compared to the $248,000 loss for the six months ended June 30, 2016.
Trend
Discussion
It
is too early to determine if efforts to obtain new business under our Teaming and Consulting Agreements will be successful.
Liquidity
and Capital Resources
At
December 31, 2016, we had approximately $1,000 of cash and cash equivalents, a decrease of approximately $137,000 from December
31, 2015. In 2016, we used approximately $136,000 in operating activities. This amount is comprised primarily of our net loss
of $493,000, partially offset by an increase in accrued expenses of $227,000, an increase in accounts payable of $67,000 and noncash
stock based compensation expense of $63,000 resulting in net cash outflow of approximately $136,000.
In
their report accompanying our financial statements, our independent auditors stated that our financial statements for the year
ended December 31, 2015 and 2016 were prepared assuming that we would continue as a going concern, and that they have substantial
doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses from operations and
negative cash flow from operations and the concern that we may incur additional losses due to the reduction in Government contract
activity raise substantial doubt about our ability to continue as a going concern.
At
June 30, 2017, we had approximately $13,000 of cash and cash equivalents, an increase of approximately $12,000 from December 31,
2016. During the first six months of 2017 the net cash outflow from operating activities was approximately $51,000. This amount
was comprised primarily of our net loss of $283,000 partially offset by an increase in our accrued expenses and deposits of $174,000
as well as noncash stock based compensation of $42,000 and accounts payable of $17,000, investing activities had no activity,
and financing activities reflected $63,000 proceeds from the sale of common stock, resulting in net cash inflow of approximately
$12,000.
In
their report accompanying our financial statements, our independent auditors stated that our financial statements for the year
ended December 31, 2016 were prepared assuming that we would continue as a going concern, and that they have substantial doubt
as to our ability to continue as a going concern. Our auditors’ have noted that our recurring losses from operations and
need to raise additional capital to sustain operations raise substantial doubt about our ability to continue as a going concern.
Recent
Financing
On
September 15, 2017 the Company borrowed $53,000 under a convertible note maturing June 20, 2018. The Note is convertible into
shares of the Company’s $0.001 par value common stock after March 24, 2018 (the “Initial Conversion Date”).
The Conversion rate is variable and will be 58% of the Average of the lowest one day trading price during the twenty trading days
preceding the holders notice of conversion. The number of shares issuable on conversion is limited to 4.99% of the Company’s
then issued and outstanding Common Stock. The Company at the request of the Note Holder has reserved 36,369,879 share of its $0.001
common stock for conversion. The Note is prepayable at the Company’s option until the Initial Conversion Date.
The
Company issued the Note Holder warrants to purchase 1,320,598 shares of it’s $0.001 par value common stock at an exercise
price of $0.0301, The Warrants are exercisable at any time over a 7 year period commencing on the date of issuance.
Contractual
Obligations:
The
following table summarizes our contractual obligations and other commercial commitments as of June 30, 2017:
|
|
Payment
by Period
|
|
|
|
Total
|
|
|
Less
than 1
Year
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
326
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326
|
|
|
$
|
326
|
|
Not
included in the above table are the dividends on our Series A Preferred Stock that are approximately $35,000 each year (approximately
$9,000 each quarter), assuming no conversion of the outstanding shares of Series A Preferred Stock into shares of common stock.
Operating
Leases
We
have, in the past, operated in leased premises under operating leases. Total rent expense on premises amounted to approximately
$4,000 and $12,000 for 2016 and 2015, respectively.
Preferred
Stock
The
Series A Preferred Stock has a liquidation preference of $25.00 per share. The Series A Preferred Stock bears dividends at an
initial rate of 6.5% of the liquidation preference per share per annum, which accrues from the date of issuance, and is payable
quarterly. We have not paid dividends commencing with the quarterly dividend due August 1, 2013 and, as a result, the dividend
rate has increased to 10% per annum and will remain at that level until such failure no longer continues. Dividends in arrears
as of June 30, 2017 was approximately $136,000.
The
holders of the Series A Preferred Stock have a right to put the stock to the Company for an aggregate amount equal to the liquidation
preference (approximately $340,000) plus unpaid dividends of $125,000 in the event of a change in control. Dividends are payable
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 the ten 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 or (iii) any combination of the foregoing. As of December 31, 2016, there were 13,602 shares
of Series A Preferred Stock outstanding.
Recent
Accounting Pronouncements
Refer
to Note 2 of Notes to Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.
Off-Balance
Sheet Arrangements
As
of December 31, 2016, we had no significant off-balance sheet arrangements other than operating leases. For a description of our
operating leases, see Note 7 to the Consolidated Financial Statements.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In
the normal course of business, our financial position is subject to a variety of risks, such as the ability to collect our accounts
receivable and the recoverability of the carrying values of our long-term assets. We do not presently enter into any transactions
involving derivative financial instruments for risk management or other purposes.
Our
available cash balances are deposited in bank demand deposit accounts. Substantially all of our cash flows are derived from our
operations within the United States and today we are not subject to market risk associated with changes in foreign exchange rates.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Our
Consolidated Financial Statements, the related notes and the Report of Independent Registered Public Accounting Firms thereon,
are included in Applied Energetics’ 2016 Consolidated Financial Statements and are filed as a part of this Prospectus on
page F-1 following the signatures.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not
applicable.
CONTROLS
AND PROCEDURES
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures as of December 31, 2016. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means
controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2016.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following is information with respect to our executive officers and directors:
Name
|
Age
|
Principal
Position
|
|
|
|
George P. Farley
|
78
|
Chief Executive Officer, Principal Financial
Officer and Director
|
George
P. Farley:
George P. Farley was designated as our chief executive officer and principal financial officer on March 2, 2016.
Mr. Farley, a certified public accountant, has been a member of our Board of Directors since March 2004. Mr. Farley is Chairman
of our Audit Committee and also serves as a member of our Compensation Committee. Since 1999, Mr. Farley has operated a consulting
practice in which he assists and advises public and private companies in complex financial transactions, on complex accounting
and reporting issues and at time providing Chief Financial Officer services. From 2005 until 2015 Mr. Farley was a principle financial
advisor to magicJack VocalTec, Ltd and its founder. Through 2007, Mr. Farley served as a Director and a member of the Audit Committee
of iCad, Inc. He has also served as a Director and member of the Audit Committee of Preserver Insurance Company, Inc. and Acorn
Holdings Corp and as a Director for Olympia Leather Company, Inc. From November 1997 to August 1999, Mr. Farley was a Chief Financial
Officer of Talk.com, Inc., which provides telecommunication services. Mr. Farley was also a director of Talk.com, Inc. Mr. Farley
joined BDO USA, LLP in 1962 and was a partner at BDO USA, LLP from 1972 to 1995, where he specialized in complex financial transactions
including over 100 Initial Public Offerings. He also served as the managing partner of BDO’s Philadelphia Office, National
Director of Mergers and Acquisition and established BDO’s valuation practice.
Director
Qualifications, Experience and Skills
Our
director brings to our Board a wealth of executive leadership experience derived from his service as senior executive and, in
many cases, founders of industry or knowledge specific consulting firms or operational businesses. They also offer extensive public
company board experience. Our board member has demonstrated strong business acumen and an ability to exercise sound judgment and
has a reputation for integrity, honesty and adherence to ethical standards. When considering whether directors and nominees have
the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight
responsibilities effectively in light of the company’s business and structure, the Corporate Governance and Nominating Committee
and the Board of Directors focused primarily on the information discussed in each of the Directors’ individual biographies
set forth above and the specific individual qualifications, experience and skills as described below:
|
●
|
Mr.
Farley’s extensive knowledge of accounting, the capital markets, financial reporting
and financial strategies from his extensive public accounting experience, and prior services
as a chief financial officer of a public company and as audit committee member of several
public companies. Mr. Farley specialized in “Transactional Accounting” managing
the accounting and auditing function for numerous public financings, mergers, acquisitions,
reorganizations and business dispositions. In 1993, Mr. Farley was part of the team that
created a new financing vehicle, the Specified Purpose Acquisition Company “SPAC”.
|
Section
16(A) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires certain officers and directors of Applied Energetics, and any persons who
own more than ten percent of the common stock outstanding to file forms reporting their initial beneficial ownership of shares
and subsequent changes in that ownership with the SEC and the NASDAQ Stock Market. Officers and directors of Applied Energetics,
and greater than ten percent beneficial owners are also required to furnish us with copies of all such Section 16(a) forms they
file. None of our officers or directors failed to file any Section 16(a) forms, nor were any such persons late in making any such
filings.
Code
of Ethics
Applied
Energetics has adopted a Code of Business Conduct and Ethics that applies to all of Applied Energetics’ employees and directors,
including its chief executive officer, principal financial officer and principal accounting officer. Applied Energetics’
Code of Business Conduct and Ethics covers all areas of professional conduct including, but not limited to, conflicts of interest,
disclosure obligations, insider trading, confidential information, as well as compliance with all laws, rules and regulations
applicable to Applied Energetics’ business.
Our
Code of Ethics and Business Conduct is available upon request made to us in writing at the following address, will be provided
without charge:
Applied
Energetics, Inc.
Attention:
Compliance Officer
2410
West Ruthrauff Road, Suite 140 Q,
Tucson,
AZ 85705
Committees
of the Board of Directors
Audit
Committee
The
Audit Committee of the Board of Directors is comprised of Mr. Farley. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews the scope and results of the audit engagement with the independent public
accountants, approves professional services provided by the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews the adequacy of our internal accounting controls.
Our Board of Directors has determined that Mr. Farley is an “audit committee financial expert” as defined under Item
407 of Regulation S-K of the SEC. Refer to Item 10 above for Mr. Farley’s qualifications.
Compensation
Committee
The
Compensation Committee of the Board of Directors is comprised of Mr. Farley. The committee is responsible for establishing and
maintaining executive compensation practices designed to encourage company profitability and enhance long-term stockholder value.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee is comprised of Mr. Farley. The Committee is responsible for establishing and maintaining
corporate governance practices designed to aid the long-term success of Applied Energetics and effectively enhance and protect
stockholder value.
Strategic
Planning Committee
The
Strategic Planning Committee is comprised of Mr. Farley. The Committee is responsible for providing oversight to establish strategic
direction for the Company, develop with Company management and recommend to the Board a short and long-term strategic plan for
the Company, periodically review and update the plan, investigate and review merger, acquisition, joint venture and other business
combination and strategic opportunities and to provide oversight for monitoring and executing strategies.
ITEM
11. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table discloses, for the periods presented, the compensation for the person who served as our Chief Executive Officer
and our Principal Financial Officer for the years ended December 31, 2016, and 2015 (the “Named Executive”). George
P. Farley was designated as our Chief Executive Officer and Principal Financial Officer on March 2, 2016 and he did not receive
any compensation for the year ended December 31, 2015.
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
|
Year
|
|
|
Salary
(1)
|
|
|
Stock
Awards (2)
|
|
|
Total
|
|
George
P Farley, Chief
|
|
|
2016
|
|
|
$
|
150,000
|
|
|
$
|
25,000
|
|
|
$
|
175,000
|
|
Executive
Officer and Principal Financial Officer
|
|
|
2015
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr.
Farley earned $12,500 per month for 2016, of which $24,500 was paid.
|
|
(2)
|
In
March 2016, Mr. Farley was issued 5,000,000 shares of common stock under the 2007 Equity
Incentive Plan and was also issued 20,000,000 share of common stock for services.
|
Employment
Agreements for Named Executive Officers
None
Director
Compensation
Our
director did not receive compensation for the year ended December 31, 2016.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
During
the fiscal year ended December 31, 2016, none of our executive officers served on the Board of Directors or the Compensation Committee
of any other company whose executive officers also serve on our Board of Directors or our Compensation Committee.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS:
The
following table sets forth information regarding the beneficial ownership of our Common Stock, based on information provided by
the persons named below in publicly available filings, as of March 29, 2017:
|
●
|
each
of our directors and executive officers;
|
|
●
|
all
directors and executive officers of ours as a group; and
|
|
●
|
each
person who is known by us to beneficially own more than five percent of the outstanding
shares of our Common Stock.
|
Unless
otherwise indicated, the address of each beneficial owner is care of Applied Energetics, 2480 W Ruthrauff Road, suite 140 Q, Tucson,
Arizona 85705. Unless otherwise indicated, the Company believes that all persons named in the following table have sole voting
and investment power with respect to all shares of common stock that they beneficially own.
For
purposes of this table, a person is deemed to be the beneficial owner of the securities if that person has the right to acquire
such securities within 60 days of August 14, 2017 upon the exercise of options or warrants. In determining the percentage ownership
of the persons in the table below, we assumed in each case that the person exercised all options which are currently held by that
person and which are exercisable within such 60 day period, but that options and warrants held by all other persons were not exercised,
and based the percentage ownership on 157,785,520 shares outstanding on August 14, 2017.
Name
of Beneficial Owner
|
Number
of Shares
Beneficially Owned (1)
|
Percentage
of Shares
Beneficially Owned (1)
|
George
P. Farley
|
5,000,000
|
(2)
|
3.2%
|
Stephen
W. McCahon
|
17,927,861
|
(3)
|
11.4%
|
AnneMarieCo,
LLC
|
20,000,000
|
(5)
|
12.7%
|
Stein
Riso Mantel McDonough, LLP
|
10,000,000
|
(5)
|
6.4%
|
Superius
Securities Group Inc. Profit Sharing Plan
|
8,535,997
|
(4)
|
5.4%
|
All
directors and executive officers as a group (1 person)
|
5,000,000
|
|
3.2%
|
*
Less than 1%
|
(1)
|
Computed
based upon the total number of shares of common stock, restricted shares of common stock
and shares of common stock underlying options held by that person that are exercisable
within 60 days of the Record Date.
|
|
(2)
|
Based
on information contained in a report on Schedule 13D filed with the SEC on February 24,
2017. Mr. Farley denies beneficial ownership of common stock owned by family partnerships
|
|
(3)
|
Based
on information contained in a report on Schedule 13D filed with the SEC on February 24,
2017. Based on information known by the Company, Mr. McCahon’s address is C/O Applied
Optical Sciences, 4595 Palo Verde Rd. Suite 517, Tucson, Arizona 85714
|
|
(4)
|
Based
on information contained in a report on Schedule 13G filed with the SEC on October 29,
2009. The address of Superius Securities Group Inc. Profit Sharing Plan is 94 Grand Ave.,
Englewood, NJ 07631.
|
|
(5)
|
Based
on information known by the Company.
|
SELLING
STOCKHOLDERS
The
following table sets forth the information as to the ownership of our securities by the Selling Stockholders on August _____,
2017, at which time 157,785,520 shares of our common stock were outstanding. Unless otherwise indicated, it is assumed
that each Selling Stockholder listed below possesses sole voting and investment power with respect to the shares owned as of such
date by the Selling Stockholder,
|
|
|
|
|
|
|
|
|
|
Selling
Stockholder (2)
|
|
Shares
of Common Stock Owned Before the Offering
|
|
Total
Number of Shares of Common Stock and Shares to be Offered (1) (2)
|
|
Shares
of Common Stock and/or Common Stock to be Beneficially Owned After the Offering
|
|
Percentage
of Common Stock Beneficially Owned After the Offering
|
|
|
Stein
Riso Mantel McDonough, LLP
|
(3)
|
10,000,000
|
|
10,000,000
|
|
—
|
|
—
|
|
|
Greg
Fettig, Esq.
|
(3)
|
5,000,000
|
|
5,000,000
|
|
—
|
|
—
|
|
|
AnneMarieCo,
LLC
|
(4)
|
20,000,000
|
|
20,000,000
|
|
—
|
|
—
|
|
|
Elizabeth
McCahon
|
(4)
|
2,000,000
|
|
2,000,000
|
|
—
|
|
—
|
|
|
John
McCahon
|
(8)
|
2,000,000
|
|
2,000,000
|
|
—
|
|
—
|
|
|
Joseph
Haydon
|
(5)
|
5,553,068
|
|
5,553,068
|
|
—
|
|
—
|
|
|
Carole
& Curtis Stout
|
(6)
|
1,000,000
|
|
1,000,000
|
|
—
|
|
—
|
|
|
Catherine
Gonzales
|
(6)
|
1,000,000
|
1,000,000
|
—
|
|
—
|
|
|
Richard
& Charlotte Petsche
|
(6)
|
500,000
|
500,000
|
—
|
|
—
|
|
|
Stephen
W McCahon
|
(7)
|
14,000,000
|
|
14,000,000
|
|
—
|
|
—
|
|
|
Oak
Tree Asset Management Ltd.
|
(9)
|
500,000
|
|
500,000
|
|
—
|
|
—
|
|
|
William
McCahon
|
(8)
|
2,000,000
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents
the shares held by the selling stockholders which we have agreed to include in this Registration Statement.
|
|
(2)
|
Assumes
all of the shares being offered under this prospectus will be sold by the selling stockholders. However, we are
unable to determine the exact number of shares that will actually be sold or when or if sales will occur
|
|
(3)
|
Shares
issued for legal services
|
|
|
|
|
|
|
|
|
|
(4)
|
Shares
acquired by Gift
|
|
|
|
|
|
|
|
|
|
(5)
|
Shares
issued as a founder of AERG
|
|
|
|
|
|
|
|
|
|
(6)
|
Shares
purchased from Company
|
|
|
|
|
|
|
|
|
|
(7)
|
Shares
issued as a founder of AERG and shares issued for services. Mr. McCahon is also the owner of AOS, the Company's partner in
developing its intellectual property, and has entered into a Teaming and Consulting Agreement with the Company described elsewhere
in this prospectus.
|
|
(8)
|
Shares
acquired by gift, stockholder is a dependent son of Stephen W McCahon
|
|
(9)
|
Shares
issued for consulting services
|
|
|
|
|
|
|
|
|
Selling
stockholder owning 60,553,068 common shares have agreed not to sell any shares during the 180 day period following the effectiveness
of the registration statement.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.
PLAN
OF DISTRIBUTION
Each
selling stockholder of the common stock and any of their donees, pledgees, assignees and successors-in-Each Selling Stockholder
(the “
Selling Stockholders
”) of the securities and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their securities covered hereby on the OTC Pink or any other stock exchange, market
or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices.
A Selling Stockholder may use any one or more of the following methods when selling securities:
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
●
|
block
trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
●
|
privately
negotiated transactions;
|
●
|
settlement
of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
|
●
|
in
transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities
at a stipulated price per security;
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
●
|
a
combination of any such methods of sale; or
|
●
|
any
other method permitted pursuant to applicable law.
|
The
Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “
Securities
Act
”), if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close
out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one
or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive
fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The
Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject
to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than
under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale securities by the Selling Stockholders.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling
Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without
the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act
or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases
and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
DESCRIPTION
OF SECURITIES
The
following description of our capital stock being registered herein is a summary only and is qualified in its entirety by reference
to our Articles of Incorporation, as amended, and Amended and Restated Bylaws, which are included as Exhibits 3.1 through 3.7
of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (incorporating such documents by
reference to prior reports on file with the SEC by the Company).
Common
Stock
We
are authorized to issue up to 500,000,000 shares of common stock, $0.001 par value per share. Holders of our common stock are
entitled to receive dividends when and as declared by our board of directors out of funds legally available. Holders of our common
stock are entitled to one vote for each share on all matters voted on by stockholders, including the election of directors. Holders
of our common stock do not have any conversion, redemption or preemptive rights. In the event of our dissolution, liquidation
or winding up, holders of our common stock are entitled to share ratably in any assets remaining after the satisfaction in full
of the prior rights of creditors and the aggregate liquidation preference of any preferred stock then outstanding. The rights,
preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred
Stock
As
of December 31, 2016 and 2015, there were 13,602 and 13,602 shares of Series A Redeemable Convertible Preferred Stock (the “Series
A Preferred Stock”) outstanding, respectively. The company has not paid the dividends commencing with the quarterly dividend
due August 1, 2013. Dividend arrearages as of December 31, 2016 including previously accrued dividends included in our balance
sheet are approximately $119,000. Our Board of Directors suspended the declaration of the dividend, commencing with the dividend
payable as of February 1, 2015 since we 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.
Our
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 the ten 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.
LEGAL
MATTERS
Masur
Griffitts + Co. LLP will deliver an opinion that the issuance of the shares covered by this Prospectus has been approved by our
Board of Directors and that such shares, when issued, will be duly authorized, validly issued, fully paid and non-assessable shares
of common stock of the Company.
EXPERTS
The
consolidated financial statements of the Company at December 31, 2016 and December 31, 2015 and for the years then ended appearing
in this prospectus have been audited by RBSM LLP, Accountants and Advisors, which is an independent registered public accounting
firm, as set forth in its report thereon appearing elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
REPORTS
TO SECURITY HOLDERS
We
furnish our stockholders with annual reports containing audited financial statements. In addition, we are required to file reports
on Forms 8-K, 10-Q and 10-K with the Securities and Exchange Commission.
Upon
written or oral request, we will provide, without charge, each person to whom a copy of this prospectus is delivered, a copy of
any document incorporated by reference in this prospectus (other than exhibits, unless such exhibits are specifically incorporated
by reference in such documents). Requests should be directed to Applied Energetics Inc. 2480 W Ruthrauff Road, Suite 140Q, Tucson,
AZ 85705 Attn. Stephen McCommon, Finance Manager.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational and reporting requirements of the Securities Exchange Act of 1934 (the “Securities Exchange
Act”), and, in accordance with that statute, have filed various reports, proxy statements and other information with the
Securities and Exchange Commission. You may inspect these reports, proxy statements and other information at the public reference
facilities of the Securities and Exchange Commission at its principal offices at 100 F Street, N.E. Washington, D.C. 20549, and
at its regional offices located at 3 World Financial Center, New York, NY 10021. You can get copies of these reports and other
information from these offices upon payment of the required fees. These reports and other information can also be accessed from
the web site maintained by the Securities and Exchange Commission at http://www.sec.gov. The public may obtain information on
operations of the public reference room by calling the Securities and Exchange Commission at (800) SEC-0330.
We
have filed a registration statement on Form S-1 with the Securities and Exchange Commission under the Securities Act with respect
to the shares offered by this prospectus. This prospectus, which forms a part of the registration statement, provides information
as to the securities covered by the filing. However, this prospectus does not contain all of the information included in the registration
statement and the accompanying exhibits. You can get copies of the registration statement and the accompanying exhibits from the
Securities and Exchange Commission upon payment of the required fees or it may be inspected free of charge at the public reference
facilities and regional offices referred to above.
Applied
Energetics, Inc. makes available free of charge via email request to smccommon@appliedenergetics.net its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practical after electronically filing or furnishing such
material to the Securities and Exchange Commission (“SEC”).
You
may rely only on the information contained in this prospectus, including the documents incorporated in this prospectus by reference.
We have not authorized anyone to provide information that is different from that contained in this prospectus. This prospectus
may only be used where it is legal to sell these securities. The information in this prospectus may not be accurate after the
date appearing on the cover.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table details information regarding our existing equity compensation plans as of December 31, 2016:
Equity
Compensation Plan Information
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options
|
|
|
Weighted-average
exercise price of outstanding options
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by security holders
|
|
|
—
|
|
|
$
|
—
|
|
|
|
343,067
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
343,067
|
|
The
following is a description of currently open stock option and equity plans.
The
2007 Stock Incentive Plan (“2007 Plan”), which provides for the grant of any or all of the following types of awards:
(1) stock options, which may be either incentive stock options or non-qualified stock options, (2) restricted stock, (3) deferred
stock, (4) stock appreciation rights, and (5) other stock-based awards. A total of 10,000,000 shares of common stock have been
reserved for distribution pursuant to the 2007 Plan provided, however, that the maximum number of shares available for award or
grant during the first five years of the 2007 Plan shall be an aggregate of 5,000,000 shares; and provided further that the maximum
number of shares available for award or grant during any consecutive twelve month period shall be 1,000,000 shares during the
first two years of the 2007 Plan and 2,000,000 shares during the third through fifth years of the 2007 Plan. The five-year limitation
period ended September 10, 2012. As of December 31, 2016, there were no options to purchase shares were outstanding under this
plan, no restricted stock grants remain outstanding under the plan and approximately 1 million shares were available for grant
from this plan.
We
have, from time to time, also granted non-plan options and other equity-based awards to certain officers, directors, employees
and consultants. No inducement grants as defined were made during 2016, nor are any outstanding from previous years.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions
with Related Parties
Except
as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our common stock, or any family
member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since the year ended
December 31, 2016.
Review,
Approval or Ratification of Transactions with Related Persons
Pursuant
to our Code of Business Conduct, all officers and directors of the Company who have, or whose immediate family members have, any
direct or indirect financial or other participation in any business that supplies goods or services to Applied Energetics, are
required to notify our Compliance Officer, who will review the proposed transaction and notify the Audit Committee of our Board
of Directors for review and action as it sees fit, including, if necessary, approval by our Board of Directors.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES:
On
February 25
th
, 2016, the Company engaged RBSM LLP as its independent registered public accounting firm for the audit
of our financial statements for the year ended December 31, 2016. The following is a summary of the fees billed to the Company
by its independent registered Public Accounting firm, RBSM LLP for professional services rendered for the years ended December
31, 2016 and December 31, 2015.
|
|
2016
|
|
|
2015
|
|
Audit
fees
|
|
$
|
8,500
|
|
|
$
|
—
|
|
Audit related fees
|
|
|
—
|
|
|
|
—
|
|
All other fees
|
|
|
—
|
|
|
|
—
|
|
Tax
fees
|
|
|
3,250
|
|
|
|
—
|
|
|
|
$
|
11,750
|
|
|
$
|
—
|
|
The
following is a summary of the fees billed to the Company by its prior independent registered public accounting firm, Liggett &
Webb P.A. for professional services rendered for the years ended December 31, 2016 and December 31, 2015.
|
|
2016
|
|
|
2015
|
|
Audit
fees
|
|
$
|
2,500
|
|
|
$
|
8,250
|
|
Audit related fees
|
|
|
—
|
|
|
|
—
|
|
All other fees
|
|
|
—
|
|
|
|
—
|
|
Tax
fees
|
|
|
—
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,500
|
|
|
$
|
12,250
|
|
Fees
for audit services include fees associated with the annual audit of the Company and its subsidiaries, the review of our quarterly
reports on Form 10-Q. Tax fees include tax compliance, tax advice, research and development credits and tax planning related to
federal and state tax matters.
Pre-Approval
Policies and Procedures
Consistent
with the SEC requirements regarding auditor independence, our Audit Committee has adopted a policy to pre-approve all audit and
permissible non-audit services provided by our independent registered public accounting firm. Under the policy, the Audit Committee
must approve non-audit services prior to the commencement of the specified service. Our independent registered public accounting
firm, RBSM LLP, have verified to our Audit Committee that they have not performed, and will not perform any prohibited non-audit
service.
APPLIED
ENERGETICS, INC.
INDEX TO FINANCIAL STATEMENTS
|
805
Third Avenue
14
th
Floor
New
York, NY 10022
212.838-5100
212.838.2676/
Fax
www.rbsmllp.com
|
Report of the Independent Registered
Public Accounting Firm
To the Board of Directors and shareholders
Applied Energetics, Inc.
We have audited the accompanying consolidated
balance sheets of Applied Energetics, Inc. (the “Company”) as of December 31, 2016 and 2015 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the two years in the period ended December 31, 2016. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of
December 31, 2016 and 2015 and the results of its operations and its cash flows for the years then ended, in conformity with generally
accepted accounting principles in the United States.
The accompanying consolidated financial
statements have been prepared assuming that the Applied Energetics, Inc. will continue as a going concern. As more fully described
in Note 1 to the consolidated financial statements, the Company has incurred recurring operating losses and will have to obtain
additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome of this uncertainty.
New York, NY
March 31, 2017, except Note 5
dated August 21, 2017
New
York, NY Washington DC Mumbai, India San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece
Member:
ANTEA International with affiliated offices worldwide
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost
of revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
495,169
|
|
|
|
225,323
|
|
Total
operating expenses
|
|
|
495,169
|
|
|
|
225,323
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(495,169
|
)
|
|
|
(225,323
|
)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
Gain
on asset disposal
|
|
|
—
|
|
|
|
1,000
|
|
Other
income
|
|
|
2,542
|
|
|
|
—
|
|
Interest
income
|
|
|
22
|
|
|
|
472
|
|
Total
other income
|
|
|
2,564
|
|
|
|
1,472
|
|
|
|
|
|
|
|
|
|
|
Loss before provision
for income taxes
|
|
|
(492,605
|
)
|
|
|
(223,851
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(492,605
|
)
|
|
|
(223,851
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(34,005
|
)
|
|
|
(34,005
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(526,610
|
)
|
|
$
|
(257,856
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and diluted
|
|
|
93,207,438
|
|
|
|
91,785,520
|
|
See
accompanying notes to consolidated financial statements.
APPLIED
ENERGETICS, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
680
|
|
|
$
|
136,840
|
|
Other
assets
|
|
|
312
|
|
|
|
—
|
|
Total
current assets
|
|
|
992
|
|
|
|
136,840
|
|
TOTAL
ASSETS
|
|
$
|
992
|
|
|
$
|
136,840
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
66,986
|
|
|
$
|
—
|
|
Accrued
expenses - current
|
|
|
233,833
|
|
|
|
7,063
|
|
Accrued
dividends
|
|
|
48,080
|
|
|
|
48,079
|
|
Total
current liabilities
|
|
|
348,899
|
|
|
|
55,142
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
348,899
|
|
|
|
55,142
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $.001 par value, 2,000,000 shares authorized and 13,602 shares issued and outstanding at December
31, 2016 and at December 31, 2015 (Liquidation preference $340,050 and $340,050, respectively)
|
|
|
14
|
|
|
|
14
|
|
Common
stock, $.001 par value, 500,000,000 shares authorized; 154,785,520 and 91,785,520 shares issued and outstanding at December
31, 2016 and at December 31, 2015, respectively
|
|
|
154,785
|
|
|
|
91,785
|
|
Additional
paid-in capital
|
|
|
79,179,432
|
|
|
|
79,179,432
|
|
Accumulated
deficit
|
|
|
(79,682,138
|
)
|
|
|
(79,189,533
|
)
|
Total
stockholders’ equity
|
|
|
(347,907
|
)
|
|
|
81,698
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
992
|
|
|
$
|
136,840
|
|
See
accompanying notes to consolidated financial statements.
APPLIED
ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
as of December 31, 2014
|
|
|
107,172
|
|
|
$
|
107
|
|
|
|
91,785,520
|
|
|
$
|
91,785
|
|
|
$
|
79,236,839
|
|
|
$
|
(79,296,426
|
)
|
|
$
|
32,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of preferred stock
|
|
|
(93,570
|
)
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(57,407
|
)
|
|
|
330,744
|
|
|
|
273,244
|
|
Net
loss for the year ended December 31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(223,851
|
)
|
|
|
(223,851
|
)
|
Balance
as of December 31, 2015
|
|
|
13,602
|
|
|
$
|
14
|
|
|
|
91,785,520
|
|
|
$
|
91,785
|
|
|
$
|
79,179,432
|
|
|
$
|
(79,189,533
|
)
|
|
$
|
81,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
63,000,000
|
|
|
|
63,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,000
|
|
Net
loss for the year ended December 31, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(492,605
|
)
|
|
|
(492,605
|
)
|
Balance
as of December 31, 2016
|
|
|
13,602
|
|
|
$
|
14
|
|
|
|
154,785,520
|
|
|
$
|
154,785
|
|
|
$
|
79,179,432
|
|
|
$
|
(79,682,138
|
)
|
|
$
|
(347,907
|
)
|
See
accompanying notes to consolidated financial statements.
APPLIED
ENERGETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(492,605
|
)
|
|
$
|
(223,851
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Gain
on equipment disposal
|
|
|
—
|
|
|
|
(1,000
|
)
|
Noncash
stock based compensation expense
|
|
|
63,000
|
|
|
|
—
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other assets
|
|
|
(312
|
)
|
|
|
59,305
|
|
Accounts
payable
|
|
|
66,987
|
|
|
|
(4,967
|
)
|
Accrued compensation
|
|
|
226,770
|
|
|
|
(379
|
)
|
Net
cash used in operating activities
|
|
|
(136,160
|
)
|
|
|
(170,892
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from disposal of equipment
|
|
|
—
|
|
|
|
1,000
|
|
Net
cash provided by investing activities
|
|
|
—
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Payment
on purchase of preferred stock
|
|
|
—
|
|
|
|
(57,500
|
)
|
Net
cash used in financing activities
|
|
|
—
|
|
|
|
(57,500
|
)
|
Net decrease in cash
and cash equivalents
|
|
|
(136,160
|
)
|
|
|
(227,392
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
136,840
|
|
|
|
364,232
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
680
|
|
|
$
|
136,840
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of preferred stock dividend
|
|
$
|
—
|
|
|
$
|
330,744
|
|
Cash
paid for interest and taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
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. Certain reclassifications
have been made to prior period financial statement amounts to conform to the current presentation.
The
accompanying 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 year ended December 31, 2016, the company incurred a net
loss of approximately $493,000, had negative cash flows from operations of $136,000 and may incur additional future losses due
to the reduction in Government contract activity. These matters raise substantial doubt as to the company’s ability to continue
as a going concern.
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.
Nature
of Business
Applied Energetics, Inc.
is a corporation organized and existing under the laws of the State of Delaware. Our executive office is located at 2480 west
Ruthrauff Road, Suite 140 Q, Tucson, Arizona, 85705 and our telephone number is (520) 628-7415.
The company is a “shell
company” as such term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As of October 3, 2014,
the company suspended its previous business activities.
Prior to October 3, 2014,
the company engaged in the design, development and manufacture of applied energy systems for military and commercial applications
and Ultra Short Pulse lasers and high voltage lasers for commercial applications.
The Company is planning
to reactivate its previous business activities pursuant to a Teaming and Consulting Agreement with Applied Optical Sciences, Inc.
and Stephen W. McCahon, one of the Company’s founders. The company owns intellectual property that is integral and necessary
for the development of Laser Guided Energy and Direct Discharge Electrical products for military and commercial uses (the “Products”)
and the Consultants have the facilities and technical knowhow to utilize the company’s intellectual property in the development
of the Products; and the Parties have agreed to cooperate in the proposal and fulfillment of research and development contracts
for branches of the Department of Defense, agencies of the Federal Government and other Defense contractors.
If the reactivation of
our former business is successful we will no longer be a “shell company” but will be classified as a Development Stage
Company until we achieve significant revenues from our reactivated business.
Use
of Estimates
The
preparation of consolidated 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 relevant 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 under the percentage of completion method of contract accounting, the valuation of inventory,
carrying amounts of long-lived assets, valuation assumptions for share-based payments and measurements of income tax assets and
liabilities.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue
Recognition
A
majority of revenue under long-term government contracts is recorded under the percentage of completion method. Revenue, billable
monthly under cost plus fixed fee contracts, is recorded as costs are incurred and includes estimated earned fees in the proportion
that costs incurred to date bear to total estimated costs. Costs include direct labor, direct materials, subcontractor costs and
manufacturing and administrative overhead allowable under the contract. General and administrative expenses allowable under the
terms of contracts are allocated per contract, depending on its direct labor and material proportion to total direct labor and
material of all contracts. As contracts can extend over one or more accounting periods, revisions in earnings estimated during
the course of work are reflected during the accounting period in which the facts become known. When the current contract estimate
indicates a loss, a provision is made for the total anticipated loss in the current period. We do not generally provide an allowance
for returns from our government customers because our customer agreements do not provide for a right of return.
The
asset caption “accounts receivable” includes costs and estimated earnings in excess of billings on uncompleted contracts,
which represents revenue recognized in excess of amounts billed. Such revenue is billable under the terms of contracts at the
end of the year, but was not invoiced until the following year and is generally expected to be collected within one year.
Revenue
for other products and services is recognized when such products and services are delivered or performed and, in connection with
certain sales to Government agencies, when the products and services are accepted, which is normally negotiated as part of the
initial contract. Revenue from commercial, non-Governmental, customers is based on fixed price contracts where the sale is recognized
upon acceptance of the product or performance of the service and when payment is probable. Contract costs are deferred in the
same manner as inventory costs and are charged to operations as the related revenue from contracts is recognized. When a current
contract estimate indicates a loss, a provision is made for the total anticipated loss in the period in which such facts become
evident.
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 and our Series A Convertible Preferred
Stock, which were not included in the computation of earnings per share because the effect was antidilutive, was 38,256 and 67,422
for the years ended December 31, 2016 and 2015, respectively.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value of Current Assets and Liabilities
The
carrying amount of accounts payable approximate fair value due to the short maturity of these instruments.
Cash
and Cash Equivalents
Cash
equivalents are investments in money market funds or securities with an initial maturity of three months or less. These money
market funds are invested in government and US treasury based securities.
Income
Taxes
Deferred
tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences
between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected
to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more
likely than not that such assets will not be realized. Our valuation allowance is currently 100% of our assets.
We
consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation
allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of
negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive
evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our
deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely
than not to be utilized, we will reduce our valuation allowance accordingly.
Share-Based
Payments
Employee
stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense
over the requisite service period. The fair value of each option grant is estimated at the date of grant using the Black-Scholes-Merton
option valuation model. We make the following assumptions relative to this model: (i) the annual dividend yield is zero as we
do not pay dividends on common stock, (ii) the weighted-average expected life is based on a midpoint scenario, where the expected
life is determined to be half of the time from grant to expiration, regardless of vesting, (iii) the risk free interest rate is
based on the U.S. Treasury security rate for the expected life, and (iv) the volatility is based on the level of fluctuations
in our historical share price for a period equal to the weighted-average expected life. We estimate forfeitures when recognizing
compensation expense and adjust this estimate over the requisite service period should actual forfeitures differ from such estimates.
Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and
which impacts the amount of unamortized compensation expense to be recognized in future periods.
Significant
Concentrations and Risks
We
maintain cash balances at a commercial bank and, at times, balances exceed FDIC limits. Substantially all of our accounts receivable
are with agents or departments of the US Federal Government which, although concentrated in one group of common entities, does
not expose us to significant credit risk.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Research
and Development Costs
Research
and development costs include experimentation, design, and enhancement of proprietary technologies and products and are expensed
as incurred.
NOTE
2 – NEW ACCOUNTING STANDARDS
The
company has reviewed all issued accounting pronouncements and plans to adopt those that are applicable to it. The company does
not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
NOTE
3 – STOCKHOLDERS’ EQUITY
Authorized
Capital Stock
Our
authorized capital stock consists of 500,000,000 shares of common stock at a par value of $.001 per share and 2,000,000 shares
of preferred stock at a par value of $.001 per share. On April 10, 2012, our stockholders approved an amendment to our certificate
of incorporation to increase our authorized common stock from 125,000,000 to 500,000,000 shares at such time as our Board of Directors
determined that effecting such amendment will be in the best interests of our company and our stockholders.
A
certificate of amendment to increase our authorize common stock from 125,000,000 to 500,000,000 shares was filed and accepted
and recorded by the Secretary of State of the State of Delaware on March 3, 2016.
Preferred
Stock
As
of December 31, 2016 and 2015 there were 13,602 and 13,602 shares of Series A Redeemable Convertible Preferred Stock (the “Series
A Preferred Stock”) outstanding, respectively. The company has not paid the dividends commencing with the quarterly dividend
due August 1, 2013. Dividend arrearages as of December 31, 2016 including previously accrued dividends included in our balance
sheet are approximately $119,000. Our Board of Directors suspended the declaration of the dividend, commencing with the dividend
payable as of February 1, 2015 since we 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.
Our
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 the ten 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.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Dividends
on our Preferred Stock are payable quarterly on the first day of February, May, August and November, in cash or shares of Common
Stock, at our discretion.
In
the fourth quarter of 2015, the company purchased 93,570 shares of its Series A Convertible Preferred Stock for approximately
$58,000. The company cancelled the shares and returned them to unissued status. The company also reversed approximately $331,000
of accrued dividends payable.
Share-Based
Payments
Applied
Energetics adopted an Amended and Restated 2007 Stock Incentive Plan (“2007 Plan”) that provides for the grant of
any or all of the following types of awards: (1) stock options, (2) restricted stock, (3) deferred stock, (4) stock appreciation
rights, and (5) other stock-based awards, including restricted stock units, for periods up to 10 years. Stock options granted
under the plans are generally for a fixed number of shares to employees and directors with an exercise price equal to the fair
market value of the shares at the date of grant. Options granted to employees will generally vest over two to four years. Most
options granted have a contractual life of 5 years from the grant date. Restricted stock granted under the plans to employees
generally vest immediately and/or over a period of up to four years. Some restricted stock granted under the plans vest only upon
meeting certain departmental or company-wide performance goals. Both restricted stock and options granted to non-employee directors
generally vest immediately on the date of grant. We have, from time to time, also granted non-plan options to certain officers,
directors and employees. Total stock-based compensation expense for grants to officers, employees and consultants was approximately
$63,000 and $-0- for the years ended December 31, 2016 and 2015, respectively, which was charged to general and administrative
expense. In March, 2016 the Company sold, in exchange for services, 35,000,000 shares of its common stock to Consultants and 20,000,000
common shares to the Chief Executive Officer for $0.001 per share.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2016 and 2015, there were outstanding options to purchase -0- and 32,000, respectively, of common stock. There were
no unvested restricted stock units outstanding and there were no unvested restricted stock awards outstanding as of December 31,
2016 and December 31, 2015.
The
following table sets forth information regarding awards under our 2007 Stock Incentive Plan:
As
of December 31, 2016
|
|
Share
Grants
Approved
|
Options
Outstanding
|
Restricted
Stock Awards
Outstanding
|
Restricted
Stock Units
Outstanding
|
Shares
Available for
Award
|
2007
Stock Incentive Plan
|
10,000,000
|
—
|
—
|
—
|
343,067
|
Total
|
|
—
|
—
|
—
|
343,067
|
On
September 10, 2007, the stockholders of Applied Energetics approved the adoption of the company’s 2007 Plan. A total of
10,000,000 shares of common stock have been reserved for distribution pursuant to the 2007 Plan. Grants from the 2007 Plan can
be either service based, where the grant vests with the passage of time, or performance based, where the grant vests based on
the attainment of a pre-defined company or departmental goal. We have the practice of issuing new stock to satisfy the exercise
of stock options.
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.
No
options were granted in 2016 or 2015.
There
are 343,067 aggregate shares available for grant from the Stock Incentive Plans as of December 31, 2016.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the activity of our stock options for the years ended December 31, 2016, and 2015:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding
at December 31, 2014
|
|
|
32,000
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
or expired
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding
at December 31, 2015
|
|
|
32,000
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
or expired
|
|
|
(32,000
|
)
|
|
$
|
0.51
|
|
Outstanding
at December 31, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2016
|
|
|
—
|
|
|
$
|
—
|
|
As
of December 31, 2016 and December 31, 2015, the aggregate intrinsic value (amount by which Applied Energetics’ closing stock
price on the last trading day of the year exceeds the exercise price of the option) of options outstanding was $0, as the exercise
price was greater than the market price. As of December 31, 2016 and 2015, the weighted average remaining contractual life of
options outstanding and options exercisable was -0- and 0.45 years, respectively. At December 31, 2016, there was $0 of unrecognized
compensation costs related to unvested stock options, net of estimated forfeitures.
There
was no activity of our restricted stock units and restricted stock grants for the years ended December 31, 2016 and 2015:
As
of December 31, 2016, there was no unrecognized stock-based compensation related to unvested restricted stock, net of estimated
forfeitures.
Compensation
expense recorded for shares and options delivered to non-employee consultants for the years ended December 31, 2016 and 2015 was
approximately $0 and $0, respectively.
NOTE
4– SIGNIFICANT CUSTOMERS
The
majority of our customers are either the Government or contractors to the Government and represent -0-% and -0-% of our revenue
for 2016 and 2015, respectively.
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
May 2016, we moved and entered into a month-to-month lease agreement to lease office space in Tucson, Arizona.
Rent
expense was approximately $4,000 and $12,000 for 2016 and 2015, respectively.
At
December 31, 2016, we had approximately $325 in future minimum lease payments due in less than a year.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Guarantees
We
agree to indemnify our 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 we could be required to make under these indemnification
agreements is unlimited. However, we maintain a director’s and officer’s liability insurance policy that limits our
exposure and enables us to recover a portion of any future amounts paid. As a result, we believe the estimated fair value of these
indemnification agreements is minimal because of our insurance coverage and we have not recognized any liabilities for these agreements
as of December 31, 2016 and 2015.
Litigation
On
August 4, 2017, the previously reported legal proceeding entitled Superius Securities Group, Inc.et. al. vs George Farley, et.al.
(CA No. 2017-0024-VCMR) in the Court of Chancery of the state of Delaware was dismissed.
NOTE
6 – INCOME TAXES
The
reconciliation of the difference between income taxes at the statutory rate and the income tax provision for the years ended:
|
|
December
31 ,
|
|
|
|
2016
|
|
|
2015
|
|
Computed
tax at statutory rate
|
|
$
|
(181,894
|
)
|
|
$
|
(76,270
|
)
|
State
taxes
|
|
|
(27,093
|
)
|
|
|
(13,459
|
)
|
Change
in valuation allowance
|
|
|
208,988
|
|
|
|
89,729
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
Provision
(benefit) for taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
tax assets (liabilities) consist of the following:
|
|
December
31 ,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
Accruals and
reserves
|
|
$
|
—
|
|
|
$
|
—
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
|
—
|
|
Federal
tax credit carryforwards
|
|
|
239,098
|
|
|
|
239,098
|
|
State
tax credit carryforwards
|
|
|
340,399
|
|
|
|
340,399
|
|
Net
operating loss
|
|
|
21,033,083
|
|
|
|
20,753,940
|
|
Goodwill
amortization
|
|
|
—
|
|
|
|
—
|
|
ASC
718 stock compensation
|
|
|
—
|
|
|
|
—
|
|
Valuation
allowance
|
|
|
(21,612,580
|
)
|
|
|
(21,333,437
|
)
|
Total
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
We
believe that sufficient uncertainty exists regarding the future realization of our deferred tax assets and thus a full valuation
allowance is required. The valuation allowance for the year ended December 31, 2015 and 2016 decreased by $879,000 in 2015 and
increased by $279,000 in 2016 due to changes in deferred tax assets.
As
of December 31, 2016, we have cumulative federal and Arizona net operating loss carryforwards of approximately $59.2 million and
$5.8 million, respectively, which can be used to offset future income subject to taxes. Federal net operating loss carryforwards
begin to expire in 2020. Arizona net operating loss carryforwards begin to expire in 2032. In addition there are federal net operating
loss carryforwards is approximately $27.1 million from USHG related to pre-merger losses. We also have pre-merger federal capital
loss carryforwards of approximately $520,000.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2016, we had cumulative unused research and development tax credits of approximately $239,000 and $340,000, which
can be used to reduce future federal and Arizona income taxes, respectively. As of December 31, 2016, we have cumulative unused
federal minimum tax credit carryforwards from USHG of approximately $244,000. The federal minimum tax credit carryforwards are
not subject to expiration under current federal tax law.
Utilization
of our USHG pre-merger net operating loss carryforwards and tax credits is subject to substantial annual limitations due to the
ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could
result in the expiration of the net operating loss carryforwards and tax credit carryforwards before utilization.
We
have unrecognized tax benefits attributable to losses and minimum tax credit carryforwards that were incurred by USHG prior to
the merger in March 2004 as follows:
Balance
at December 31, 2014
|
|
$
|
9,635,824
|
|
Additions
related to prior year tax positions
|
|
|
—
|
|
Additions
related to current year tax positions
|
|
|
—
|
|
Reductions
related to prior year tax positions and settlements
|
|
|
|
|
Balance at
December 31, 2015
|
|
$
|
9,635,824
|
|
Additions
related to prior year tax positions
|
|
|
—
|
|
Additions
related to current year tax positions
|
|
|
—
|
|
Reductions
related to prior year tax positions and settlements
|
|
|
—
|
|
Balance at
December 31, 2016
|
|
$
|
9,635,824
|
|
These
benefits are not recognized as a result of uncertainty regarding the utilization of the loss carryforwards and minimum tax credits.
If in the future we utilize the attributes and resolve the uncertainty in our favor, the full amount will favorably impact our
effective income tax rate.
The
company considers the U.S. and Arizona to be major tax jurisdictions. As of December 31, 2016, for federal tax purposes the tax
years 2013, 2014 and 2015 and for Arizona the tax years 2013 through 2016 remain open to examination. The company currently does
not expect any material changes to unrecognized tax positions within the next twelve months.
We
recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2016 and 2015,
we had no accrued interest or penalties related to our unrecognized tax benefits.
NOTE
7 – SUBSEQUENT EVENTS
The
company’s management has evaluated subsequent events occurring after December 31, 2016, the date of our most recent balance
sheet, through the date our financial statements were issued.
In
March 2017, the company issued 2,500,000 shares of common stock in exchange for $62,500 received from five individuals.
APPLIED
ENERGETICS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
In
March 2017, the company granted each member of the Scientific Advisory Board options to purchase 2 million shares of $.001 par
value common stock at a price of $0.05 per share. These options have a five year term and vest to the extent of 500,000 shares
on the first anniversary of the grant and to the extent of 62,500 options per month during the 24 months following the initial
vesting date.
The
company also granted each member of the Scientific Advisory Board performance options to purchase 1.5 million shares of $0.001
par value common stock at a price of $0.25 per share. These options have a five year term and vest on the date the company has
cumulative revenues of $5 million.
PART
I. FINANCIAL INFORMATION
ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APPLIED
ENERGETICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,571
|
|
|
$
|
680
|
|
Other assets
|
|
|
312
|
|
|
|
312
|
|
Total current assets
|
|
|
12,883
|
|
|
|
992
|
|
TOTAL ASSETS
|
|
$
|
12,883
|
|
|
$
|
992
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
83,853
|
|
|
$
|
66,986
|
|
Accrued compensation
|
|
|
212,734
|
|
|
|
108,333
|
|
Accrued officer compensation
|
|
|
195,500
|
|
|
|
125,500
|
|
Accrued dividends
|
|
|
48,079
|
|
|
|
48,080
|
|
Total current liabilities
|
|
|
540,166
|
|
|
|
348,899
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
540,166
|
|
|
|
348,899
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ (deficit)
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, $.001 par
value, 2,000,000 shares authorized;13,602 shares issued and outstanding at June 30, 2017 and at December 31, 2016
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 500,000,000 shares
authorized; 157,785,520 and 154,785,520 shares issued and outstanding at June 30, 2017 and at December 31, 2016, respectively
|
|
|
157,785
|
|
|
|
154,785
|
|
Additional paid-in capital
|
|
|
79,280,537
|
|
|
|
79,179,432
|
|
Accumulated deficit
|
|
|
(79,965,619
|
)
|
|
|
(79,682,138
|
)
|
Total stockholders’ (deficit)
|
|
|
(527,283
|
)
|
|
|
(347,907
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
$
|
12,883
|
|
|
$
|
992
|
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
APPLIED
ENERGETICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the three months ended
June 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
166,417
|
|
|
$
|
100,227
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
166,417
|
|
|
|
100,227
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(166,417
|
)
|
|
|
(100,227
|
)
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
—
|
|
|
|
8
|
|
Total
other income
|
|
|
—
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(166,417
|
)
|
|
|
(100,219
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(8,501
|
)
|
|
|
(8,501
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(174,918
|
)
|
|
$
|
(108,720
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding, basic and diluted
|
|
|
157,752,553
|
|
|
|
154,785,520
|
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
APPLIED
ENERGETICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the six months ended
June 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
283,481
|
|
|
$
|
250,971
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
283,481
|
|
|
|
250,971
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(283,481
|
)
|
|
|
(250,971
|
)
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
—
|
|
|
|
2,543
|
|
Interest
income
|
|
|
—
|
|
|
|
28
|
|
Total
other income
|
|
|
—
|
|
|
|
2,571
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(283,481
|
)
|
|
|
(248,400
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
(17,003
|
)
|
|
|
(25,504
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(300,484
|
)
|
|
$
|
(273,904
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding, basic and diluted
|
|
|
155,288,282
|
|
|
|
94,637,169
|
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
APPLIED
ENERGETICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(283,481
|
)
|
|
$
|
(248,400
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Non-cash
stock based compensation expense
|
|
|
41,605
|
|
|
|
63,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses, deposits and other assets
|
|
|
—
|
|
|
|
(7,681
|
)
|
Accounts
payable
|
|
|
16,867
|
|
|
|
3,889
|
|
Accrued
compensation
|
|
|
174,400
|
|
|
|
85,513
|
|
Net
cash used in operating activities
|
|
|
(50,609
|
)
|
|
|
(103,679
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
—
|
|
|
|
—
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
62,500
|
|
|
|
—
|
|
Net
cash provided by financing activities
|
|
|
62,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
11,891
|
|
|
|
(103,679
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
680
|
|
|
|
136,840
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
12,571
|
|
|
$
|
33,161
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
paid for interest and taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See
accompanying notes to condensed consolidated financial statements (unaudited).
APPLIED
ENERGETICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2017
(Unaudited)
The
accompanying interim unaudited condensed consolidated financial statements include the accounts of Applied Energetics, Inc. and
its wholly owned subsidiary North Star Power Engineering, Inc. as of June 30, 2017 (collectively, “company,” “Applied
Energetics,” “we,” “our” or “us”). All intercompany balances and transactions have been
eliminated. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation
of the results for the interim periods presented have been made. The results for the three-month and six-month periods ended June
30, 2017, may not be indicative of the results for the entire year. 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.
LIQUIDITY
AND MANAGEMENT’S PLAN
The
accompanying unaudited 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, 2017, the company incurred
a net loss of approximately $283,000, had negative cash flows from operations of approximately $51,000 and expects to incur additional
future losses due to the reactivation of its business activities. These matters raise substantial doubt as to the company’s
ability to continue as a going concern unless the company is able to obtain additional financing for its continuing operations.
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.
As
of June 30, 2017, the company had approximately $13,000 in cash and cash equivalents.
USE
OF ESTIMATES
The
preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”)
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 estimates 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 relevant 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 materially impact the amounts reported and disclosed herein. Significant estimates
include measurements of income tax assets and liabilities.
RECENT
ACCOUNTING PRONOUNCEMENTS
The
company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The company does not
expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
APPLIED
ENERGETICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2017
(Unaudited)
|
2.
|
SHARE-BASED
COMPENSATION
|
Share-Based
Compensation – Contractors
For
the six months ended June 30, 2017 and 2016, share-based compensation expense totaled approximately $42,000 and $63,000, respectively.
There
was no related income tax benefit recognized because our deferred tax assets are fully offset by a valuation allowance.
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:
|
|
Six
months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Expected
life (years)
|
|
|
5
|
|
|
|
—
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
—
|
|
Expected
volatility
|
|
|
80
|
%
|
|
|
—
|
|
Risk
free interest rates
|
|
|
1.97
|
%
|
|
|
—
|
|
Weighted average
fair value of options at grant date
|
|
$
|
0.02980
|
|
|
|
—
|
|
During
the six months ended June 30, 2017 the company granted each member of the Scientific Advisory Board options to purchase 2 million
shares of $.001 par value common stock at a price of $0.05 per share. These options have a five year term and vest to the extent
of 500,000 shares on the first anniversary of the grant and to the extent of 62,500 options per month during the 24 months following
the initial vesting date.
During
the six months ended June 30, 2017 the company also granted each member of the Scientific Advisory Board performance options to
purchase 1.5 million shares of $0.001 par value common stock at a price of $0.25 per share. These options have a five year term
and vest on the date the company has cumulative revenues of $5 million.
For
the six months ended June 30, 2017, 14,000,000 options to purchase stock were granted, additionally, no options to purchase stock
were exercised, expired or forfeited; no restricted stock units were granted, vested or forfeited; and no restricted stock awards
were granted, vested or forfeited. At June 30, 2017, options to purchase 14,000,000 shares of common stock were outstanding with
a weighted average exercise price of $0.136 with a weighted average remaining contract term of 4.9 years with an aggregate intrinsic
value of $-0-. At June 30, 2017 no options were exercisable.
As
of June 30, 2017, there was approximately $144,000 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 four years.
Basic
net loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of
common shares outstanding during 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 convertible preferred stock, stock options, warrants and restricted stock units. Contingently issuable
shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent. Due to the
losses from continuing operations for the six months ended June 30, 2017 and 2016, basic and diluted loss per common share were
the same, as the effect of potentially dilutive securities would have been anti-dilutive.
APPLIED
ENERGETICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2017
(Unaudited)
Potentially
dilutive securities not included in the diluted loss per share calculation, due to net losses from continuing operations, were
as follows:
|
|
Six
months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Options to purchase common
shares
|
|
|
14,000,000
|
|
|
|
16,000
|
|
Convertible preferred
stock
|
|
|
39,673
|
|
|
|
36,839
|
|
Total potentially
dilutive securities
|
|
|
14,039,673
|
|
|
|
52,839
|
|
Dividends
on Preferred Stock are accrued when the amount and kind of the dividend is determined and are payable quarterly on the first day
of February, May, August and November, in cash or shares of common stock. The holders of shares of Series A Convertible Preferred
Stock are entitled to receive dividends at the initial rate of 6.5% of the liquidation preference per share (the “Initial
Dividend Rate”), payable, at the option of the corporation, in cash or shares of common stock or a combination of cash and
common stock. Upon the occurrence of the company's failure to pay dividends in the five business days following a dividend payment
date (a “Payment Default”), the dividend rate shall immediately and automatically increase to 7.5% of the liquidation
preference per share for as long as such Payment Default continues (or return to the Initial Dividend Rate at such time as such
Payment Default no longer continues), and 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.
As
of June 30, 2017, we had 13,602 shares of our 6.5% Series A Convertible Preferred Stock outstanding. The company has not paid
the dividends commencing with the quarterly dividend due August 1, 2013. Dividend arrearages as of June 30, 2017 was approximately
$136,000. Our Board of Directors suspended the declaration of the dividend, commencing with the dividend payable as of February
1, 2015 since we 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.
Our
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 the ten 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 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.
APPLIED
ENERGETICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2017
(Unaudited)
During
the six months ended June 30, 2017 the company issued 2,500,00 shares of its common stock for $62,500, or $0.025 per share through
subscription agreements with three investors. The company also issued 500,000 shares of common stock in April 2017, valued at
$10,000 or $0.02 per share, to a consultant for services.
On
August 4, 2017, the previously reported legal proceeding Three of the Company’s shareholders commenced an action entitled
Superius Securities Group, Inc.et. al. vs George Farley, et.al. (CA No. 2017-0024-VCMR) in the Court of Chancery of the state
of Delaware was dismissed.
We
may from time to time be involved in legal proceedings arising from the normal course of business.
The
company’s management has evaluated subsequent events occurring after June 30, 2017, the date of our most recent balance
sheet, through the date our financial statements were issued.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table shows the costs and expenses payable in connection with the offering and distribution of the securities being
registered.
|
|
Amount
|
|
SEC
registration fee
|
|
$
|
|
|
Accounting
fees and expenses
|
|
|
|
(1)
|
Printing
and engraving expenses
|
|
|
|
(1)
|
Legal
fees and expenses
|
|
|
|
(1)
|
Miscellaneous
fees
|
|
|
|
(1)
|
Transfer
Agent and Registrar Fees
|
|
|
|
(1)
|
|
|
|
|
|
Total
|
|
$
|
|
(1)
|
|
(1)
|
Fees
and expenses (other than the SEC registration fee to be paid upon the filing of this
registration statement) will depend on the number and nature of any offerings of securities
made pursuant to this registration statement, and cannot be estimated at this time. An
estimate of the aggregate expenses in connection with the distribution of securities
being offered will be included in any applicable prospectus supplement.
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Company’s Certificate of Incorporation and Bylaws provide for indemnification of officers and directors of the Company and
certain other persons to the full extent permitted by law, as now in effect or later amended, against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated conditions.
The
Company may maintain insurance for the benefit of its directors, officers, employees, agents and certain other persons, insuring
such persons against any expense, liability or loss, including liability under the securities laws. In addition, the Company has
entered into indemnification agreements with our directors and executive officers that require us to indemnify these persons for
claims made against each of these persons because he or she is, was or may be deemed to be a director, officer, employee or agent
of the Company or any of our subsidiaries. We are obligated to pay the expenses of these persons in connection with any claims
that are subject to the agreement.
Section
102 of the DGCL allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the DGCL or obtained an improper personal benefit.
Section
145 of the DGCL provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a director, officer, agent or employee of the corporation
or is or was serving at the corporation’s request as a director, officer, agent, or employee of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to
indemnify applies (1) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding, or
(2) if such person acted in good faith and in a manner he or she reasonably believed to be in the best interest, or not opposed
to the best interest, of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well,
but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually
and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation
that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance
of his or her duties to the corporation, unless the court believes that in the light of all the circumstances indemnification
should apply.
Section
174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when
the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions
to be entered in the books containing the minutes of the meetings of the board of directors at the time such action occurred or
immediately after such absent director receives notice of the unlawful acts.
Item
15. Recent Sales of Unregistered Securities:
During
the past three years, the Company has issued the following securities without registration. The shares were issued under Section
4(a)(2) of the Securities Act of 1933 as amended, as they were not issued in connection with a public offering.
In
March 2017, the company issued 2,500,000 shares of common stock in exchange for $62,500 received from five individuals. The company
also issued 500,000 shares of common stock in April 2017 to a consultant for services with a value of $10,000.
In
February, 2016, the Company issued 55 million shares to consultants and individuals in exchange for services with a value of $55,000:
10,000,000 shares to Stein Riso Mantel McDonough, LLP, 5,000,000 shares to Duft, Bornsen & Fettig LLP, 20,000,000 shares to
Stephen W McCahon and 20,000,000 shares to George P Farley. On March 25, 2016 Mr. Farley was granted 5,000,000 shares of common
stock under the 2007 Plan, additionally, two contractors were granted a total of 3,000,000 shares of common stock under the 2007
Plan.
Item
16. Exhibits and Financial Statement Schedules:
EXHIBIT
NUMBER
|
DESCRIPTION
|
2.1
|
Amended and Restated Plan and Agreement of Merger entered into as of March 17, 2004, by and among U.S. Home & Garden, Inc. (“USHG”), Ionatron Acquisition Corp., a wholly-owned subsidiary of USHG, Robert Kassel (for purposes of Sections 5.9, 6.2(d), 6.2(j), 9.4 and 10.10 only), Fred Heiden (for purposes of Section 9.4 only), and Ionatron, Inc. and Robert Howard, Stephen W. McCahon, Thomas C. Dearmin and Joseph C. Hayden (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on March 24, 2004).
|
3.1
|
Certificate
of Incorporation, as amended, (incorporated by reference to the comparable exhibit filed with the Registrant’s Form
10-KSB for the fiscal year ended June 30, 1995).
|
3.2
|
Certificate of Amendment of Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on April 29, 2004 (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-Q for the quarterly period ended March 31, 2004).
|
3.3
|
Certificate of Elimination of the 10% Series A Convertible Preferred Stock of the Registrant (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 8-K filed with the SEC on October 28, 2005).
|
3.4
|
Certificate
of Designation of the 6.5% Series A Redeemable Convertible Preferred Stock of the Registrant (incorporated by reference to
the comparable exhibit filed with the Registrant’s 8-K filed with the SEC on October 28, 2005).
|
3.5
|
Certificate
of Ownership and Merger of Applied Energetics, Inc. into Ionatron, Inc. (incorporated by reference to the comparable exhibit
filed with the Registrant’s Form 8-K filed with the SEC on February 20, 2008).
|
3.6
|
Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3 of the Registrant’s Form 10-Q for the Quarter ended June 30, 2007.
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation filed with the Secretary of State of the State of Delaware on September 10, 2007.
|
4.1
|
Form
of certificate evidencing Common Stock, $.001 par value, of the Registrant (incorporated by reference to Exhibit 4.1 of the
Registrant’s Registration Statement on Form S-1 (Registration No. 333-38483)).
|
5.1
|
Opinion and Consent of Counsel (previously filed)
|
10.1
|
2007
Stock Incentive Plan (as amended) (incorporated by reference to the comparable exhibit filed with the Registrant’s Form
10-K for the year ended December 31, 2007).
|
10.2
|
Applied
Energetics, Inc. consulting agreement with SVJ Enterprises LLC effective April 1, 2013 (incorporated by reference to the comparable
exhibit filed with the Registrant’s Form 8-K filed with the SEC on April 17, 2013)
|
21
|
Subsidiaries
(incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the year ended December
31, 2006)
|
23.1
|
Consent of RBSM LLP
|
99.1
|
Compensation
Committee Charter (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the
year ended December 31, 2010)
|
99.2
|
Corporate
Governance and Nominating Committee Charter (incorporated by reference to the comparable exhibit filed with the Registrant’s
Form 10-K for the year ended December 31, 2009)
|
99.3
|
Audit
Committee Charter (incorporated by reference to the comparable exhibit filed with the Registrant’s Form 10-K for the
year ended December 31, 2009
|
99.4
|
Recent Financing Form of Note
|
99.5
|
Recent
Financing Form of Warrant
|
Item
17. Undertakings.
|
(a)
|
The
undersigned registrant hereby undertakes:
|
|
1.
|
To
file, during any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
|
i.
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective registration statement;
iii.
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
|
2.
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
|
|
3.
|
To
remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
|
(b)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by
the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(c)
For the purpose of determining liability of the registrant under the Securities Act of 1933, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document immediately prior to such date of first use.
(d) (i) For purposes
of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(ii) For the purpose
of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized on the 22nd day of September 2017.
APPLIED
ENERGETICS, INC.
|
By
|
/s/
George P Farley
|
|
|
George
P Farley
|
|
|
Director,
Chief Executive Officer and Principal Financial Officer
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons
in the capacities and on the date indicated:
Signature
|
Title
|
Date
|
|
|
|
/s/
George P Farley
|
CEO,
Chairman and Director
|
September
22, 2017
|
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