UNITED STATES

 SECURITIES AND EXCHANGE
COMMISSION

 WASHINGTON, D.C. 20549

 FORM 10-K

 Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the fiscal year ended December
31, 2023

 Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the transition period
from __________ to __________

 Commission File Number 001-14015

 Applied Energetics,
Inc.

 (Exact Name of Registrant
as Specified in Its Charter)

 Delaware

 77-0262908

 (State or Other Jurisdiction of
 Incorporation or Organization)

 (IRS Employer
 Identification Number)

 Tucson, Arizona

 85747

 (Address of Principal Executive Offices)

 (Zip Code)

 Registrant's
telephone number, including area code: (520) 628-7415

 Securities registered
pursuant to Section 12(b) of the Exchange Act:

 Title of Each Class

 Trading Symbol

 Name of Each Exchange on Which Registered

 Common Stock, $.001 par value

 AERG

 OTCQB

 Securities registered
pursuant to Section 12(g) of the Exchange Act:

 None

 (Title of Class)

if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No

whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No

whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definition of "large accelerated filer", "accelerated filer", "smaller
reporting company" and "emerging growth company' in Rule 12b-2 of the Exchange Act:

 Large Accelerated Filer
 Accelerated Filer

 Non-Accelerated Filer
 Smaller reporting company

 Emerging growth company

 If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.

 If securities are registered
pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.

whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last reported
sales price at which the stock was sold on June 30, 2023 (the last day of the registrant's most recently completed second quarter)
was approximately $ 460,279,473.

 The number of outstanding
shares of the registrant's Common Stock, $.001 par value, as of March 25, 2024 was 211,362,688.

 APPLIED ENERGETICS,
INC.

 ANNUAL REPORT ON FORM

 FOR THE YEAR ENDED
DECEMBER 31, 2023

 Page
 No.

 PART I.

 Item 1.

 Business

 Item 1A.

 Risk
 Factors

 Item 1B.

 Unresolved
 Staff Comments

 Item 1C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal
 Proceedings

 Item 4.

 Mine
 Safety Disclosure

 PART II.

 Item 5.

 Market
 for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 [Reserved]

 Item 7.

 Management's
 Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A.

 Quantitative
 and Qualitative Disclosures About Market Risk

 Item 8.

 Financial
 Statements and Supplementary Data

 Item 9.

 Changes
 in and Disagreements with Accountants on Accounting and Financial Disclosures

 Item 9A.

 Controls
 and Procedures

 Item 9B.

 Other
 Information

 Item 9C.

 Disclosure
 regarding Foreign Jurisdictions that Prevent Inspections.

 PART III.

 Item 10.

 Directors,
 Executive Officers, and Corporate Governance

 Item 11.

 Executive
 Compensation

 Item 12.

 Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13.

 Certain
 Related Party Transactions and Director Independence

 Item 14.

 Principal
 Accountant Fees and Services

 PART IV.

 Item 15.

 Exhibits
 and Financial Statement Schedules

 Signatures:

 i

 ITEM 1. BUSINESS

 Cautionary Note Concerning Forward-Looking
Statements

 Certain
statements in this Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical
or current facts and can be identified by the use of forward-looking words such as "may," "believe," "will,"
"expect," "project," "anticipate," "estimates," "plans," "strategy,"
"target," "prospects" or "continue," and words of similar meaning. These forward-looking statements
are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results, performances or achievements expressed or implied by
such forward-looking statements. This Form 10-K contains important information as to risk factors under Item 1A. Although we believe
that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove incorrect over time. We
do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes
in other factors affecting such forward-looking statements.

 Available Information

Energetics, Inc. ("company," "Applied Energetics," "AE," "we," "our" or "us")
makes available free of charge on its website at www.appliedenergetics.com 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 Securities
Exchange Act of 1934, as amended, as soon as reasonably practical after electronically filing or furnishing such material to the Securities
and Exchange Commission ("SEC").

 This
report may be read or copied at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549 or at www.sec.gov.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

 General

Energetics, Inc. is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070
S. Rita Road, Suite 1500, Tucson, Arizona, 85747 and our telephone number is (520) 628-7415. Our website is located at www.appliedenergetics.com.

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

 Technology, Capabilities,
and Patents

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

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

Energetics has developed, successfully demonstrated and holds all crucial intellectual property rights to a dynamic directed energy technology
called Laser Guided Energy (LGE) and Laser Induced Plasma Channel (LIPC). LGE and LIPC are technologies
that can be used in a new generation of high-tech directed energy systems. Applied Energetics' LGE and LIPC technologies are wholly
owned by Applied Energetics and protected by one or more of Applied Energetics' 25 issued patents and 11 Government Sensitive Patent
Applications (GSPA). These GSPA's are held under secrecy orders of the US government, providing the company with extended protection
rights. The company also has nine pending patent applications. We continue to file patent applications as we deem appropriate to protect
our intellectual property and enhance our competitive advantage.

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

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

 Our
proprietary USP laser technology provides a significantly more compact solution than current continuous wave laser platforms while still
delivering high peak power. Continuous wave laser systems are typically used to heat a target and, during continuous illumination, this
heat transfer leads to melting or charring of the material. Using continuous wave output powers that now exceed 100 kilowatts (1kW =
1000 watts), it can take anywhere from seconds to minutes to impact a target. By contrast, Applied Energetics has delivered USP lasers
to national security users that exceed five terawatts (1 TW = 1 trillion watts) in peak power, with the difference being that this peak
power from a USP laser is delivered in a pulse that is less than a trillionth of a second. During this short pulse duration, and having
such a high peak intensity, near-instantaneous ablation of the surface of the threat takes place. The net results of our innovative USP
approaches are highly effective lasers with mountable footprints that require only a fraction of the size and weight of other-directed
energy technologies.

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

 Recent Developments

March 12, 2024, the grant previously awarded to Applied Energetics, Inc. from a U.S. Department of Defense customer has been transitioned
into a contract. The original grant had a two-year period of performance. The new contract supersedes the May 2022 grant and carries a
ceiling value of $1,217,535 under a base period of performance through November 11, 2024 and a 12-month unfunded option period that ends
November 11, 2025. The company intends to provide additional information in a Current Report on Form 8-K upon approval from the government
agency.

 On
March 5, 2024, Applied Energetics entered into an Employment Agreement with James Harrison, PhD, pursuant to which Dr. Harrison is
to serve as Director of New Product Innovation, commencing on April 3, 2024. In this new role, Dr. Harrison's responsibilities
are to include setting a vision and strategy that supports and accelerates the entire development lifecycle of optical and laser
products, from conceptualization to commercialization. His work is to involve collaboration with leaders across business
development, operations, and scientific to drive the company's strategic goal of providing cutting-edge laser and optical
products to national security and commercial customers. For his services, the company has agreed to pay Dr. Harrison a cash salary
of $200,000 per year.

 Dr.
Harrison is an experienced professional in the area of laser sources including design, manufacturing, program management and business
development, with an emphasis on semiconductor and solid-state lasers. With more than 30 years of experience in opto-electronic sources,
Dr. Harrison has demonstrated experience designing, building and scaling products that drive business growth and deliver customers innovative
new technologies. He has held global leadership positions in engineering and research and development with tier-1 suppliers of photonics
devices, where his responsibilities included providing substantial support for volume manufacturing of semiconductor lasers and packaged
sources.

February 11, 2024, Applied Energetics entered into a Memorandum of Understanding (MOU) with BluGlass Limited, a global supplier of gallium
nitride (GaN) lasers to the national security, quantum and manufacturing industries, to collaborate and explore joint business opportunities
that advance Applied Energetics' laser and optical systems innovations and BluGlass's expertise in GaN-based laser diode technologies.

 Any
resultant new laser capabilities and optical systems will be based on existing and emerging technologies currently under development within
the companies. Under the MoU, the companies intend to collaborate to develop innovative solutions in technology areas critical to emerging
national security and commercial markets, including new laser wavelengths and higher performance, yielding more efficient and cost-effective
products. The MOU sets out the framework for collaboration, however, it is not a definitive agreement with commercial terms and timelines.

August 23, 2023, Applied Energetics executed a contract with the Department of the Navy, Office of Naval Research with an aggregate contract
price of $1.99 million payable over two years as the company performs its obligations under the contract. The objective of the contract
is to develop a high-peak and high-average power USP optical system. The system is expected to demonstrate effects compatible with multiple
Navy platforms and missions with an attractive size, weight, and power-cooling footprint. The company's continuing development
efforts in collaboration with ONR signify the importance of sustained development and maturation of USP-based directed energy systems
to support the Navy's technological priorities.

May 15, 2023, Applied Energetics executed a Phase II Small Business Technology Transfer (STTR) contract with the U.S. Army at an
aggregate contract price of $1.148 million payable over two years as the company performs its obligations thereunder, with the first
year currently funded. The objective of this Phase II award is to further the development and testing of an IR laser system
utilizing technologies that were investigated under the US Army Phase I STTR contract which the company was awarded in May 2022.
This Phase II contract award follows a successful Phase I which established a computational concept with physical modeling and
simulation to establish the feasibility of an IR laser system. Phase I was performed in collaboration with the James C. Wyant
College of Optical Sciences at the University of Arizona. The company has continued its work under the contract, and provided all
required reports, since its execution.

 In
May 2022, the Department of the Navy, Office of Naval Research (ONR) awarded Applied Energetics a $3.89 million, two-year grant, to develop
an optical system capable of defeating customer-specified threats for integration onto U.S. Marine Corps (USMC) platforms. We were awarded
this grant to accelerate the development and testing of Infrared (IR) optical technology with an ultrashort pulse laser (USPL) system.
The overall objective is to advance and ruggedize optical technologies that can be fielded on a variety of USMC platforms and are able
to operate in harsh conditions. Research under this grant has been completed and all progress reported to the program manager.

June 7, 2023, the company entered into the First Amendment to Lease Agreement, which amended its existing Lease Agreement over its headquarters
at the University of Arizona Tech Park. The amendment has expanded the Lease to add new 8,374 usable square-foot suite of offices, conference
rooms and cubicle areas directly across an atrium from the company's current headquarters so that the company will occupy the entire
first floor of the building. This has enabled the company to separate its public-facing facilities from its restricted access space easily.
The amendment also extended the Lease over the company's existing headquarters through July 31, 2028, and grants the company an
option over 5,520 usable square feet of manufacturing space. The company moved its administrative offices into the new space in August
2023.

 Ongoing Business
Development Activities

 Over
the past few years, we have submitted multiple proposals to, and attended briefings with, various defense and other government agencies
who have expressed an interest in our technology and applications. We believe that our efforts in this area of development have begun
to produce results. In addition to the contracts which we have been awarded, our team has been invited to, and completed, multiple
briefings focused on our capabilities and submissions. We intend to continue developing and submitting proposals and to be available
to attend on-site briefings. We have also engaged in discussions with private entities and academic institutions with the objective of possibly
collaborating on one or more projects. Some of these could result in further customer agreements or other opportunities to grow our business.

Energetics has recently been involved with the Tulsa Innovation Labs (TIL) and Oklahoma State University (OSU) in defining opportunities
to participate in the US Department of Commerce, Economic Development Administration (EDA) Tech Hubs program request for proposals. Tech
Hubs was authorized by the bipartisan CHIPS and Science Act, a key part of President Biden's Investing in America agenda, which
he signed into law in August 2022. In August of 2023, Applied Energetics was a founding consortium member of the Tech Hub proposal submitted
under the title of Tulsa Hub for Equitable and Trustworthy Autonomy (THETA). On October 23, 2023, the US EDA named the THETA Tech Hub
as part of the historic $500 million investment in economic competitiveness and national security. This designation makes the THETA consortium
eligible for $70 million or more in federal funding to accelerate the advanced development of autonomous technologies. The submitted
papers specify that THETA will emphasize the development of UAS and counter-UAS (CUAS), artificial intelligence (AI), and cybersecurity
technologies. As such, Applied Energetics anticipates working closely with the Unmanned Systems Research Institute (USRI) and the Oklahoma
Aerospace Institute for Research and Education (OAIRE), both at Oklahoma State University, to partner on the UAS and counter-UAS technology
research supporting the THETA TechHub. The completed Phase 2 proposal was submitted to the EDA on February
29, 2024 requesting funding for implementation projects to help propel the region into a self-sustaining, globally competitive TechHub.

 For fiscal year 2024, which started on October 1, 2023, the National Defense Authorization Act (NDAA) was delayed
and finally approved on December 22, 2023 (HR 2670), but the Defense Appropriations bill was not approved at that time. The
NDAA sets defense spending policies, and the appropriations bills fund government spending. This impacts all proposals under review by
the Department of Defense. On September 30, 2023, President Biden signed a Continuing Resolution (CR), HR 5860, which extended the government
operations through November 17, 2023, and he then signed three further CRs, including HR 6363 on November 11, 2023 extending through January
19, 2024, HR 2872 extending through March 1, 2024, and HR 7463, extending through March 8, 2024, as to four of the 12 annual budget bills,
and through March 22, 2024 for the remaining eight. On March 23, 2024, the Defense Appropriations Bill was passed and signed by President
Biden which will ensure the US government is funded through September 30, 2024 and that new government contracts can be funded during
the 2024 fiscal year.

 Strategic Plan and
Analysis

 The
core of our strategy has been to continue growing our management and science teams with highly qualified individuals. This has driven
our recruitment efforts in the areas of R&D, science, modeling and simulation, marketing and finance. We are also contemplating adding
members to our Board of Directors and our Board of Advisors. Our board and leadership team have worked to align key innovations with
our roadmap to encourage and enable internal filing for a broad, strategic, and robust intellectual property portfolio and continue surveying
the literature for acquisitions of parallel intellectual property to that end. We also intend to pursue strategic corporate acquisitions
in related fields and technology. The company's management continues to explore any favorable equity financing opportunities.

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

 We
have continued to execute our business development plans, further our research and development program and submit filings for intellectual
property and proposals for grants and contracts. During the past several years, we continued to submit proposals and have been engaged
in meetings on a continuous basis with various agencies and departments both remotely and in person in Washington, DC and at various
other government facilities. Having received a significant research grant and several contracts during the past two fiscal years, we
believe the interest in our technology and applications remains high, and we continue to submit proposals for all appropriate opportunities
and share our vision of the disruptive capabilities of USP optical sources for both near- and far-term threats and dual-use commercial
applications.

 Through
our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive
and interested in directed energy technologies. According to the US Department of Defense fiscal budgets from 2017 through 2023, its
directed energy spending grew from approximately $500 million in 2017 to over $1.695 billion in 2023, an increase of nearly 240%. Market
analysis and projections have estimated that this directed energy sector is anticipated to reach $17.8 billion globally by 2028. We continue
to be optimistic about our future and the growing opportunities in directed energy applications, especially since this growth to nearly
$1.7 B annually is being accomplished without a recognized Program of Record (POR) for directed energy platforms. We believe that once
these technologies are funded in production for a POR, or are approved to be integrated on fielded platforms in volumes to effect threat
reduction, these DOD budgets for directed energy will grow exponentially larger to support the technology insertion. The Applied Energetics
team anticipates a continuation of strong funding for the directed energy community. With our existing patent portfolio, and through
further advancements of our technologies, we believe we have the substantial building blocks needed to become a significant and successful
developer in the USP marketplace.

 Our
research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics
and other supplies. A significant, prolonged increase in inflation could negatively impact the cost of materials and components, which
could be a particular problem with respect to our fixed fee contracts. Within the current geopolitical context, there are ongoing embargos
of exports from some global suppliers of various materials that are used in electronics and some diode and laser materials, which can
have negative effects on technology supply chains. We continuously monitor potential supply chain issues and supplier liquidity and work
with our supply base to ensure adequate sources of materials at reasonable costs. In some instances, we depend upon a single source of
supply, but we are developing multiple sources, both internal to AE and externally where possible to mitigate the risk. In some cases,
we must comply with specific procurement requirements, which can limit the suppliers and subcontractors we may utilize.

 Market for Our Technology

 Directed Energy Systems

 Directed
energy systems involve the use of highly focused energy such as lasers or microwaves to incapacitate, damage, or destroy enemy
equipment, facilities, and assets. Previous to LGE, the only two viable directed energy systems were High Energy Laser (HEL), which
uses heat to burn targets and High Power Microwave (HPM) systems, that use electromagnetic energy at specific microwave and radio
frequencies to disable electronic systems.

 HEL
and HPM directed energy technologies have been under development for decades with numerous DoD and other government contractors
participating. The unique attributes of directed energy 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 or uncrewed
aerial drones, 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 competition could allow an adversary to impose costs on U.S. forces by compelling
them to intercept each incoming missile or drone with far more expensive kinetic munitions. The DoD has made technological advances
in both performance and maturity as a result of many years of research with multiple threat-intercept technologies and has been
directed by Congress, in fiscal year 2022 and, again, in fiscal 2023, to increase funding and evaluation of pulsed laser technology
in future directed energy platforms.

Energetics utilizes patented, dual-use technologies to advance critical industries. Leveraging our proprietary fiber-based architecture
and wavelength- and pulse-agility capability, our ultrashort pulse technology enables users to achieve specific effects across different
use cases, with an unmatched blend of size, weight and power attributes. While initially designed to meet the emerging needs and priorities
for the national security community, Applied Energetics' directed energy technology also has commercial applications in both the
biomedical and advanced manufacturing industries.

 Fiber-Based Laser
Architecture

Energetics' proprietary fiber-based architecture is a key differentiator for our technology. Compared with traditional continuous
wave technology with larger footprints, AE's architecture enables orders of magnitude size-weight-power reductions on all deliverables,
creating powerful, dual-use and agile systems that can fit a host of platforms while delivering very high intensity, ultrashort pulses
of light to the required target. Using this unique architecture as a laser source for an integrated system can enable Applied Energetics
to develop, integrate and deliver a suite of technologies that best meet the needs and requirements of its customers.

 Wavelength- and Pulse-Agility

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

 Competition

 AE's
Ultrashort Pulse sources, including proprietary LIPC based LGE technology, are unique and can be integrated onto platforms
being developed for use by the U.S. Government. Over the past several years, a relatively small number of major defense contractors have
received significant funding for directed energy systems development, manufacturing and integration, using continuous wave, high energy
laser and microwave technologies. These contractors specialize in different directed energy system platforms to respond to a variety
of threats. Applied Energetics believes that its pulsed laser systems can be a part of a layered defense solution alongside these other
technologies. Although AE competes against other directed energy systems for funding, the uniqueness of our technologies should continue
to support their development into weapon platform programs. AE believes that there is renewed U.S. Government interest in directed energy
applications and believes that continued development of its USP capabilities and growing interest from all branches of the U.S. armed
forces and other government agencies will lead to increases in government spending on directed energy in the coming years. Likewise,
there are multiple new threats that must be addressed with unique and emerging technologies, and AE is working diligently to rapidly
advance development, demonstration, testing and engineering of the Advanced Ultrashort Pulse lasers throughout the spectrum from the
ultraviolet to the far infrared. We believe that USP technologies can rapidly accelerate in magnitude, as a percentage of the federal
budget, compared with other technologies over the next several years.

 AE's
primary direct USP optical source competition are corporations and contractors supported by foreign governments who may be
attempting to develop similar technologies. AE believes that such foreign activity will create additional U.S. Government funding
for both USP sources and LGE in order to maintain our country's lead in pulsed directed-energy systems. Other companies with
directed energy capabilities, albeit in continuous wave, microwave and other areas within directed energy, are Raytheon
Technologies, Lockheed Martin, Northrop Grumman, Boeing, BAE Systems, nLight, General Atomics, DRS Daylight Solutions and L3Harris
Technologies. Although based on different types of directed energy, we may compete with these companies to provide solutions to
problems presented by potential customers.

 Some
of AE's biggest commercial competitors are Trumpf (German), Coherent (US), Thales (France). IPG (US), RAFAEL Advanced Defense
Systems Ltd. (Israel), and Light Conversion (Lithuania), most of which are billion-dollar market class companies that have
substantially more resources than AE.

 Employees

 As
of March 12, 2024, we had sixteen employees, with an additional employee scheduled to start work on April 3, 2024, and we retain another
six full- and part-time consultants.

 Supplies and Raw
Materials

 We
depend upon the availability of materials and major electro-optical components as well as the performance and reliability of our
suppliers. Some of our products require relatively scarce fabricated materials. Prior to the Covid-19 pandemic and resulting global
supply chain disruptions, we generally had not experienced significant difficulties in procuring these necessary materials,
components and other supplies for our products. However, during and following the pandemic, we experienced some difficulty obtaining
supplies and materials when we needed them and at acceptable prices. The global supply chain continues to struggle toward normalcy
although it has improved in recent months. Our inability to procure the necessary optical and fabricated materials, components,
electronics and other supplies for our products could negatively affect our results of operations, financial condition and
liquidity. In addition, significant, prolonged inflation could negatively impact the cost of materials and components. We continue
to believe that conflicts overseas and related national security requirements, which limit the companies through which we can source
components, pose a significant risk.

 In addition, our size coupled with our need for advanced, specialized
components poses challenges in getting suppliers to prioritize our orders. We currently seek to procure certain specialized materials
in relatively low volume which sometimes can lead to delays as we compete with larger volume customers for availability of these materials.
Alternatively, as we execute our business plan, higher volume purchases, particularly of customized components, may result in longer lead
times and pose other difficulties due to these and other supply constraints.

 We
continuously monitor potential supply chain issues and work with our suppliers to mitigate delays in our receipt of necessary materials,
components and other supplies, and reduce costs, particularly in light of the supply chain issues outlined above. We also monitor supplier
liquidity and work continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions
through a number of mechanisms, including consolidating or re-sourcing our purchases, entering long-term agreements, reducing the number
of suppliers, strategic global sourcing and competition among suppliers, and the opportunity to develop and deliver scarce components
that have few contracts or suppliers. In some instances, we depend upon a single source of supply, but we are striving to develop multiple
sources to mitigate the risk. In some cases, we must comply with specific procurement and compliance requirements, which may limit the
suppliers and subcontractors we may utilize.

 Regulatory Matters

 Our
business is subject to extensive regulation in the industries we serve. We market our technology to numerous U.S. government agencies
and entities, including but not limited to all branches of the U.S. Department of Defense (DoD) and the Department of Homeland Security.

 The
U.S. government represents all of our current revenues and likely a substantial portion of any projected revenues for the foreseeable
future. U.S. government contracts are subject to termination by the government, either for convenience or for default in the event of
our failure to perform under the applicable contract. In the case of a termination for convenience, we would normally be entitled to
reimbursement for our allowable costs incurred, termination costs and a reasonable profit. If terminated by the government as a result
of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs
in acquiring undelivered goods or services from another source and any other damages it suffers.

 U.S.
government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements
for the acquisition of goods and services by the U.S. government. Defense contracts are additionally subject to the Defense Federal Acquisition
Regulation Supplement (DFARS). Other applicable laws and regulations apply as well. These regulations impose a broad range of requirements,
many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and
cost, contract termination and adjustment, audit and product integrity requirements. Failure to comply with these regulations and requirements
could result in reductions to the value of contracts, contract modifications or termination, cash withholding on contract payments, forfeiture
of profits, and/or the assessment of civil or criminal penalties and fines and could lead to cause-based suspension or debarment from
U.S. government contracting or subcontracting for a period of time.

 ITEM 1A. 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 registered public accounting firm has 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 registered public accounting firm stated that our financial statements
for the year ended December 31, 2023 were prepared assuming that we would continue as a going concern, and that they have substantial
doubt as to our ability to continue as a going concern. Our auditors have noted that our recurring losses and negative cash flow from
operations and the concern that we may incur additional losses due to the reduction in government contract activity raise substantial
doubt about our ability to continue as a going concern.

 Our
business has generated only limited revenues during the past two fiscal years, after having no revenue during fiscal 2021, and had a
net operating loss during each periods.

 For
the fiscal years ended December 31, 2023 and 2022, we had revenues of $2,631,443 and $1,307,757, respectively, and we had net losses
of $7,350,435 and $5,771,642, 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.

 We
may need additional financing to fund our operations going forward. If we are unable to obtain additional financing on acceptable terms,
we may need to modify or curtail our development plans and operations.

 As
of December 31, 2023, we had $1,319,526 in available cash and cash equivalents and working capital of $ 1,108,274. We are conducting
 a small, private bridge financing to cover certain short-term expenses and believe
our cash position is sufficient for the next several months, but we may need to raise additional capital in order to fund our operations
beyond that. We must allocate funds toward SEC compliance as well as Defense Contract Audit Agency (DCAA), International Traffic in Arms
Regulations (ITAR) and other federal regulatory compliance. We also need funds for general and administrative expenses, including salaries,
benefits, supplies and equipment, lease expense on our headquarters, accounting, legal, and other professional fees and other miscellaneous
expenses. Our failure to secure sufficient financing could render us unable to fund these necessary costs and expenses. We also may require
additional funding for research and development before we are able to commercialize our technology. During the 2023 fiscal year, nearly
all of the funds for our research and development came from government grant/contract awards, and we did not engage in any additional
capital raising activities. We may secure additional government contracts or sub-contracts with larger contractors to fund additional
research and development. However, we may need to raise additional capital to supplement these contracts even if we are able to secure
them.

 Our
operating plans and capital requirements are subject to change based on how we determine to proceed with respect to development programs
and if we pursue any strategic alternatives. We may seek to raise additional funds through the issuance of equity securities, but such
financing may not be available on terms acceptable to us if at all. Any equity financing would cause the percentage ownership by our
current stockholders to be diluted, and such dilution may be substantial. Also, any additional equity securities issued may have rights,
preferences or privileges senior to those of existing stockholders. If such financing is not available when required or is not available
on acceptable terms, we may be required to modify or curtail our operations, which could cause investors to lose the entire amount of
their investment.

 Risk Related to Our
Industry and Business Activities

 Economic,
geopolitical and other factors beyond our control can affect our business.

 Our
business, operating results, financial condition and liquidity may be adversely affected by changes in global economic conditions and
geopolitical risks, including the inflationary environment in the United States and internationally, commodity prices, supply chain challenges,
exchange rates, potential changes in policy positions or priorities, levels of government spending and deficits, the availability and
cost of labor, the threat environment, trade policies, political conditions, national or international crises, including recurring global health
emergencies such as occurred with the COVID-19 pandemic, and other challenges that could affect the global economy,
the demand for our technology and our ability to source materials and equipment. In recent years, inflationary pressures have increased
labor and material costs at a higher rate higher than in prior years. Due to the nature of our government business, and the customer
and supplier contracts within those businesses, we may not be able to increase our contract value or pricing to offset these cost increases,
particularly with grants or fixed price contracts. This could adversely affect our operating profits and margins particularly if the
increased inflation continues. Similarly, increases in interest rates from recent historical lows in the U.S. and internationally could
negatively impact financial markets and tighten the availability of, and increase our cost of, capital, which could have an adverse effect
on our operating results, financial condition and liquidity. Tightening of credit in financial markets also could adversely affect the
ability of our customers and suppliers to obtain financing for significant purchases and operations. Similarly, such tightening of credit
may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or
bankruptcy. In addition, geopolitical and security risks could affect government priorities, budgets and policies, which could impact
sales of defense and other products and services.

 Changes
in US government spending could negatively affect our business.

 Substantially
all of our current and planned near-term revenues are or may be from US government contracts and grants awarded under various programs,
primarily with the Department of Defense (DoD), and, possibly, with intelligence, national security and other departments and agencies.
Changes in US government spending for various reasons, including as a result of potential changes in policy positions or priorities,
could negatively impact our results of operations, financial condition and liquidity. Our programs are subject to US government policies,
budget decisions and appropriation processes which are driven by macroeconomic and geopolitical factors as well as Congress's ability
to enact, and the administration's willingness to execute, appropriations bills and other legislation. In recent years, the US
government has been unable to complete its budget process before the end of its fiscal year, resulting in government shutdowns and Continuing
Resolutions emergency funding only at prior-year levels. In addition, failure to raise the debt ceiling could cause the U.S. government
to default on debts which it has already incurred. U.S. government spending levels and available program funding are thus hard to estimate
in the medium- and long-term. Significant changes in U.S. government spending or changes in U.S. government priorities, policies and
requirements could have a material adverse effect on our results of operations, financial condition and liquidity.

 We
face risks relating to performance of our US government contracts and our ability to secure additional contracts and/or grants.

 Our
success depends on our ability to complete timely and satisfactory performance on our existing customer projects and to secure additional
grants and contracts. Performance delays, cost overruns, technology failures, materials or components shortages, or contract delays,
could negatively impact our business prospects, results of operations, financial condition and liquidity. U.S. government contracts generally
permit the government to terminate the contract, in whole or in part, without prior notice, at the U.S. government's convenience
or for default based on performance. Correspondingly, subcontracts which we may seek to enter with prime government contractors, may
be terminable by the prime contractor upon government termination of the prime contract. We may be unable secure additional contracts
to offset any revenues lost as a result of the termination of any such contracts.

 Because
the funding of U.S. government programs is subject to congressional appropriations made on a fiscal year basis even for multi-year programs,
programs are often only partially funded initially and may not continue to be funded in future years. Appropriations bills may be delayed,
which may result in delays to funding, the collection of receivables and our contract performance due to lack of authorized funds to
procure related products and services. Under certain circumstances, we may use our own funds to meet our customers' delivery dates
or other requirements, and we may not be reimbursed. If appropriations for programs are reduced or delayed, the U.S. government may terminate
any contract or subcontract under that program.

 The
growth of our business depends on the development, application and manufacture of advanced technology and products aimed at achieving
challenging goals. New technologies may be untested or unproven and, in some instances, product requirements or specifications need to
be developed. This could result in performance difficulties, delays, cost overruns or failures which could require additional resources
to address. Any failure to execute timely and effectively on our current programs could hamper future contracting opportunities. We may
also need to invest in internal research and development projects in order to achieve certain grants or contracts, as our customers may
demand proven concepts and solutions. These expenditures may not pay off if we are not awarded the intended grants or contracts.

 Under
certain types of government contracts, if we are unable to control costs or if our initial cost estimates are incorrect, our profitability
could be negatively affected, particularly under fixed-price development contracts. We may also experience cost underruns which would
reduce contract value and related expected revenues, and we may be unable to expand the contract scope or secure additional work to offset
the resulting lost revenues. Contracts for development programs with complex design and technical challenges may be cost reimbursable.
However, if they are firm fixed price or fixed price incentive contracts, such challenges and unexpected cost increases may impact our
results of operations. US government contracts also require compliance with extensive and evolving procurement and other rules and regulations
and subject us to potential audits, investigations, and disputes. We may also become involved in programs that are classified or otherwise
restricted by the US government, which place limits on our ability to discuss our performance on these programs, including any risks,
disputes and claims.

 We
may be unable to protect our intellectual property rights adequately, which could affect our ability to sustain the value of such assets.

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

 We
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.

 Security breaches, cyber-attacks,
or other disruptions or incidents could expose us to liability and severely damage our operations and business development efforts.

 We depend heavily on information
technology systems and infrastructure for our business. We, our collaborators and our service providers collect, store, and transmit
sensitive information including intellectual property, proprietary business information, and research results and related data, in connection
with our business operations. The secure maintenance of this information is critical to our operations and business strategy. Some of
this information could be an attractive target of criminal attacks by third parties with a wide range of motives and expertise, including
organized criminal groups, "hacktivists," disgruntled current or former employees, terrorist organizations, nation-state
and nation-state supported actors, and others. The level of sophistication of cyber threats continues to grow over time.

 We have cybersecurity systems
in place to protect our and our customers' proprietary information and sensitive data against the risk of inappropriate and unauthorized
external use and disclosure and other types of compromise. However, these measures may prove inadequate to detect, prevent or mitigate
security breaches and other incidents and we may be subject to data breaches through cyber-attacks, including ransomware, malicious code
(such as viruses and worms), phishing schemes, social engineering schemes, and theft or misuse of data from inside the company. Any such
breach could compromise our networks and the information stored there could be accessed, modified, destroyed, publicly disclosed, lost
or stolen. If our systems become compromised, we may be unable to discover the intrusion promptly enough to mitigate any damage.

 A cybersecurity breach or
other incident could cause our credibility to suffer with customers. Any investigation, response, or remediation of such a breach, would
result in costs in addition to possibly significant legal claims or proceedings, and possibly liability under our customer contracts.
Any one of these events could cause material harm to our business, results of operations and financial condition.

 Management
has broad discretion over the selection of our business and prospective 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.

 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. Our prospects for obtaining government contracts or significant commercial contracts depend upon our ability
to attract and retain qualified engineering, scientific and manufacturing personnel for our operations. Given intense competition, 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 much of our business involves technologies that are
or may be classified or otherwise restricted for 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 on-time and on-budget; and enter into
suitable arrangements for volume production of mature products.

 We
believe that, 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, deflection of resources from other projects or loss of contracts.

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

 We
heavily depend on key personnel, for the successful execution of our business plan. The loss of one or more key members of our management
team could have a material adverse effect on our business prospects.

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

 If
we are unable to hire additional qualified personnel, our business prospects may suffer.

 Our
success and achievement of our business plans depend upon our ability to recruit, hire, train and retain additional highly qualified
technical and managerial personnel. Competition for qualified employees among high technology companies is intense, and any inability
to attract, retain and motivate additional highly skilled employees required for the implementation of our business plans and activities
could strongly impact our business. Our inability to attract and retain the necessary technical and managerial personnel and scientific,
regulatory and other consultants and advisors could materially damage our business prospects, financial condition and results of operations.

 The
market for our technology has a limited number of potential customers.

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

 Risks Related to
Our Securities

 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, coupled with our status as a former shell
company, may cause a reduction in the trading activity of our common stock, and 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 and restrictions, 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 and other restrictions for the foreseeable future and our stockholders will, in all likelihood,
find it difficult to sell their shares of common stock.

 Because
we are a former shell company, our stockholders face restrictions on their reliance on rule 144 to sell their shares.

 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, shell companies, like AE. 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.

 We
expect that we will be able to meet all of these requirements in the future, but unknown future events and circumstances could change
that outcome. As a result, pursuant to rule 144, stockholders who receive our restricted securities in a private placement or a business
combination may not be able to sell our shares without registration for up to one year after we have completed the private placement
or business combination.

 We
currently maintain significant cash balances at a commercial bank which could exceed the FDIC insurance limits and do not always earn
a significant return.

 We
maintain a large percentage of our cash balances with Western Alliance Bank. At times, our bank balances exceed FDIC limits. As of December
31, 2023, $816,026 of our cash balance was uninsured. Significant portions of our cash balance earn little, if any, interest. We
continue to monitor our banking arrangement and have taken measures to diversify our cash holdings into interest bearing cash equivalents
and auxiliary cash accounts to maximize our insurance coverage.

 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 March 25, 2024, we had outstanding 211,362,688 shares of common stock. Approximately 100 million of our shares are currently
freely trading without restriction under the Securities Act of 1933, as amended. The remaining shares have been held by their
holders for over one year and are thus eligible for sale under Rule 144(k) of the Securities Act. Sale of these shares into the
market could depress our stock price. Provisions of our corporate charter documents could delay or prevent change of control.

 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 and the classification of our Board of Directors, could make it difficult for third
parties to gain control of our company, prevent or substantially delay a change in control, discourage bids for our common stock at a
premium, or otherwise adversely affect the market price of our common stock. Moreover, the holders of our outstanding Series A Preferred
Stock have a right to put their shares to the company for an amount equal to the liquidation preference of approximately $340,000 plus
unpaid dividends (approximately $363,000 as of December 31, 2023), 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 December 31, 2023, 13,602 shares were outstanding with
a liquidation preference of approximately $340,000 and unpaid dividends of approximately $363,000. As of March 1, 2024, the liquidation
preference of our outstanding preferred stock plus unpaid dividends thereon was approximately $703,000. 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. These terms may also make it more difficult for us to
sell equity securities or complete an acquisition.

 Any
issuance of additional securities in conjunction with a business or financing opportunity which will result in a dilution of present
stockholders' ownership.

 Our
certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock. As of March 25, 2024, we have approximately
211,362,688 shares issued and outstanding. If funding opportunities present themselves on favorable terms, we may issue additional shares
to fund our business or in connection with our pursuit of new business opportunities and new business operations. To the extent that additional
shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests. If we issue shares
of common stock in connection with our intent to pursue new business opportunities, a change in control of our company could occur. The
issuance of additional shares of common stock may also adversely affect the market price of our common stock, particularly given the historically
low trading volume in the market for our common stock.

 ITEM 1B. UNRESOLVED
STAFF COMMENTS

 None.

 ITEM 1C. CYBERSECURITY

 As
a company in general, and particularly, as a government contractor, we understand the critical need to maintain all data and information
systems in the safest, most secure manner. Accordingly, our approach to cybersecurity is multi-tiered and comprehensive. Our board of
directors ultimately oversees our processes for assessing, identifying and managing material risks from cybersecurity threats. Our management,
together with third party contractors, makes these assessments and periodically provides the board with a report and evaluation, including
risk mitigation strategies. This report would also include any cybersecurity related incidents which would give rise to a reporting requirement
for the company. Although we consider our program for mitigating cybersecurity risks to be part of an overall risk mitigation strategy,
we consider it a separate set of processes because of the unique concerns with keeping our and our customers' data secure.

 Our
Chief Executive Officer works with our information technology consultants (IT) to assess any reasonably foreseeable internal and external
risks to our information systems, including the likelihood of malware, ransomware, cyber espionage, and any other cybersecurity threats.
Through these risk assessments, management seeks to determine the likelihood of, and potential damage that could result from, such risks,
and the sufficiency of existing systems and safeguards in place to manage them. Our IT continually monitors our systems for any attempted
unauthorized entries or breaches and reports this information to management on a regular basis. Information gathered from these processes
enable our IT to make any necessary adjustments to our systems and address any identified gaps in existing safeguards.

 Our
IT also provides guidance and support with respect to protecting our information systems from these various threats. This includes advising
both management and other personnel on the best practices for keeping these systems safe and a training program that includes random
testing for weaknesses.

 Certain
customer contracts require that we maintain a heightened level of information security and set out specific protocols to which we must
adhere to safeguard covered data and other information. Our CEO, who has expertise in government contracting and related data and information
controls, assesses these requirements on behalf of the company in consultation with our IT to determine the necessary network architecture
and infrastructure for all of these requirements and ensures that proper protocols are implemented and that our personnel adhere to them.
This includes special, additional training for personnel on handling of various levels of customer information.

 We
have not encountered cybersecurity threats or incidents that have materially affected our business strategy, financial condition, or
operations. For additional information regarding risks from cybersecurity threats, please refer to Item 1A, "Risk Factors,"
in this annual report on Form 10-K.

 ITEM 2. PROPERTIES

March 15, 2021, we entered into a Lease Agreement with Campus Research Corporation, for approximately 13,000 rentable square feet of
office, laboratory and production space located at the University of Arizona Science and Technology Park at 9070 South Rita Road, Suite
1500, Tucson, AZ. This space is outfitted with a Class 1000 (ISO Class 6) "clean room" and laboratory, office and conference
facilities. These facilities are adequate for our current and expected level of operations.

 The
lease term began May 1, 2021, and was to end on April 30, 2026. The base rent is currently $9.2009 per rentable square foot and is set
to escalate to $11.4806 in year three, $13.1740 in year four and $14.9306 in year five, plus certain operating expenses and taxes.

June 7, 2023, we executed the First Amendment to Lease Agreement, which amended the existing Lease Agreement to add one new 9,805 usable
square-foot suite of offices, conference rooms and cubicle areas directly across an atrium from the initial leased space so that the company
now occupies the entire first floor of the building. This has enabled us to separate AE's public facing facilities from the restricted
access space. The amendment also extended the term of the original lease through July 31, 2028 and granted the company an option over
6,458 rentable square feet (5,520 usable square feet) of manufacturing
space. The option was effective, at a price of $2,690.83 per month, from August 1, 2023 through February 1, 2024. The option is extended
to July 31, 2024. The term of occupancy in the new office space and the option both began August 1, 2023. Our aggregate rent expense,
including common area maintenance costs, was approximately $212,000 and $149,000 for 2023 and 2022, respectively.

 See
Note 8 to our 2023 Consolidated Financial Statements, which is incorporated herein by reference for information with respect to our lease
commitments as of December 31, 2023.

 ITEM 3. LEGAL PROCEEDINGS

 On
July 3, 2019, Gusrae, Kaplan & Nusbaum and its partner, Ryan Whalen filed a complaint in the United States District Court for the
Southern District of New York against the company, its directors, officers, attorneys and a consultant. The action alleged libel, securities
fraud and related claims. The company filed a motion to dismiss the complaint on October 24, 2019. On December 13, 2019, Gusrae Kaplan
and Mr. Whalen filed an opposition to the company's motion. On January 10, 2020, the company filed a reply brief. On August 5,
2021, the plaintiffs filed a Notice of Voluntary Dismissal of the action without prejudice.

 On
January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan
& Nusbaum and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel
to the company. On May 28, 2021, Gusrae, Kaplan & Nusbaum and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021,
the company filed an opposition to the motion. On July 13, 2021, Gusrae Kaplan & Nusbaum and Mr. Whalen filed their reply brief.
On March 30, 2022, United States Magistrate Judge Debra Freeman signed an order denying the motion of GKN and Mr. Whalen to dismiss the
company's claim for malpractice and for rescission of the shares-for-fees agreement under which GKN and Whalen received 1,242,710
shares of the company's common stock. The motion was partially granted as to the separate claim for violation of NYRPC 1.7 and
1.8 because the court found that it was duplicative of the malpractice claim. The parties are currently engaged in discovery. No trial
date has been set.

 On
July 26, 2023, the company filed a complaint in the Superior Court of the State of Delaware against Gusrae Kaplan Nusbaum PLLC and Ryan
Whalen, for malicious prosecution of a federal securities fraud lawsuit which was filed by these defendants against the company and certain
of its directors, attorneys and their law firms and an outside consultant, in July 2019 in the United States District Court for the Southern
District of New York. The complaint filed by the company alleges that the claims by these defendants against it were frivolous and prosecuted
for the improper purpose of hindering the company's prosecution of a then pending case against George Farley, the company's
former CEO, which was later settled. The complaint further alleges that the defendants prosecuted their claim with malice causing the
company damages valued in excess of $40 million. On September 11, 2023, Gusrae, Kaplan & Nusbaum and Mr. Whalen filed a motion to
dismiss the complaint. On October 25, 2023, the company filed an opposition to the motion. The court heard oral argument on the motion
on January 19, 2024, and took the motion under submission. The court has not yet ruled on the motion.

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

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

 ITEM
4. Mine Safety Disclosure

 ITEM 5. MARKET FOR
REGISTANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

 Market Information and Holders

 Our
common stock is currently quoted for trading on the OTCQB Market, trading under the symbol "AERG". On March 15, 2024, the
closing price of our common stock on the OTCQB Market was [$2.20]. Over-the-counter market quotations, such as on the OTCQB, reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 As of March 19, 2024, there were approximately 374 holders of record
of Applied Energetics' common stock.

 Unregistered Sale of Securities and Use
of Proceeds

 The
company has reported all information pertaining to issuances of equity securities during the period covered by this Annual Report on
Form 10-K in previously filed report on Forms 10-Q and 8-K.

 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 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. Dividends
due as of December 31, 2023 and March 25, 2024 were approximately $362,625 and $373,583, respectively. Our Board of Directors
suspended the declaration of the dividend, commencing with the dividend payable as of February 1, 2015, because we did not have a surplus
(as such term is defined in the Delaware General Corporation Law) as of December 31, 2014. The Board anticipates continuing such suspension
until such time as we have a surplus, or net profit, for a fiscal year.

 Equity Compensation
Plan Information

 See
Item 12.

 ITEM 6. [RESERVED]

 ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 You
should read the following discussion and analysis together with the risk factors set forth in Item 1A and with our audited Consolidated
Financial Statements and Notes thereto included elsewhere herein.

 Overview

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

 Gregory
J. Quarles serves as our President and Chief Executive Officer, Christopher Donaghey as our Chief Operating and Financial Officer, and
Dr. Stephen W. McCahon as our Chief Science Officer. AE has continued to expand its technical capabilities with the addition of employees,
consultants and contractors, and agreements with several of the leading laser and optics universities in the country. The team at Applied
Energetics continued to expand during 2023 and into early 2024, with the addition of six new employees, including a senior scientist,
two laser technicians, one engineering project manager, a senior advisor, and, most recently, a director of new product innovation. AE
also works with a team of world-class contractors to strengthen our compliance, IT, technical staff, human resources and public relations,
supporting the research and development in the laboratory.

 AE
owns and protects intellectual property that is integral and necessary for the development of Ultrashort Pulse ("USP ")
Lasers, Laser Guided Energy ("LGE ") and Direct Discharge Electrical products for military and commercial applications.
AE currently owns 25 patents and an additional 11 Government Sensitive Patent Applications ("GSPA"). These GSPA's are
held under secrecy orders of the US government and allow the company greatly extended protection rights, including having no expiration
date until such time as they are no longer classified after which they will have the normal 20-year patent protection. The company also
has nine pending patent applications and one provisional patent application which is undergoing conversion to its non-provisional form.
We continue to file patent applications as we deem appropriate to protect our intellectual property and enhance our competitive advantage.

 Following
successful completion of work on the STTR Phase I contract with the U.S. Army and the research grant by the U.S. Marine Corps in 2022,
AE was awarded additional contracts in 2023, and payments due for the final deliverables under the Marine Corp grant have been transferred
to a new contract executed during the first quarter of 2024, all as detailed below.

March 12, 2024, a grant previously awarded to Applied Energetics, Inc. from a U.S. Department of Defense customer has been transitioned
into a contract. The original grant had a two-year period of performance. The new contract supersedes the May 2022 grant and carries a
ceiling value of $1,217,535 under a base period of performance through November 11, 2024 and a 12-month unfunded option period that ends
November 11, 2025. The company intends to provide additional information in a Current Report on Form 8-K upon approval from the government
agency.

August 23, 2023, Applied Energetics executed a contract with the Department of the Navy, Office of Naval Research with an aggregate contract
price of $1.99 million payable over two years as the company performs its obligations under the contract. The objective of the contract
is to develop a high-peak and high-average power USP optical system. The system is expected to demonstrate effects compatible with multiple
Navy platforms and missions with an attractive size, weight, and power-cooling footprint. The company's continuing development
efforts in collaboration with ONR signify the importance of sustained development and maturation of USP-based directed energy systems
to support the Navy's technological priorities.

May 15, 2023, Applied Energetics executed a Phase II Small Business Technology Transfer (STTR) contract with the U.S. Army at an aggregate
contract price of $1.148 million payable over two years as the company performs its obligations thereunder, with the first year currently
funded. The objective of this Phase II award is to further the development and testing of an IR system utilizing technologies that were
investigated under the US Army Phase I STTR contract which the company was awarded in May 2022. This Phase II contract award follows
a successful Phase I which established a computational concept with physical modeling and simulation to establish the feasibility of
an IR system. Phase I was performed in collaboration with the James C. Wyant College of Optical Sciences at the University of Arizona.
The company has continued its work under the contract, and provided all required reports, since its execution.

 AE's team continues to be invited to, and complete, multiple briefings focused on our capabilities and our submissions and to submit
contract proposals. Following the closures of government agencies during the Covid -19 pandemic, the government has been reviewing and
processing proposals and holding in-person meetings for briefings where appropriate. However, this positive action by the agencies could
be reversed in the event of a resurgence of Covid or other national health emergency. Any changes to reinstate the closures or work-from-home
orders could again hamper the ability of the AE team to schedule on-site briefings for our proposals undergoing review.

 Neither of the US federal budgets for 2023 or 2024 were approved by
Congress by the start of the corresponding U.S. federal government fiscal year, which is October 1 of the preceding year. In both 2022
and 2023, Congress passed, and the president signed, continuing resolutions ("CRs"), to extend federal government funding.
specified dates. The final Defense Appropriations Bill for fiscal 2023 was signed into law on December 29, 2022 and included increases
in areas of particular interest to the company.

 For fiscal year 2024, which started on October 1, 2023, the National
Defense Authorization Act (NDAA) was delayed and finally approved on December 22, 2023 (HR 2670), but the Defense Appropriations bill
was not approved at that time. The NDAA sets defense spending policies, and the appropriations bills fund government spending. This impacts
all proposals under review by the Department of Defense. On September 30, 2023, President Biden signed a Continuing Resolution (CR), HR
5860, which extended the government operations through November 17, 2023, and he then signed three further CRs, including HR 6363 on November
11, 2023 extending through January 19, 2024, HR 2872 extending through March 1, 2024, and HR 7463, extending through March 8, 2024, as
to four of the 12 annual budget bills, and through March 22, 2024 for the remaining eight. On March 23, 2024, the Defense Appropriations
Bill was passed and signed by President Biden which will ensure the US government is funded through September 30, 2024 and that new government
contracts can be funded during the 2024 fiscal year. Delays and uncertainty around funding may delay allocation of funds or pose a payment
risk for the company with respect to any grants or agreements under which we are already working.

 Strategic Plan and
Analysis

 The
core of our strategy has been to continue growing our management and science teams with highly qualified individuals. This has driven
our recruitment efforts in the areas of R&D, science, modeling and simulation, marketing and finance. We are also contemplating adding
members to our Board of Directors and our Board of Advisors. Our board and leadership team have worked to align key innovations with
our roadmap to encourage and enable internal filing for a broad, strategic, and robust intellectual property portfolio and continue surveying
the literature for acquisitions of parallel intellectual property to that end. We also intend to pursue strategic corporate acquisitions
in related fields and technology. The company's management continues to explore any favorable equity financing opportunities.

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

 We
have continued to execute our business development plans, further our research and development program and submit filings for intellectual
property and proposals for grants and contracts. During the past several years, we continued to submit proposals and have been engaged
in meetings on a continuous basis with various agencies and departments both remotely and in person in Washington, DC and at various
other government facilities. Having received a significant research grant and several contracts since the second quarter of 2022, we
believe the interest in our technology and applications remains high, and we continue to submit proposals for all appropriate opportunities
and share our vision of the disruptive capabilities of USP optical sources for both near- and far-term threats and dual-use commercial
applications.

 Through
our analysis of the market, and in discussions with potential customers, we remain convinced that customers are becoming more receptive
and interested in directed energy technologies. According to the US Department of Defense fiscal budgets from 2017 through 2023, its
directed energy spending grew from approximately $500 million in 2017 to over $1.695 billion in 2023, an increase of nearly 240%. Market
analysis and projections have estimated that this directed energy sector is anticipated to reach $17.8 billion globally by 2028. We continue
to be optimistic about our future and the growing opportunities in directed energy applications, especially since this growth to nearly
$1.7 B annually is being accomplished without a recognized Program of Record (POR) for directed energy platforms. We believe that once
these technologies are funded in production for a POR, these DOD budgets for directed energy will grow exponentially larger to support
the technology insertion. The Applied Energetics team anticipates a continuation of strong funding for the directed energy community.
With our existing patent portfolio, and through further advancements of our technologies, we believe we have the substantial building
blocks needed to become a significant and successful developer in the USP marketplace.

 Our
research and development programs depend on our ability to procure the necessary optical and fabricated materials, components, electronics
and other supplies. A significant, prolonged increase in inflation could negatively impact the cost of materials and components, which
could be a particular problem with respect to our fixed fee contracts. Within the current geopolitical context, there are ongoing embargos
of exports from some global suppliers of various materials that are used in electronics and some diode and laser materials, which can
have negative effects on technology supply chains. We continuously monitor potential supply chain issues and supplier liquidity and work
with our supply base to ensure adequate sources of materials at reasonable costs. In some instances, we depend upon a single source of
supply, but we are developing multiple sources where possible to mitigate the risk. In some cases, we must comply with specific procurement
requirements, which can limit the suppliers and subcontractors we may utilize.

 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.

 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 approximately 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.

 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, 2023 and 2022 is as follows:

 2023

 2022

 Revenue

 $
 2,631,443

 $
 1,307,757

 Cost of revenue

 637,697

 305,675

 Gross Profit

 1,993,746

 1,002,082

 Operating expenses:

 General and administrative

 8,771,901

 6,129,781

 Selling and marketing

 384,231

 321,384

 Research and development

 233,722

 320,506

 Total operating expenses

 9,389,854

 6,771,671

 Other income/(expenses):

 Other income

 45,673

 1,674

 Interest (expense)

 -

 (3,727
)

 Other income/(expense)

 45,673

 (2,053
)

 Loss before provision of income taxes

 (7,350,435
)

 (5,771,642
)

 Provision for income taxes

 -

 -

 Net loss

 $
 (7,350,435
)

 $
 (5,771,642
)

 Revenue

 Revenue
increased by approximately $1,323,000, or 101%, to approximately $2,631,000 for the year ended December 31, 2023, from $1,308,000 for
the year ended December 31, 2022. The increase represents two additional contracts that we received and commenced performing in May 2023
and August 2023.

 Cost of Revenue

 Cost
of revenue increased by approximately $332,000, or 109%, to approximately $638,000 for year ended December 31, 2023, from $306,000 during
the year ended December 31, 2022. This represents costs directly associated with the grant that the company commenced in June 2022 and
the additional contracts that were commenced in May 2023 and August 2023.

 General and Administrative

 General
and administrative expenses increased approximately $2,642,000, or 43%, to $8,772,000 for the year ended December 31, 2023, compared to
approximately $6,130,000 for the year ended December 31, 2022, primarily due to a decrease of approximately $20,000 in insurance expenses,
an increase in salaries and employee benefits of approximately $1,050,000, in consulting for stock-based comp $1,224,000, in depreciation
expense of approximately $54,000, in rent $135,000, and in legal of $198,000.

 Selling and Marketing

 Selling
and Marketing expenses increased approximately $63,000, or 20%, to $384,000 for the year ended December 31, 2023, compared to approximately
$321,000 for the year ended December 31, 2022, primarily due to the continuation of business development activities through our Master
Services Agreement with Westpark Advisors as well as the addition of other consultants in this field.

 Research and Development

 Research
and development expenses decreased approximately $87,000, or 27%, to $234,000 for the year ended December 31, 2023, compared to approximately
$321,000 for the year ended December 31, 2022, primarily due to transitioning personnel from research and development to commercialization
activities due to additional contracts awarding during the year. This transition is reflected in a portion of the increase in cost of
revenue.

 Other Income/(Expense)

 Other
income increased approximately $48,000, or 2,400%, to $46,000 for the year ended December 31, 2023, compared to other expenses of $2,000
for the year ended December 31, 2022, primarily due to holding cash in short-term money market funds with Franklin Templeton Institutional
Services.

 Net Loss

 Our
operations in 2023 resulted in a net loss of approximately $7,350,000, an increase of approximately $1,578,000, or 27%, compared to the
approximately $5,772,000 net loss for the year ended 2022, primarily due to increases in general and administrative and selling and marketing
expense, partially offset by higher revenue and a decrease in research and development expenses.

 Trend Discussion

the year ended December 31, 2023, as we received our ONR contract and a Phase II STTR contract with the Army, we recognized revenues
as we performed these services and also recorded related costs. Costs under these contracts continue to be affected by ongoing supply
chain disruptions, and shortages of items like semiconductor chips, and related systemic issues, and general inflation although to a
lesser extent than in 2022. In particular, micro-electronic and semiconductor chip shortages are still impacting supply chains, and as
such, can impact our ability to execute and deliver technology to meet demands of our customers. Certain optical transmitting components
are also in short supply. These costs and supply issues also may affect any internal research and development programs, and we anticipate
that they will continue for at least the near term.

 Our
costs and the timing of our performance under grants and contracts continue to be affected by trends in the US labor market, particularly,
recruiting of scientists and technicians. We had observed some limited availability in this market in 2022 with some improvement in 2023,
and we anticipate being able to locate and retain the necessary personnel for the foreseeable future.

 Liquidity and Capital
Resources

 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. At December 31, 2023, the company had total current assets of $2,035,656 and total current
liabilities of $927,382, resulting in a working capital surplus of $1,108,274. At December 31, 2023, we had $1,319,526 of cash and cash
equivalents, a decrease of $4,320,782 from $5,640,308 at December 31, 2022.

the year ended December 31, 2023, the net cash outflow from operating activities was $3,450,653. This amount was comprised primarily
of our net loss of $7,350,435. This was offset by non-cash stock-based compensation expense of $3,493,397, amortization of prepaid assets
of $202,354, depreciation and amortization expense of $127,639, and the amortization of right of use assets of $143,602. Additionally,
net cash used from changes in assets and liabilities totaled $67,210. This included an increase in accounts receivable $214,643, increase
in prepaid and deposits of $257,918, and a decrease in operating lease liabilities of $112,050. This is offset by an increase in accounts
payable of $195,988, an increase in deferred revenue of $308,908 and accrued expenses and compensation of $12,505.

the year ended December 31, 2023, the net cash outflow from investing activities was $369,267. This was for the purchase of equipment.

the year ended December 31, 2023, net cash outflow from financing activities was $500,862, which consisted mainly of repayment of our
note payable of $555,541, payment of $136,671 to the IRS for tax withholding related to the share settlement of RSUs issued to employees,
offset by $155,541 in proceeds from note payable for insurance premium financing and $35,809 in proceeds from the exercise of options.

 Based
on the company's current business plan, we believe our cash balance as of the date of this report, along with anticipated revenues
from our contract anticipated contract revenue, will be sufficient to meet the company's anticipated cash requirements for the
near term. However, we cannot be certain that the current business plan will be achievable.

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

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

 Budgeting
for upcoming expenses and costs of supplies and equipment needed to perform our existing, and any future, grants or contracts requires
that we estimate factors such as inflation and geo-political events that affect such expenses and costs. Although inflation generally
moderated in 2023, the cost of labor continues to increase across certain sectors of the US and global economy which may drive up our
general and administrative expenses as well as the cost of personnel working directly and indirectly on our grants and contracts, particularly
given the highly skilled nature of this work. Inflation has also impacted the price of supplies and materials we must purchase in order
to perform grants and contracts, some of which may have been bid on based on cost structures which were submitted during periods of lower
inflation. In addition, geo-political events have further limited the number of countries from which we can source certain supplies and
equipment. These limitations can range from outright prohibitions to strong discouragement based on potentially sensitive information.
We continually monitor these events and the markets for needed supplies in order to make the best estimates possible, both in our internal
budgeting and in any bids or proposals we submit.

 Contractual Obligations:

 The following table summarize
our contractual obligations and other commercial commitments as of December 31, 2023:

 Payment by Period

 Total

 Less than

1 Year

 1 to 5 Years

 Notes payable

 $
 -

 $
 -

 $
 -

 Due to affiliate

 50,000

 50,000

 -

 Leases

 1,431,000

 262,000

 1,169,000

 Total

 $
 1,481,000

 $
 312,000

 $
 1,169,000

 The
above table does not include the dividends on our Series A Preferred Stock. Assuming that there is no conversion of the outstanding shares
of Series A Preferred Stock into shares of common stock, the dividends are approximately $34,000 each year (approximately $9,000 each
quarter).

 Leases

 In
March 2021, the company signed a five-year lease for an 11,000 usable square foot (13,000 rentable square foot) laboratory/office space
in Tucson. The lease term commences May 1, 2021 and ends on April 30, 2026. The base rent is $6.7626 per rentable square foot for year
one, and escalates to $9.2009 in year two, $11.4806 in year three, $13.1740 in year four and $14.9306 in year five, plus certain operating
expenses and taxes.

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

 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 is
cured. Dividends due as of December 31, 2023, and March 25, 2024, were approximately $363,000 and $373,000, respectively.

 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 $363,000 as of December 31, 2023, 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, 2023, there were 13,602 shares of Series A Preferred
Stock outstanding.

 Recent Accounting
Pronouncements:

 Refer
to Note 3 of Notes to Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.

 Off-Balance Sheet
Arrangement:

 As
of December 31, 2023, we had no significant off-balance sheet arrangements.

 ITEM 7A. 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 and money market funds. 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.

 ITEM 8. 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' 2023 Consolidated Financial Statements and are filed as a part of this report on page F-1 following the
signatures.

 ITEM 9. CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 Not
applicable.

 ITEM 9A. CONTROLS
AND PROCEDURES

 Conclusion Regarding
the Effectiveness of Disclosure Controls and Procedures

 Our
management, with the participation of our Chief Executive Officer and Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2023. 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 not effective as of December 31, 2023.

 Management's
Report on Internal Control over Financial Reporting

 Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) or 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under
the supervision of, our chief executive and principal financial officers and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes
those policies and procedures that:

 pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the company's assets;

 provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of the management and directors of the company;
and

 provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial
statements.

 Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.

 Our
management, including our Chief Financial Officer ("CFO"), has conducted an assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2023, based on the framework established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). This
assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational
effectiveness of those controls. This assessment also took into consideration a material weakness cited by our auditors. In
particular, our auditors noted lack of segregation of duties and written policies and procedures with the accounting functions and
evidence of control review in that we have not designed such policies and procedures at a sufficient level to support the operating
effectiveness of controls to prevent and detect potential error. To mitigate this weakness, our auditors suggested that the company
continue to maintain sufficient accounting personnel to ensure segregation of duties and accurate accounting records, noting that we
use an outside consultant to perform day-to-day review function and that we create, document and maintain policies and procedures.
Our management intends to take this guidance into consideration as we work to resolve this weakness. Based on our assessment under
the criteria described above, the CFO has concluded that our internal control over financial reporting was not effective as of
December 31, 2023.

 This
Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal controls
over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant
to the SEC rules that permit smaller reporting companies to provide only management's attestation in an Annual Report on Form 10-K.

 Changes in Internal
Control Over Financial Reporting

 There
has been no change in Applied Energetics' internal control over financial reporting for the quarter ended December 31, 2023, that
materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 ITEM 9B. OTHER INFORMATION

 Rule 10b5-1 Trading Arrangements

 During the year ended
December 31, 2023, certain of our officers and directors adopted Rule 10b5-1 trading arrangements as follows:

 On June 12, 2023, Bradford
T. Adamczyk, Executive Chairman, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that took effect
on September 15, 2023, and is designed to be in effect until July 15, 2024, with respect to the sale of up to 1,400,000 shares of the
company's common stock all of which underlie stock options held by Mr. Adamczyk. Through March 21, 2024, Mr. Adamczyk has sold 70,000 shares under the plan, consisting of 0.9% of shares he beneficially
owns.

 On June 12, 2023, Adamczyk
Family 2021 LLC (the "Adamczyk LLC"), an entity controlled by Bradford T. Adamczyk, the company's Executive Chairman,
 adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that took effect on September 15, 2023, and is designed
to be in effect until July 15, 2024 with respect to the sale of up to 800,000 shares of the company's common stock all of which
underlie stock options earned by Mr. Adamczyk for services to the company and held by the Adamczyk LLC. No shares have been sold under this plan as of March 21, 2024.

 On June 15, 2023, Gregory
J. Quarles, President and Chief Executive Officer, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c)
that took effect on September 21, 2023, and is designed to be in effect until July 15, 2024 with respect to the sale of up to 1,300,000
shares of the company's common stock all of which underlie stock options held by Dr. Quarles. Through March 21, 2024, Mr. Quarles has sold 50,000 shares under the
plan, consisting of 0.7% of shares he beneficially owns.

 On June 14, 2023, Mary
P. O'Hara, General Counsel, Chief Legal Officer, and Secretary adopted a written plan intended to satisfy the affirmative defense
of Rule 10b5-1(c) that took effect on September 21, 2023, and is designed to be in effect until July 15, 2024 with respect to the sale
of up to 550,000 shares of the company's common stock all of which underlie stock options held by Ms. O'Hara. No shares have been sold under this plan as of March 21, 2024.

 On
June 15, 2023, Stephen W. McCahon, Chief Science Officer, adopted a written plan intended to satisfy the affirmative defense of Rule
10b5-1(c) that took effect on September 15, 2023, and is designed to be in effect until March 14, 2024 with respect to the sale of
up to 2,100,000 shares of the company's common stock held by Dr. McCahon. The plan expired in accordance with its terms on
March 14, 2024. No shares were sold under this plan.

 ITEM 9C. DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 Not
applicable

 PART
III

 ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 The
following is information with respect to our executive officer and directors:

 Name

 Age

 Principal
 Position

 Term Expiring in

 Bradford T. Adamcyzk

 Director and Executive
 Chairman

 2.5
 years

 Gregory J. Quarles

 Director, President
 and Chief Executive Officer

 2.5
 years

 Christopher, Donaghey

 Chief Financial Officer

 N/A

 Jonathan R. Barcklow

 1.5
 years

 John E. Schultz Jr.

 Less
 than one year

 Mary P. O'Hara

 Director, General Counsel,
 Chief Legal Officer and Secretary

 2.5 Years

 Stephen W. McCahon

 Chief Science Officer

 N/A

 Messrs.
Adamczyk and Barcklow joined the board in March 2018. Mr. Schultz joined the board in November 2018. Dr. Quarles joined the board in
May 2019. Ms. O'Hara joined the board in August 2021. On March 25, 2024, Mr. Barcklow tendered his resignation from the board, effective April 1, 2024. The company
accepted Mr. Barcklow's resignation which was not in connection with any disagreement regarding company policies or other dispute.

 Bradford
T. Adamczyk: Mr. Adamczyk was elected as the company's Chairman in May 2019 and Executive Chairman in November 2021. He
served as Principal Executive Officer from August 6, 2018, until becoming Chairman and was elected as a company director on March 8, 2018.
Mr. Adamczyk has over 25 years of experience in investments and financial analysis. He founded MoriahStone Investment Management in 2013.
MoriahStone Investment Management specializes in both public equities and small-cap private companies. He has also served on the board
of advisors of BroVo Spirits, LLC since 2014, becoming its Chairman in 2018. Prior to founding MoriahStone, he was a senior securities
analyst at Columbus Circle Investors in Stamford, CT, where he focused on technology investments. Mr. Adamczyk started his financial career
at Morgan Stanley. Additionally, Mr. Adamczyk helped drive the initial recapitalization efforts of Applied Energetics in 2018. He was
part of the team that led the 2018 proxy of AE, establishing a new company board and management team and recapitalizing the company to
pursue the development of its technology and IP portfolio. He received his undergraduate degree from Western Michigan University, graduating
Magna Cum Laude, and his MBA from the University of Michigan.

 Gregory
J. Quarles: Dr. Quarles was elected as the company's Chief Executive Officer and as a company director effective May 4,
2019. In January 2021, the Board also elected him as President of the company. Prior to that time, he had served on the company's
Scientific Advisory Board since March 18, 2017. Before joining Applied Energetics, Dr. Quarles spent the previous six years with Optica
(formerly, The Optical Society of America) in Washington D.C., both as a member of the Board and the Executive Committee and more recently
as the Chief Scientific Officer. His responsibilities at Optica encompassed a broad range of scientific, technical and engineering infrastructure,
and included content development for the Optica meetings portfolio, along with many other related projects, highlighted by his reports
to Congress. Moreover, Dr. Quarles had been personally involved through Optica in the establishment of many crucial partnerships involving
major R&D laboratories and global agencies worldwide. This involvement included being a long-standing member of the U.S. Department
of Commerce, Bureau of Industry and Security, and Sensors and Instrumentation Technical Advisory Committee. In addition to his executive
leadership, Dr. Quarles is a well-respected member of the laser development community globally with over 35 years of experience since
the award of his Ph. D. from Oklahoma State University. He is a Fellow in both the SPIE and Optica, a Senior Member of the IEEE and received
the Memorial D.S. Rozhdestvensky Medal from the Russian Optical Society (2015). In 2016, he joined the Oklahoma State University CAS
Hall of Fame, and in 1996 received the R&D 100 Award for the Ce: LiSAF Laser System.

 Christopher
Donaghey: Mr. Donaghey has served as the company's Chief Operating and Financial Officer since July 2022. He is an experienced
financial executive with extensive experience in the defense industry. Mr. Donaghey most recently served as senior vice president and
head of corporate development for Science Applications International Corporation (SAIC), a defense and government agency technology integrator,
where he was responsible for executing the company's mergers and acquisitions (M&A) and strategic ventures strategy. He joined
SAIC in 2017, as senior vice president of finance for SAIC's operations. Mr. Donaghey is also a Founder and Executive Board member
of the Silicon Valley Defense Group, a non-profit organization whose mission is to create the nexus of pioneering ideas, people, and capital
that will unlock new sources of innovation for national security and power the digital evolution of the defense industrial base. Prior
to joining SAIC, Donaghey was Vice President of Corporate Strategy and Development for KeyW Corporation, a national security solutions
provider for the intelligence, cyber and counterterrorism communities, where he guided the overall corporate strategy, M&A, and capital
markets activities. Mr. Donaghey was also a senior research analyst for SunTrust Robinson Humphrey Capital Markets during which time,
he was ranked the number one defense analyst and number two analyst overall for stock selection by Forbes/Starmine in 2005 and was named
in the Wall Street Journal Best on the Street survey in 2005, 2008, and 2009.

 Mr.
Donaghey served in the U.S. Navy Reserve where he provided scientific and technical analysis of missile guidance and control systems
and advanced electronics for the Short-Range Ballistic Missile group at the Defense Intelligence Agency's Missile and Space Intelligence
Center. Donaghey earned his bachelor's degree in mechanical engineering from Texas Tech University and served as an officer in
the U.S. Navy. Mr. Donaghey served on Applied Energetics' Board of Advisors from April 30, 2019 until becoming Chief Operating
and Financial Officer.

 Jonathan
R. Barcklow: Mr. Barcklow served as the company's Vice President and Secretary from November 2018 until September 2022,
and was elected as a company director on March 8, 2018. Mr. Barcklow has over 15 years of experience in advisory and management consulting
services in federal defense and civilian agencies. He has spent his career in consulting services with both PriceWaterhouseCoopers and
KPMG, LLP. Mr. Barcklow has worked at KPMG since 2010 and currently serves as the Managing Director within KPMG's Federal Management
Consulting group leading their Defense Mission Services portfolio. In leading this $30M portfolio, Mr. Barcklow is responsible for every
facet of the businesses operations, management, profitability and growth planning and oversees a diverse workforce of 150 professionals
Over his career, Mr. Barcklow has been a consultant for a number of federal agencies, including the Department of Veterans Affairs, Department
of Homeland Security, Federal Emergency Management Agency, National Science Foundation, Department of the Navy, US Marine Corp, US Air
Force, Defense Logistics Agency, Office of the Secretary of Defense, and the Deputy Chief Management Office. His portfolio primarily
focused on large-scale strategic transformations, technology and innovation, including big data, advanced analytics, AI and machine learning,
blockchain, and Internet of Things (IoT) within DoD entities. Additionally, Mr. Barcklow helped drive the initial recapitalization efforts
of Applied Energetics in 2018 and developed the initial 12-month execution plan for the company's turnaround. Mr. Barcklow graduated
from the University of Virginia.

 John
E. Schultz Jr.: Mr. Schultz was elected as a company director on November 11, 2018. Mr. Schultz has had a long affiliation with
Wall Street, having founded CSG Spectra, Inc., a risk analytics firm, in 1984. He also founded Oak Tree Asset Management Ltd. in 2000,
where he actively trades securities in managed LLC's. Mr. Schultz's strong networks have emphasized outside-the-box investment
opportunities and early-stage new frontier private equity investment deals. Mr. Schultz has an intimate knowledge of Applied Energetics,
including its history and financials and has in the past served as a consultant to the company. Additionally, Mr. Schultz helped drive
the initial recapitalization efforts of Applied Energetics in 2018. He was part of the team that led the 2018 proxy of AE, establishing
a new company board and management team and recapitalizing the company to pursue the development of its technology and IP portfolio.
Mr. Schultz is a graduate of California State University at Long Beach.

 Mary
P. O'Hara: Ms. O'Hara was appointed to the Board of Directors on August 20, 2021, upon the board's decision to expand
its number to five members. Ms. O'Hara was appointed General Counsel and Chief Legal Officer in January 2022 and Secretary in September
2022. She has been in private law practice for over thirty years and has broad experience in all facets of securities, corporate and commercial
law. Prior to her joining the company full-time, she was affiliated with the law firm of Masur, Griffitts, Avidor, LLP and has represented
the company for several years. Previously, she was a partner at Hodgson Russ LLP and an associate at Fulbright & Jaworski LLP (now
known as Norton Rose Fulbright) and Mayer Brown & Platt, LLP (now known as Mayer Brown LLP). Ms. O'Hara has a J.D. from New
York University School of Law and a B.A. in Economics, magna cum laude, from the University of New Mexico.

 Stephen
W. McCahon: Dr. Stephen McCahon has served as the Company's Chief Science Officer since May 1, 2023. Dr. Stephen McCahon
has been a scientific researcher, technology developer, and entrepreneur for over 30 years. He has co-authored more than 50
scientific publications and has more than 30 patents issued, patents pending, or invention disclosures in preparation for patent
submission. He was an original founder of Applied Energetics, Inc. and then returned to the Company to serve as our Chief Scientist,
pursuant to a Consulting Agreement, dated as of May 24, 2019, providing input into the strategic direction of the Company and
assistance in building relationships in the defense markets. Dr. McCahon was a Member of the Research Staff in the Optical Physics
Department at the Hughes Research Laboratory in Malibu, California from 1986 to 1996 performing basic research in the area of
optical physics and non-linear optical materials. In 1996, Dr. McCahon moved to Raytheon (Hughes) Missile Systems Co, in Tucson, AZ
during which time as was significantly responsible for the successful creation and development of the Directed Energy Weapons
Product Line and served as its Chief Scientist. He left Raytheon in 2002 to co-found Applied Energetics Inc. in Tucson, AZ to
develop Directed Energy Weapons for the DoD including very high energy and average power USP laser sources and Laser Guided Energy
(LGE technologies. In April 2010, Dr. McCahon left Applied Energetics to form Applied Optical Sciences where he
developed technologies related to the application of optical physics to a broad range of areas, including photonics and USP laser
development. From February 2016 through May 2019, he served as a consultant to the Company. Since February 2016, he has served as a consultant to the Applied Energetics Board of Directors. In 2019 Applied
Energetics purchased his company Applied Optical Sciences and integrated it into Applied Energetics where Dr. McCahon currently serves
as its Chief Scientist. Dr. McCahon is a graduate the University
of Southern California (BSEE, MSEE) holds a Ph. D., Photonics, Inter-disciplinary Physics and Electrical Engineering from the
University of Iowa.

 Newly Elected Director

 On
March 25, 2024, our Board of Directors voted by Unanimous Written Consent to elect Michael J. Alber to serve as a director. Mr. Alber's
term is to commence on April 1, 2024.

 Mr.
Alber has an extensive career spanning over 35 years in corporate finance, capital markets, treasury, risk allocation and mergers and
acquisition experience. Most recently he was the Chief Financial Officer for First Light Acquisition Group (NYSE: FLAG), a special purpose
acquisition company. He previously served on the SSA (Special Security Agreement) of AceInfo Tech (subsidiary of Dovel Technologies)
and advisory board of Sincerus Global Solutions. Prior to 2020 he was the Chief Financial Officer and Executive Vice President of KeyW
(NASDAQ: KEYW) from June 13, 2016, until its sale to Jacobs (NYSE: J) in 2019. During this period, he led several capital market transactions
along with two strategically important M&A transactions, one that resulted in a record setting sale multiple and change in control.

 Mr.
Alber served as a Principal with Growth Strategy Leaders, a business and financial consulting firm (specializing in M&A and due diligence
support), from April 2015 to May 2016, and as Chief Financial Officer and SVP at Engility Corporation (NYSE: EGL) a $2.5 billion technology
services and solutions provider to both U.S. Government and International customers from May 2012 to March 2015. During this period,
he supported the company's spin-out from L3 Technologies as a stand-alone publicly traded company. Also, during this period, he
led the financial and capital market activities related to two transformational M&A transactions, including one that resulted in
a change in control. Prior to Engility, Mr. Alber held the position of Chief Financial Officer and Treasurer at Alion Science and Technology
from 2007 to 2012. He has also held senior executive positions at SAIC (NYSE: SAIC) for 18 years, where he served as a Senior Vice President
and Group CFO, and prior to that was Director of Finance at Network Solutions, Inc.

 Mr.
Alber received his Bachelor of Science degree from George Mason University in Business Administration with a concentration in finance
and subsequently completed an Advance Management Program (AMP) at Georgetown University's McDonough School of Business.

 As
compensation for his services on the Board, the company intends to issue to Mr. Alber options to purchase up to 250,000 shares of its
common stock at an exercise price equal to the fair market value on the date of grant. These options will be subject to vesting in the
amount of 100,000 shares on the first anniversary of his service and 75,000 on each of the second and third anniversaries of his service
and to further terms and conditions as set forth in a Nonqualified Stock Option Agreement to be entered into between the company and
Mr. Alber under the company's 2018 Equity Incentive Plan. Mr. Alber has not entered into any related party transactions with the company.

 Directors Qualifications,
Experience and Skills

 Our
directors bring to our Board a wealth of executive leadership experience and technical knowledge derived from their service, respectively,
as senior executives, founders of industry and legal or financial professionals. Our board members have demonstrated strong business
acumen and an ability to exercise sound judgment and have 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
Board of Directors focuses 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. Adamczyk's qualifications as a director include
his expertise in corporate finance, strategy and building high performing teams to overcome financial and strategic challenges. Mr. Adamczyk
was part of the team that led the 2018 proxy of AE, establishing a new company board and management team and recapitalizing the company
to pursue the development of its technology and IP portfolio. He, along with the others in this group, continues his work to establish
a foundation of good corporate governance and transparency.

 Dr. Quarles's qualifications as a director include his
experience as director and senior executive in the laser industry with primary focus on the defense and aerospace sector.

 Mr. Barcklow's qualifications as a director include
his experience in management consulting and his knowledge of the defense industry and government contracting. Mr. Barcklow was part of
the team that led the 2018 proxy, establishing a new company board and management team and recapitalizing the company to pursue the development
of its technology and IP portfolio. He, along with the others in this group, continues his work to establish a foundation of good corporate
governance and transparency.

 Mr. Schultz's qualifications as a director include his
expertise in the equity investment industry and has been a friend of Applied Energetics since its public inception in 2004 and has an
intimate knowledge of the company's background, including its history and financials. Mr. Schultz and his entity Oak Tree Asset
Management were part of the team that led the 2018 proxy, establishing a new company board and management team and recapitalizing the
company to pursue the development of its technology and IP portfolio. He, along with the others in this group, continues his work to
establish a foundation of good corporate governance and transparency.

 Ms. O'Hara's qualifications as a director include
her many years of experience in securities, corporate and commercial law and the business and financial knowledge she has acquired over
those years as well.

 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. 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. Based on a review of these filings, the initial
Form 3 and a Form 4 for the company's Chief Science Officer and a Form 4 reporting a change in ownership for our Chief Financial
Officer, were filed after their respective deadlines. The company does not believe any other officers or directors failed to timely file
any required forms under Section 16(a) during the year ended December 31, 2023.

 Code of Ethics

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 and Chief 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, and will be provided without
charge:

Energetics, Inc.

 Attention:
Chief Legal Officer

 9070
S. Rita Road, Suite 1500

 Tucson,
AZ 85747

 Committees of the
Board of Directors

 The
members of the board of directors continue to evaluate the need and utility of establishing one or more committees of the Board of Directors
and to review relevant legal or regulatory requirements with respect thereto. At present all functions that would be fulfilled by committees
are being fulfilled by the entire board, and the board believes that currently no committees are necessary or legally required.

 ITEM 11. EXECUTIVE
COMPENSATION

 Summary Compensation
Table

 The following table discloses the compensation for the persons who
served as our Executive Chairman, President and Chief Executive Officer, Chief Operating and Financial Officer, General Counsel, Chief
Legal Officer and Secretary, and Chief Science Officer for the years ended December 31, 2023 and 2022. Dr. Quarles has been our Chief
Executive Officer since May 6, 2019 and was elected President as of January 2022. Ms. O'Hara was appointed General Counsel and Chief
Legal Officer in January 2022 and Secretary in September 2022. Mr. Donaghey was appointed Chief Operating and Financial Officer in July
2022. Mr. Adamczyk received compensation as a director as set forth under Director Compensation below.

 Name and Principal Position

 Year

 Salary

 ($)

 Bonus

 ($)

 Stock

 Awards

 ($)

 Option

Awards ($)

 All Other

 Compensation (1)

 Total

 Bradford T. Adamczyk,

 2023

 $
 -

 $
 -

 $
 -

 $
 -

 $
 -

 $
 -

 Executive Chairman

 2022

 $
 -

 $
 -

 $
 -

 $
 -

 $
 -

 $
 -

 Gregory J Quarles,

 2023

 $

 $
 -

 $
 -

 $
 -

 $
 -

 $

 President and Chief Executive Officer

 2022

 $
 353,632

 $
 95,000

 $
 3,850,454
 (1)

 $
 -

 $
 -

 $
 4,299,086

 Christopher Donaghey,

 2023

 $
 350,000

 $
 -

 $
 -

 $
 -

 $
 -

 $
 350,000

 Chief Operating and Financial Officer

 2022

 $
 145,833

 $
 -

 $
 920,000
 (2)

 $
 1,977,796

 $
 -

 $
 3,043,629

 Mary P. O'Hara,

 2023

 $

 $
 -

 $
 -

 $
 -

 $
 -

 $

 General Counsel, CLO and Secretary

 2022

 $

 $
 -

 $
 1,301,130

 $
 -

 $
 1,551,130

 Stephen McCahon,

 2023

 $
 300,000
 (3)

 $
 -

 $
 -

 $
 -

 $
 -

 $
 300,000

 Chief Scientist

 2022

 $
 (3)

 $
 -

 $
 -

 $
 -

 $
 -

 $

 (1)
 This award represents 1,954,545 restricted stock
 units (RSUs) issued to Dr. Quarles, pursuant to a Restricted Stock Unit Agreement, dated
 as of November 29, 2022, in connection with the amendment to his Executive Employment Agreement.
 These RSUs vest in equal annual installments over four years. If either party terminates
 the agreement at any time prior to the last date of the term, then the units will vest, pro
 rata, for each month served since the most recent prior annual vesting date.

 (2)
 Stock awards for Mr. Donaghey in 2022 partly consisted
 of options to purchase up to 750,000 shares of common stock at an exercise price of $2.40
 per share, all of which were for his service on the Board of Advisors and which he forfeited
 upon his appointment as Chief Financial Officer. Stock awards granted in 2022 are for his
 service as Chief Financial Officer and consist of 400,000 RSUs and options to purchase up
 to 1,000,000 shares of common stock at an exercise price of $2.36 per shares. Each of these
 RSUs and options vest in equal annual installments over four years, subject, however, to
 pro rata monthly vesting in the event of his termination under certain circumstances.

 (3)
 This
amount reflects compensation received by Dr. McCahon pursuant to the Consulting Agreement with SWM Consulting LLC, an entity which he
controls, through April 30, 2023 and pursuant to his Executive Employment Agreement from May 1 through December 31, 2023.

 Director Compensation

 The
following table discloses our director compensation for the years ended December 31, 2023 and 2022:

 Name

 Year

 Fees

 Earned or

 Paid in

 Cash ($)

 Stock

 Awards

 ($)

 Option

 Awards ($)

 (1)

 All
 Other

 Compensation

 ($)

 Total

 Bradford
 T. Adamczyk,

 2023

 $

 $

 -

 $

 -

 $

 -

 $

 Executive
 Chairman

 2022

 $

 $

 -

 $

 -

 $

 -

 $

 Jonathan
 R. Barcklow,

 2023

 $

 110,000

 $

 -

 $

 -

 $

 -

 $

 110,000

 Vice
 President and Secretary(1)

 2022

 $

 110,000

 $

 -

 $

 -

 $

 -

 $

 110,000

 John E.
 Schultz, Jr.

 2023

 $

 90,000

 $

 -

 $

 -

 $

 -

 $

 90,000

 2022

 $

 90,000

 $

 -

 $

 -

 $

 -

 $

 90,000

 (1)
 Mr. Barcklow served as Vice President and Secretary
 until September 8, 2022, upon which Ms. O'Hara assumed the office of Secretary, and
 the board determined to eliminate the position of Vice President. On March 25, 2024, Mr. Barcklow tendered his resignation from the board,
effective April 1, 2024.

 Board Considerations
in Determining Salaries

 Our
executive compensation program is designed to attract, retain, and incentivize talented executives with a dedication to achieving our
scientific and strategic objectives. Our 2023 compensation program consisted primarily of base salary as we awarded certain officers
time vesting equity during the prior year. Compensation of our named executive officers is primarily determined by compensation levels
in the market for their services, among large- and small-cap defense and technology companies. The Board considers recommendations from
various outside consultants and other informed sources in making compensation decisions. Aligning executive compensation with stockholder
interests is a key consideration for our compensation program. As we continue to grow, we anticipate developing and evolving our compensation
program around specific objectives and key responsibilities with metrics and compensation targets.

 Employment Agreements
for Named Executive Officers

 As
of April 18, 2019, we entered into an Executive Employment Agreement with Dr. Gregory J. Quarles setting forth the terms
of his service as Chief Executive Officer. The agreement is for a term of three years and is renewable thereafter for sequential
one-year periods. The agreement may be terminated by the company for "cause" or by Quarles for "Good Reason"
both of which terms are defined in the agreement. The agreement may also be terminated, without cause or Good Reason, by either party
upon sixty days' written notice to the other.

 The
agreement calls for (i) a cash salary of $250,000 per annum, payable monthly, and eligibility for a discretionary bonus within 60 days
of the end of each year, and (ii) options to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.35
per share. These options were issued pursuant to a grant agreement, dated as of April 18, 2019 and vest immediately with respect
to 500,000 shares and in semi-annual installments with respect to the remaining 4,500,000 shares. The agreement also provides
for Quarles to retain 2,000,000 options previously granted to him under a Consultant Stock Option Agreement in 2017, for his services
on the Scientific Advisory Board, which are subject to vesting based on achievement of performance milestones. Dr. Quarles forfeited
options to purchase an additional 1,500,000 shares under another prior option agreement. Under the agreement, Dr. Quarles also
is to receive health and life insurance as well as other standard benefits. The agreement also requires the company to reimburse certain
out-of-pocket expenses and to compensate Quarles in the event that it requires him to resign from certain boards on which he serves.

 In
the event of a termination of the agreement by Quarles with Good Reason, or by us without cause, we must pay him any unpaid base compensation
due as of the termination date as well as any pro rata unpaid bonus and any unpaid expenses. Any unvested options will vest upon such
termination. In such event, we must continue to pay Dr. Quarles his monthly base compensation and any health and life insurance
benefits until he has secured full-time employment, but not to exceed a period of three months from the termination date.

 In
the event that we terminate the agreement for cause or he terminates without Good Reason, he will receive base compensation and expense
reimbursement through the date of termination but will forfeit any unvested equity compensation.

 This
agreement was amended December 15, 2020, increasing Dr. Quarles' salary to $300,000 per year effective January 1,
2021, on November 30, 2021, increasing his salary to $350,000 per year effective January 1, 2022, and again, on November
29, 2022, increasing his salary to $400,000 per year effective November 1, 2022.

 As
of May 1, 2023, we entered into an Executive Employment Agreement with Dr. Stephen W. McCahon setting forth the terms of his service
as Chief Science Officer. The agreement is for an initial term through December 31, 2025, and is renewable thereafter for sequential
one-year periods unless terminated by either party. The agreement may be terminated by the company for "cause" or by
McCahon for "Good Reason" both of which terms are defined in the agreement.

 The
agreement calls for a cash salary of $300,000 annualized for 2023, $325,000 for 2024 and $350,000 for 2025, plus standard benefits. Dr.
McCahon's salary is payable monthly. The agreement also requires the company to reimburse certain out-of-pocket expenses.
In the event that we terminate the agreement for cause or he terminates without Good Reason, he will receive base compensation and expense
reimbursement through the date of termination but will forfeit any unvested equity compensation.

 Prior
to entering into his Executive Employment Agreement described above, Dr. McCahon served as our Chief Scientist, pursuant to a Consulting
Agreement, dated as of May 24, 2019 (the "SWM Consulting Agreement"), by and between the company and SWM Consulting
LLC, of which he is the principal. The SMW Consulting Agreement provided for a combination of cash and equity compensation. The SWM Consulting
Agreement provided for cash compensation of $180,000 for the first year and $250,000 during each of the second and third years of
the term. Under the SWM Consulting Agreement, the company also repurchased 5,000,000 shares if its common stock, issued to Dr. McCahon
in 2016 under a prior Consulting Agreement, at a price of $0.06 per share based on the company share price at the time of the SWM Consulting
Agreement. 5,000,000 of an additional 15,000,000 shares held by Dr. McCahon are subject to a lock-up and released pro
rata each month during the term of the agreement which may be accelerated in the event of termination other than for cause or a change
in control. Effective May 23, 2022, the company and Dr. McCahon agreed to an extension of the SWM Consulting Agreement upon the
same general terms and conditions. On January 17, 2023, the company amended the SWM Consulting Agreement. The amendment was effective
as of January 1, 2023, provided for an extended term of three years, commencing on that date, and increased compensation under the agreement
to $300,000, $325,000 and $350,000 per year for the first, second and third years of the extended term, respectively. The Consulting Agreement terminated upon execution of Dr. McCahon's Executive Employment Agreement described
above. Thus Dr. McCahon's
current compensation under his Executive Employment Agreement is commensurate with what he was to receive under the SMW Consulting Agreement.

May 24, 2019, and in connection with the entry into the SWM Consulting Agreement, the company entered into an Asset Purchase Agreement
with Applied Optical Sciences, Inc. ("AOS"), an Arizona corporation of which Stephen W. McCahon is the majority stockholder.
The Asset Purchase Agreement provided for purchase of specified assets from AOS, including principally intellectual property, contracts
and equipment in exchange for consideration consisting of (i) cash in the amount of $2,500,000.00, payable in the form of a Promissory
Note, secured by the assets, and (ii) warrants to purchase up to 2,500,000 shares of Applied Energetics' common stock
at an exercise price of $0.06 per share. The Promissory Note was initially payable in six-month installments, with the first payment
being due on the first anniversary of the note but was amended in February 2021 to extend the maturity date by six months and
restructure the payment to time up to the adjusted maturity date. The amendment also called for waiver of any late payment penalties
for the first two payments. The company made the first three payments of $500,000 each on February 10, 2021, May 24, 2021, and November
19, 2021, respectively. Effective May 23, 2022, the parties further amended the Promissory Note to extend the maturity date by an additional
six months and to further restructure the remaining payments due thereunder to be monthly at $100,000 each with the final such payment
being due on April 24, 2023. Accordingly, the company paid the Promissory Note in full in April 2023.

 Dr.
McCahon is a significant stockholder of the company. See "Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters."

January 1, 2022, the company and Mary P. O'Hara entered into an Executive Employment Agreement, pursuant to which she
is currently serving as General Counsel and Chief Legal Officer for an initial term of three years, with automatic renewal for additional
one-year periods thereafter unless either party terminates the agreement. The agreement calls for salary of $250,000 per year, plus
standard benefits and eligibility for a bonus at the discretion of the board. The company has also granted Ms. O'Hara incentive
stock options to purchase up to 640,000 shares of its common stock under its 2018 Incentive Stock Plan, which vest over four years,
at an exercise price of $2.40 per share.

August 1, 2022, the company and Christopher Donaghey entered into an Executive Employment Agreement, pursuant to which he is to
serve as Chief Financial and Chief Operating Officer for an initial term of four years, with automatic renewal for additional one-year periods
thereafter unless either party terminates the agreement. The agreement calls for salary of $350,000 per year, plus standard benefits
and eligibility for a bonus at the discretion of the board. The company has also granted Mr. Donaghey additional options to purchase
up to 1,000,000 shares of its common stock under its 2018 Incentive Stock Plan, which vest over four years and have an exercise
price of $2.36 per share, and Restricted Stock Units representing up to 400,000 shares of the company's common stock
which also vest over four years. The Restricted Stock Units are issued pursuant to a Restricted Stock Unit Agreement, dated
as of July 13, 2022. Mr. Donaghey forfeited unvested options to purchase up to 950,000 shares of common stock which he
had previously received for service on the company's Board of Advisors.

 Grants of Plan-Based
Awards

 The
company did not grant any plan- or nonplan-based awards to our named executive officers during the fiscal year ended December 31, 2023.

 Outstanding Equity
Awards at Fiscal Year-End

 The
following table discloses unexercised options held by the named executives at December 31, 2023:

 Option Awards

 Name

 Number of
 Securities
 Underlying

 Unexercised Options
 Exercisable
 (#)

 Number of
 Securities
 Underlying

 Unexercised
 Options
 Unexercisable

 Option
 Exercise
 Price

 Option
 Expiration
 Date

 Bradford T. Adamczyk

 4,960,000

 -

 $
 0.07

 11/12/2028

 Gregory J. Quarles(1)

 4,970,000

 -

 $
 0.35

 4/18/2029

 Christopher Donaghey(2)

 150,000

 -

 $
 0.35

 4/29/2029

 200,000

 -

 $
 0.61

 5/12/2031

 750,000

 $
 2.36

 7/13/2032

 Mary P. O'Hara

 280,000

 80,000

 $
 1.27

 8/20/2031

 320,000

 320,000

 $
 2.40

 1/1/2032

 Stephen W. McCahon

 -

 -

 -

 -

 (1)
 Dr. Quarles also holds
 Restricted Stock Units covering 1,954,545 shares of the company's common stock which
 are subject to time and milestone vesting and terminate in November 2032.

 (2)
 Mr. Donaghey also holds
 Restricted Stock Units covering 300,000 shares of the company's common stock which
 are subject to time vesting.

 In
addition to the foregoing, as of December 31, 2023, Jonathan Barcklow, a director, held options to purchase up to 5,000,000 shares of
common stock, and John Schultz, also a director, held options to purchase up to 2,500,000 shares of common stock, each at an exercise
price of $0.07 per share and both of which expire on November 12, 2028. Details regarding these options are set forth in Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters below.

 Payments upon Termination
or Change-In-Control

 There
are no termination or change in control agreements in place that would require payments

 COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION:

the fiscal year ended December 31, 2023, 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.

 ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT 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 19, 2024:

 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 in care of Applied Energetics, 9070 South Rita Road, Suite 1500, Tucson,
Arizona 85747. 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 March 1, 2024, 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 211,362,688 shares outstanding on March 19, 2024.

 Name of Beneficial Owner

 Number of

Beneficially

Owned (1)

 Percentage

of Shares

Beneficially

Owned (1)

 Bradford T. Adamczyk

 7,165,081

 (2)

 3.3

 %

 Gregory J. Quarles

 6,894,545

 (3)

 3.2

 %

 Jonathan R. Barcklow

 6,000,000

 (4)

 2.8

 %

 John E. Schultz Jr.

 4,320,000

 (5)

 2.0

 %

 Stephen W. McCahon

 14,407,861

 (6)

 6.8

 %

 Mary P. O'Hara

 693,333

 (7)

 *

 Kevin T. McFadden

 12,100,000

 (8)

 5.7

 %

 Christopher Donaghey

 733,559

 (9)

 *

 All directors and executive officers as a group (7 persons)

 40,187,713

 17.2

 %

 *
 Less
 than one percent.

 (1)

 Computed based upon the
 total number of shares of common stock, restricted shares of common stock and shares of common stock underlying options or warrants
 held by that person that are exercisable within 60 days of the Record Date.

 (2)

 Based on information contained in a Form 4, filed with the SEC on February
20, 2024. Includes 1,563,599 shares held by Moriah Stone Global L.P., which is controlled by Mr. Adamczyk. Also includes 4,920,000 shares
underlying options, 3,500,000 of which are held in the name of the Adamczyk Family 2021 LLC.

 (3)

 Includes options to purchase
up to 4,940,000 shares of common stock, which are fully vested, and Restricted Stock Units covering 1,954,545 shares of common stock,
which are subject to vesting upon the occurrence of certain milestones.

 (4)

 Includes 5,000,000 shares
 underlying options. On March 25, 2024, Mr. Barcklow tendered his resignation from the board,
effective April 1, 2024.

 (5)

 Based on information contained
 in a Form 4, filed with the SEC on May 30, 2023. Includes 500,000 shares held by Oak Tree Asset Management Ltd., which is controlled
 by Mr. Schultz, and 720,000 shares held by Mary Schultz, Mr. Schultz's wife, in her IRA. Also includes 2,500,000 shares underlying
 options. 500,000 of Mr. Schultz's shares are held in an IRA.

 (6)

 Based on information contained
 in a Form 4 filed with the SEC on December 29, 2023. Includes 1,585,000 shares underlying warrants.

 (7)

 Based on information contained
 in a Form 4, filed with the SEC on January 6, 2022. All such shares underly options. Ms. O'Hara holds an additional
 306,667 options which are subject to timed vesting.

 (8)

 Based on information known
 by the company and Mr. McFadden's Schedule 13G, filed with the SEC on September 29, 2020. Includes a warrant to purchase 125,000
 shares of common stock. Mr. McFadden's address is 21 Tow Path Lane South, Richmond, VA 23221.

 (9)

 Based on information contained
 in a Form 4, filed with the SEC on September 8, 2023, and information known by the company. Does not include options to
 purchase an additional 750,000 shares of common stock and Restricted Stock Units covering 300,000 shares of common stock, all of
 which are subject to timed vesting.

 Securities Authorized
for Issuance Under Equity Compensation Plans

 The
following table details information regarding our existing equity compensation plans as of December 31, 2023:

 Equity Compensation
Plan Information

 Plan
 Category

 Number
 of
 securities
 to be issued
 upon
 exercise of outstanding
 options and

 rights

 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

 24,695,434

 $
 0.68

 23,699,167

 Equity compensation plans not approved by security holders

 -

 -

 -

 Total

 24,695,434

 $
 0.68

 23,699,167

November 12, 2018, the board of directors of Applied Energetics, Inc. adopted the 2018 Incentive Stock Plan. On October 30, 2019, the
stockholders voted to approve and adopt the plan. The plan provides for the allocation and issuance of stock, restricted stock purchase
offers and options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants of
the company. The board reserved a total of 50,000,000 for possible issuance under the plan.

 ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDPENDENCE

 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,
2022.

 Contractual Relationships
with Related Parties

 Prior
to entering into his Executive Employment Agreement to serve as our Chief Science Officer in May 2023, Dr. Stephen W. McCahon
served as our Chief Scientist pursuant to a Consulting Agreement with SWM Consulting LLC of which he is the principal. For a description
of this Consulting Agreement, see "Directors and Executive Officers — Agreements with Named Executives" above.
See also, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." Dr. McCahon also
holds in excess of 5% of our common stock.

 In
January 2023, the company made a $25,000 tax-deductible donation to Silicon Valley Defense Group (SVDG), a 501(c)(3) organization of
which Christopher Donaghey, our Chief Financial and Operating Officer, is a founder and member of the Board of Directors. As its objective,
SVDG "seeks to align and connect the people, capital, and ideas that will ensure allied democracies retain a durable techno-security
advantage."

 Review, Approval
or Ratification of Transactions with Related Persons

 Pursuant
to company policy, 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 Board
of Directors, who will review the proposed transaction and take such action as it sees fit, including, if necessary, formal approval
by the Board.

 Pre-Approval Policies
and Procedures

 Consistent
with the SEC requirements regarding auditor independence, our Board of Directors must pre-approve all audit and permissible non-audit services
provided by our independent registered public accounting firm. Under the policy, the Board 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 Board
that they have not performed, and will not perform any prohibited non-audit service.

 ITEM 14. PRINCIPAL
ACCOUTANT FEES AND SERVICES:

 The
following is a summary of the fees billed to the company by its independent registered Public Accounting firm for the years ended December
31, 2023 and December 31, 2022.

 2023

 2022

 Audit fees

 $
 61,000

 $
 54,000

 Audit related fees

 -

 -

 All other fees

 -

 -

 Tax fees

 6,000

 6,000

 $
 67,000

 $
 60,000

 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 Board of Directors must pre-approve all audit and permissible non-audit
services provided by our independent registered public accounting firm. Under the policy, the Board 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 Board
that they have not performed, and will not perform any prohibited non-audit service.

 PART
IV

 ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES:

 The following documents
are filed or incorporated by reference as part of this report:

 (a) (1) The Consolidated
Financial Statements of Applied Energetics, Inc. are filed as part of this report on page F-1 following the signatures.

 Exhibits:

 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 Form 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 quarterly period 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.(incorporated by reference to Exhibit 3.7 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-231885)

 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).

 4.2

 Description of Registrant's Securities (incorporated by reference to the comparable exhibit filed with the Registrant's Form 10-K for the year ended December 31, 2022)

 10.1

 2018 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-K for the year ended December 31, 2018).

 10.2

 Consulting and Advisory Services Agreement, effective as of February 15, 2019, by and between the Registrant and WCC Ventures, LLC (incorporated by reference to Exhibit 99 to the Registrant's Form 8-K filed with the SEC on February 22, 2019).

 10.3

 Advisory Board Agreement by and between Registrant and Christopher Donaghey (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-231885).

 10.4

 Executive Employment Agreement, dated as of April 18, 2019, by and between the Registrant and Gregory J. Quarles (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-231885).

 10.5

 Master Services Agreement, effective as of July 16, 2018, by and between the Registrant and Westpark Advisors, LLC (incorporated by reference to Exhibit 99 to the Registrant's Form 8-K filed with the SEC on July 7, 2018), as amended by the First Amendment to Master Services Agreement, dated as of April 21, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC on April 27, 2021) and further amended by the Second Amendment to Master Services Agreement, dated January 17, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC on January 25, 2023).

 10.6

 Executive Employment Agreement, dated as of May 1, 2023, by and between the Registrant and Stephen W. McCahon (incorporated by reference to Exhibit 10.1 filed with the Registrant's Form 8-K filed with the SEC on May 5, 2023)

 10.7

 Asset Purchase Agreement, by and between the Registrant and Applied Optical Sciences, Inc. LLC (incorporated by reference to comparable exhibit filed with the Registrant's Form 8-K filed with the SEC on May 31, 2019)

 10.9

 Lease Agreement, by and between the Registrant and Campus Research Corporation (incorporated by reference to Exhibit 10.1 in the Registrant's Form 8-K filed with the SEC on March 17, 2021.

 10.10

 Executive Employment Agreement, dated as of January 1, 2022, by and between the Registrant and Mary P. O'Hara (incorporated by reference to the comparable exhibit filed with the Registrant's Form 10-K for the year ended December 31, 2022).

 10.11

 Executive Employment Agreement, dated as of July 13, 2022, by and between the Registrant and Christopher Donaghey (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC on July 18, 2022).

 Insider Trading Policy

 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

 31.1

 Certification of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 31.2

 Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 32.1

 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 32.2

 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 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.

 101.INS

 101.SCH

 101.CAL

 101.DEF

 101.LAB

 101.PRE

 SIGNATURES

 Pursuant to the requirements
of Section 13 and 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 26 th day of March 2024.

 By:

 /s/ Gregory J. Quarles

 Gregory J Quarles, President, and

 Chief Executive Officer

 /s/ Christopher Donaghey

 Christopher Donaghey, Chief Operating

and Financial Officer

 Pursuant to the requirements
of the Securities Exchange Act, this report has been signed below on the 26 th day of March 2024 by the following persons on
behalf of the registrant and in the capacities indicated:

 Name

 Title

 /s/ Bradford
 T. Adamczyk

 Director, Executive Chairman

 Bradford T. Adamczyk

 /s/ Gregory
 J. Quarles

 Director, President and Chief Executive Officer

 Gregory J. Quarles

 /s/ Jonathan
 R. Barcklow

 Jonathan R. Barcklow

 /s/ John E.
 Schultz Jr.

 John E. Schultz Jr.

 /s/ Mary P.
 O'Hara

 Director, General Counsel, Chief Legal Officer and
 Secretary

 Mary P. O'Hara

 APPLIED
ENERGETICS, INC.

 FINANCIAL STATEMENTS

 FOR THE YEARS ENEDED DECEMBER 31, 2023 and
2022

 Page
 No.

 Report of Independent Registered Public Accounting
 Firm

 CONSOLIDATED FINANCIAL STATEMENTS

 Consolidated Balance Sheets

 Consolidated Statements of Operations

 Consolidated Statements of Stockholders' Equity

 Consolidated Statements of Cash Flows

 Notes to the Consolidated Financial Statements

 F- 1

 Report of Independent Registered Public Accounting
Firm

 To the Stockholders and the Board of Directors of

 Applied Energetics, Inc. and Subsidiary

 Opinion on the Financial Statements

 We have audited the accompanying consolidated
balance sheets of Applied Energetics, Inc. and Subsidiary (collectively, the "company") as of December 31, 2023 and 2022 and
the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the two-year
period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the company
at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 The Company's Ability to Continue as
a Going Concern

 The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has suffered recurring losses from operations and will require additional capital to fund its current operating plan, that
raises substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters
are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.

 Basis for Opinion

 These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matters

 Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments.

 We determined that there are no critical audit matters.

 RBSM LLP

 We have served as the company's auditor since 2016.

 Las Vegas, NV

 March 26, 2024

 PCAOB ID Number 587

 F- 2

 CONSOLIDATED BALANCE SHEETS

 DECEMBER 31,

 2023

 2022

 ASSETS

 Current assets

 Cash and cash equivalents

 $
 1,319,526

 $
 5,640,308

 Accounts receivable

 567,792

 353,149

 Other assets

 148,338

 92,774

 Total Current Assets

 2,035,656

 6,086,231

 Long-term assets

 Security deposit

 17,004

 17,004

 Property and equipment – net

 434,563

 192,935

 Right of Use Asset – Operating

 1,054,736

 432,057

 Total Long-term assets

 1,506,303

 641,996

 Total Assets

 $
 3,541,959

 $
 6,728,227

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities

 Accounts payable

 $
 312,958

 $
 116,970

 Notes payable

 -

 Due to related parties

 50,000

 50,000

 Operating Lease Liability – current

 166,927

 113,478

 Deferred Revenue

 308,908

 -

 Accrued expenses

 40,510

 28,005

 Accrued dividends

 48,079

 48,079

 Total Current Liabilities

 927,382

 756,532

 Long-term liabilities

 Operating Lease Liability - non-current

 994,491

 393,709

 Total Long-Term Liabilities

 994,491

 393,709

 Total Liabilities

 1,921,873

 1,150,241

 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, 2023 and December 31, 2022 (Liquidation preference $ 340,050 and $ 340,050, respectively)

 Common stock, $.001 par value, 500,000,000 shares authorized; 211,236,688 and 210,848,671 shares issued and outstanding at December 31, 2023 and at December 31, 2022, respectively

 211,237

 210,849

 Additional paid-in capital

 112,223,129

 108,830,982

 Accumulated deficit

 ( 110,814,294
)

 ( 103,463,859
)

 Total Stockholders' Equity

 1,620,086

 5,577,986

 Total Liabilities and Stockholders' Equity

 $
 3,541,959

 $
 6,728,227

 The accompanying notes are an integral part of
these consolidated financial statements.

 F- 3

 CONSOLIDATED STATEMENTS OF OPERATIONS

 FOR THE YEARS ENDED
 DECEMBER 31,

 2023

 2022

 Revenue

 $
 2,631,443

 $
 1,307,757

 Cost of revenue

 637,697

 305,675

 Gross profit

 1,993,746

 1,002,082

 Operating expenses:

 General and administrative

 8,771,901

 6,129,781

 Selling and marketing

 384,231

 321,384

 Research and development

 233,722

 320,506

 Total operating expenses

 9,389,854

 6,771,671

 Operating loss

 ( 7,396,108
)

 ( 5,769,589
)

 Other income/(expense)

 Other income

 45,673

 1,674

 Interest expense

 -

 ( 3,727
)

 Total other income/(expense)

 45,673

 ( 2,053
)

 Loss before provision for income taxes

)

)

 Provision for income taxes

 -

 -

 Net loss

)

)

 Preferred stock dividends

 ( 34,005
)

 ( 34,005
)

 Net loss attributable to common stockholders

 $
 ( 7,384,440
)

 $
 ( 5,805,647
)

 Net loss attributable to common stockholders per common share – basic and diluted

 $
 ( 0.03
)

 $
 ( 0.03
)

 Weighted average number of common shares outstanding, basic and diluted

 211,084,080

 208,128,246

 The accompanying notes are an integral part of
these consolidated financial statements.

 F- 4

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY

 FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

 Preferred Stock

 Common Stock

 Additional

 Paid-In

 Accumulated

 Total

 Stockholders'

 (Deficit)

 Amount

 Amount

 Capital

 Deficit

 Equity

 Balance at December 31, 2021

 13,602

 $

 207,562,461

 $
 207,562

 $
 100,452,862

 $
 ( 97,692,217
)

 $
 2,968,221

 RSU restricted stock

 -

 -

 130,417

 ( 131
)

 -

 -

 Stock-based compensation

 -

 -

 -

 -

 1,776,140

 -

 1,776,140

 Common stock issued on exercise of options and warrants

 -

 -

 162,066

 18,907

 -

 19,069

 Sale of common stock

 -

 -

 2,993,727

 2,994

 6,583,204

 -

 6,586,198

 Net loss for the year ended December
 31, 2022

 -

 -

 -

 -

 -

)

)

 Balance at December 31, 2022

 13,602

 $

 210,848,671

 $
 210,849

 $
 108,830,982

 $
 ( 103,463,859
)

 $
 5,577,986

 The accompanying notes are
an integral part of these consolidated financial statements.

 F- 5

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY

 FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

 Preferred Stock

 Common Stock

 Additional Paid-In

 Accumulated

 Total Stockholders' (Deficit)

 Amount

 Amount

 Capital

 Deficit

 Equity

 Balance at December 31, 2022

 13,602

 $

 210,848,671

 $
 210,849

 $
 108,830,982

 $
 ( 103,463,859
)

 $
 5,577,986

 Stock-based compensation

 -

 -

 -

 -

 3,472,312

 -

 3,472,312

 RSU Restricted Stock

 -

 -

 9,584

 21,075

 -

 21,085

 Common stock issued on exercise of options

 -

 -

 285,000

 35,524

 -

 35,809

 Common stock issued for settlement of restricted stock units

 -

 -

 150,000

 -
 (150
)

 -

 -

 Common stock withheld to cover income tax withholding obligations

 -

 -

 ( 56,567
)

 (57
)

 -
 (136,614
)

 -

 ( 136,671
)

 Net loss for the year ended December 31, 2023

 -

 -

 -

 -

 -

)

)

 Balance at December 31, 2023

 13,602

 $

 211,236,688

 $
 211,237

 $
 112,223,129

 $
 ( 110,814,294
)

 $
 1,620,086

 The accompanying notes are an integral part of
these consolidated financial statements.

 F- 6

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 FOR THE YEARS ENDED

DECEMBER 31,

 2023

 2022

 CASH FLOWS FROM OPERATING ACTIVITIES

 Net loss

 $

)

 $

)

 Adjustments to reconcile net loss to net cash used in operating activities:

 Non-cash stock-based compensation expense

 3,493,397

 1,776,140

 Amortization of ROU assets

 143,602

 112,613

 Depreciation and amortization

 127,639

 73,519

 Loss on disposal of equipment

 -

 14,540

 Amortization of future compensation payable

 -

 416,666

 Amortization of prepaid assets

 202,354

 221,352

 Changes in assets and liabilities:

 Accounts receivable

 ( 214,643

)

 ( 353,149

)

 Prepaids and deposits

 ( 257,918

)

 ( 270,735

)

 ROU liabilities

 ( 112,050

)

 ( 76,228

)

 Deferred Revenue

 308,908

 -

 Accounts payable

 195,988

 ( 78,412

)

 Accrued expenses and compensation

 12,505

 5,499

 Net cash used in operating activities

 ( 3,450,653

)

 ( 3,929,837)

 CASH FLOWS FROM INVESTING ACTIVITIES

 Purchase of equipment

 ( 369,267

)

 ( 74,184

)

 Net cash used by investing activities

 ( 369,267

)

 ( 74,184

)

 CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from sale of common stock

 -

 6,586,193

 Repayment on note payable

 ( 555,541

)

 ( 798,988

)

 Proceeds from note payable

 155,541

 175,435

 Tax withholdings related to net share settlement of RSU's

 ( 136,671

)

 -

 Proceeds from the exercise of stock options and warrants

 35,809

 19,069

 Net cash (used in) provided by financing activities

 ( 500,862

)

 5,981,709

 Net (decrease) increase in cash and cash equivalents

 ( 4,320,782

)

 1,977,688

 Cash and cash equivalents, beginning of year

 5,640,308

 3,662,620

 Cash and cash equivalents, end of year

 $

 1,319,526

 $

 5,640,308

 Supplemental Cash Flow Information

 Cash paid for interest

 $

 5,726

 $

 3,727

 Cash paid for taxes

 $

 -

 $

 -

 Schedule of Non-Cash Information

 Insurance financing for prepaid insurance

 $

 155,541

 $

 175,435

 Implementation of ASC 842

 $

 766,281

 $

 -

 The accompanying notes are an integral part of
these consolidated financial statements.

 F- 7

 NOTE 1 – ORGANIZATION OF BUSINESS, GOING
CONCERN AND SUMMARY OF SIGNFICANT 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.

 Going Concern

 The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business.

 For the year ended December
31, 2023, the company incurred a net loss of $ 7,350,435, had negative cash flows from operations of $ 3,450,653 and may incur additional
future losses if the company is unable to secure significant government contracts. At December 31, 2023, the company had total current
assets of $ 2,035,656 and total current liabilities of $ 927,382 resulting in working capital of $ 1,108,274. At December 31, 2023, the
company had cash of $ 1,319,526.

 Based on the company's current
business plan, it believes its cash balance as of the date of this filing, together with anticipated revenues from government contracts
and one or more possible capital raises, will be sufficient to meet its anticipated cash requirements for the near term. However, the
current business plan may prove unachievable. Such conditions raise substantial doubts about the company's ability to continue as
a going concern for one year from the date the financial statements are issued.

 The company's existence
depends upon management's ability to develop profitable operations. Management is devoting substantially all of its efforts to
developing its business and raising capital which may not result in profitable operations or enable it to overcome future liquidity concerns.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of assets, the amount
or classification of liabilities or otherwise that might be necessary should the company be unable to continue as a going concern.

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

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

 Applied Energetics, Inc.
is a corporation organized and existing under the laws of the State of Delaware. Our headquarters are located at 9070 S. Rita Road
Suite 1500, Tucson, Arizona, 85747, including office and laboratory space, and our telephone number is (520) 628-7415.

 F- 8

 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 matters
related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such
estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed
herein. Significant estimates include revenue recognition, carrying amounts of long-lived assets, valuation assumptions for share-based
payments, evaluation of debt modification accounting, effective borrowing rate determinations, analysis of fair value transferred upon
debt extinguishment, valuation and calculation of measurements of income tax assets and liabilities.

 Net Loss Attributable to Common Stockholders

 Basic loss per common share
is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for
the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which
are considered to be dilutive common stock equivalents. Diluted net loss per common share is calculated based on the weighted average
number of common and potentially dilutive shares outstanding during the period after giving effect to dilutive common stock equivalents.
Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent.
The number of shares underlying warrants, 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 31,484,477 and 24,869,140 for the years ended
December 31, 2023 and 2022, respectively.

 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. We maintain our cash balances at a commercial bank,
and, at times, balances exceed FDIC limits. As of December 31, 2023, $ 816,026 of our cash balance was uninsured.

 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.

 F- 9

 Revenue Recognition

 The company recognizes revenue
in accordance with ASC Topic 606 – Revenue from Contracts with Customers ("ASC 606") to depict the transfer of control
to the company's customers in an amount reflecting the consideration to which the company expects to be entitled. The company determines
revenue recognition through the following steps:

 i.
 Identification
 of the contract, or contracts, with a customer

 ii.

 Identification of the performance
 obligations in the contract

 iii.

 Determination of the transaction
 price

 iv.

 Allocation of the transaction
 price to the performance obligations in the contract

 v.

 Recognition of revenue,
 when, or as, the company satisfies the performance obligations.

 The company generates revenue
from its customers by performing research and analysis services, and submits technical reports to its customers on a periodic basis summarizing
the results of its findings. The company's single performance obligation is to perform research services and provide feedback.
The fee for these services was fixed.

 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. As of December 31, 2023, $ 816,026 of our cash balance was uninsured.

 NOTE 2 – NEW ACCOUNTING STANDARDS

 In December 2023, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes
(Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of
income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily
through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is
effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively.
Early adoption is permitted. The company is currently evaluating this guidance to determine the impact it may have on its consolidated
financial statements disclosures.

 In November 2023, the FASB
issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities'
segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating
decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for
other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The guidance is effective for
fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024,
with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity's
financial statements. The company is currently evaluating this guidance to determine the impact it may have on its consolidated financial
statements related disclosures.

 F- 10

 NOTES 3 – NOTES PAYABLE

 On May 24, 2019, the company
entered into an Asset Purchase Agreement (the "APA") with Applied Optical Sciences, LLC ("AOS") to acquire certain
assets. As consideration for the APA, the company entered into a promissory note issued to the shareholders of AOS for $ 2,500,000. The
note was non-interest bearing and payable in equal installments. The company made the first three payments of $ 500,000 on February 10,
2021, May 24, 2021, and November 19, 2021, respectively. The Promissory Note was amended on May 23, 2022, which was recorded as modification
of debt, to extend the maturity date by one year to, May 24, 2023 and restructure the payment to time up to the adjusted maturity date.
The remaining balance of $ 1,000,000 as of June 30, 2022 is to be paid in ten equal installments of $ 100,000 over a period of ten months
with the final installment to be paid on April 24, 2023. As of December 31, 2023 the company had repaid the note in full in accordance
with the amended terms.

 Premium Financing

 On April 8, 2022, the company
entered into an agreement with Oakwood D&O Insurance to provide financing in an amount of $ 234,367 for the insurance premium associated
with two D&O policies. Both policies commenced March 12, 2022, and provided coverage for the next 12 months, expiring March 12, 2023.
The loan bears interest at a fixed rate of 5 % per annum and required the company to prepay $ 58,932 and appears on the balance sheet as
a current asset. On April 12, 2022, the company commenced the first of nine principal and interest payments of $ 19,901 for an aggregate
of $ 175,435. In accordance with the terms of the agreement, the final payment was made on December 6, 2022, thus, as of December 31,
2022, the outstanding balance on the note was $ 0.

 On March 16, 2023, the company
entered into an agreement with Oakwood D&O Insurance to provide financing in the amount of $ 155,541 for the insurance premium associated
with two D&O policies. Both policies commenced March 12, 2023, and provided coverage for the next 12 months, expiring March 12, 2024.
The loan bears interest at a fixed rate of 8.75 % per annum, required the company to prepay $ 40,410 and appears on the balance sheet as
a current asset. On April 12, 2023, the company commenced monthly principal and interest payments of $ 17,282, which was the first payment
of nine remaining months due of $ 155,541. In accordance with the terms of the agreement, the final payment was made on December 6, 2023,
thus, as of December 31, 2023, the outstanding balance on the note was $ 0.

 The following reconciles notes payable as of
December 31, 2023 and December 31, 2022:

 2023

 2022

 Beginning balance

 $

 $
 1,024,190

 Notes payable

 155,541

 175,435

 Accrued interest

 -

 ( 636
)

 Payments on notes payable

 ( 555,541
)

 ( 798,988
)

 Total

 -

 Less-Notes payable – current

 -

 Notes payable – non-current

 $
 -

 $
 -

 Subsequent to the year ended
December 31, 2023, the company entered into a $ 199,184 financing agreement to finance its Directors and Officers insurance premiums.

 F- 11

 NOTE 4 – DEFERRED COMPENSATION

 On May 24, 2019, the company
entered into the APA with AOS to acquire certain assets. As consideration for the APA, the company entered into a promissory note issued
to the shareholders of AOS for $ 2,500,000. The company also recorded a debt discount, which is reported on the balance sheet as deferred
compensation, in the amount of $ 2,500,000 in relation to the transaction which is being amortized over the life of the loan as compensation
expense. The amortization of deferred compensation for the year ended December 31, 2023, and 2022 was $ 0 and $ 416,666, respectively.
As of December 31, 2023, and 2022, the remaining deferred compensation to be amortized was $ 0.

 NOTE 5 – DUE TO RELATED PARTIES

 On July 31, 2018, the company's
now deceased CEO deposited $ 50,000 into the company's account. Although it has been suggested that the funds may have been intended
for use toward this CEO's healthcare, the company does not know for certain what the purpose of the funds were or the nature of
any intended investment. Accordingly, the company is investigating the appropriate disposition of the funds which will likely be to the
estate of the former CEO. Until such a determination is made, the company does not intend to use these funds for any corporate purpose.
For reporting purposes, the company has treated the deposit as a due to related party.

 NOTE 6 – STOCKHOLDERS' DEFICIT

 Authorized Capital Stock

 The company's 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.

the year ended December 31, 2022, the company issued 130,417 shares of common stock for previously vested and expensed shares in relation
to a restricted stock agreement. For the year ended December 31, 2022, the company recorded $ 0 in relation to these shares.

31, 2022, the company issued 137,066 shares of common stock upon the exercise of 137,066 options at an exercise price of $ 0.13 a share.
As a result, the company received $ 17,819 in cash proceeds as part of the transaction.

31, 2022, the company issued 25,000 shares of common stock upon two warrant exercises of 12,500 shares each, at an exercise price of
$ 0.05 a share. The company received $ 1,250 in cash proceeds as part of the transaction.

31, 2022, the company issued 2,993,727 shares of common stock in a private placement to accredited investors for $ 2.20 per share or $ 6,586,198
of net cash proceeds, in the aggregate.

 Effective August 1, 2022,
the company entered into an Executive Employment Agreement with the company's Chief Financial Officer ("CFO"). As part
of the Executive Employment Agreement, the company granted 1,000,000 options to purchase shares of common stock at an exercise price
of $ 2.36 per share. The options vest over a period of four years and expire ten years from the date of the grant. The CFO was also granted
 400,000 shares of restricted to units as part of his Executive Employment Agreement (see "Share-Based Payments" below). Further,
he forfeited unvested options to purchase 950,000 shares of common stock which he had previously received for his service on the company's
Board of Advisors. The forfeiture of the unvested options resulted in the reversal of previously recorded stock-based compensation expense
in the amount of approximately $ 176,000.

31, 2023, the company issued the remaining 9,584 shares of common stock with a grant date fair value of $ 21,085, pursuant to a restricted
stock agreement dated May 2021.

 F- 12

31, 2023, the company issued 100,000 shares of common stock upon the exercise of 100,000 options at an exercise price of $ 0.07 a share.
As a result, the company received $ 7,000 in cash proceeds as part of the transaction.

31, 2023, the company issued 75,000 shares of common stock upon the exercise of 75,000 options at an exercise price of $ 0.13 a share.
As a result, the company received $ 9,750 in cash proceeds as part of the transaction.

31, 2023, the company issued 10,000 shares of common stock upon the exercise of 10,000 options at an exercise price of $ 0.13 a share.
As a result, the company received $ 1,300 in cash proceeds as part of the transaction.

31, 2023, the company issued 10,000 shares of common stock upon the exercise of 10,000 options at an exercise price of $ 0.07 a share.
As a result, the company received $ 700 in cash proceeds as part of the transaction.

31, 2023, the company issued 30,000 shares of common stock upon the exercise of 30,000 options at an exercise price of $ 0.35 a share.
As a result, the company received $ 10,500 in cash proceeds as part of the transaction.

31, 2023, the company issued 30,000 shares of common stock upon the exercise of 30,000 options at an exercise price of $ 0.07 a share.
As a result, the company received $ 2,100 in cash proceeds as part of the transaction.

31, 2023, the company issued 27,934 shares of common stock upon the exercise of 27,934 options at an exercise price of $ 0.13 a share.
As a result, the company received $ 3,631 in cash proceeds as part of the transaction.

31, 2023, the company issued 2,066 shares of common stock upon the exercise of 2,066 options at an exercise price of $ 0.40 a share. As
a result, the company received $ 826 in cash proceeds as part of the transaction.

the year ended December 31, 2023, the restricted stock units covering 150,000 shares of the company's common stock vested. The
company issued 150,000 and withheld 56,567 shares of common stock from the holders pursuant to their restricted stock unit agreements
to cover its tax withholding obligation of $ 136,671.

31, 2023 and 2022, the company recognized stock-based compensation in the amount of $ 3,493,397 and $ 1,776,140, respectively.

 Preferred Stock

 As
of December 31, 2023, and December 31, 2022, there were 13,602 shares of Series A Redeemable Convertible Preferred Stock (the "Series
A Preferred Stock") issued and outstanding, respectively. The company has not paid the dividends commencing with the quarterly dividend
due August 1, 2013. Dividend arrearages as of December 31, 2023, including previously accrued dividends included in our balance sheet
are approximately $ 357,053.
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.

 F- 13

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

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

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

 Stock Option and Stock Issuance Plan

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

 We
have, from time to time, also granted non-plan shares, restricted stock units and options to certain officers, directors, employees and
consultants. Total stock-based compensation expense for grants to officers, employees and consultants was $ 3,493,397 and $ 1,776,140
for the years ended
December 31, 2023, and 2022, respectively, which was charged to general and administrative expense.

31, 2023, the company issued incentive stock options to purchase up to 312,500 shares of common stock, at an exercise price of $ 2.05,
to one employee.

 F- 14

31, 2023, the company issued incentive stock options to purchase up to 50,000 shares of common stock, at an exercise price of $ 2.20, to
two employees.

31, 2023, the company issued incentive stock options to purchase up to 100,000 shares of common stock, at an exercise price of $ 2.25,
to one new employee.

31, 2023, the company issued a non-qualified stock option to purchase up to 100,000 shares of common stock, at an exercise price of $ 2.51,
to one consultant. In addition, the company issued incentive stock options to purchase up to 100,000 shares of common stock, at an exercise
price of $ 2.35, to one new employee.

31, 2023, the company issued incentive stock options to purchase up to 150,000 shares of common stock, at an exercise price of $ 2.41,
to one employee.

31, 2023, the company issued incentive stock options to purchase up to 2,800,000 shares of common stock, at an exercise price of $ 2.35,
to eleven employees.

 See Note 6 – Stockholders'
Equity – Authorized Capital Stock for details related to the exercise of an aggregate of 285,000 options during the year ended December
31, 2023.

 The
$ 3,493,397 stock-based compensation for the year ended December 31, 2023, was comprised of $ 3,472,312 option expense from the vesting
of the restricted stock and $ 21,085 expense related to shares of common stock for services rendered pursuant to a board of advisor's
agreement.

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

 Stock Options

 We determine the fair value
of option grant share-based awards at their grant date, using a Black-Scholes- Merton Option Pricing Model.

 As of December 31, 2023, the
company has $ 8,947,945 of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures.
The cost is expected to be recognized on a weighted average basis over a period of approximately six years.

 The following table summarizes
the activity of our stock options for the years ended December 31, 2023 and 2022:

 Exercise
 Price

 Contractual
 Term
 Outstanding

 Intrinsic
 Value

 Outstanding at December 31, 2021

 28,415,000

 $
 0.1859

 5.84

 $
 60,640,900

 Granted

 2,520,451

 2.3745

 17,358,678

 Exercised

 ( 137,066
)

 ( 0.1300
)

 ( 1,287,274
)

 Forfeited or expired

 ( 7,950,000
)

 -

 ( 73,629,987
)

 Outstanding at December 31, 2022

 22,848,385

 $
 0.3666

 6.42

 $
 203,236,473

 Granted

 3,662,500

 2.3244

 26,571,396

 Exercised

 ( 285,000
)

 ( 0.1256
)

 ( 2,694,319
)

 Forfeited or expired

 ( 30,451
)

 -

 ( 291,702
)

 Outstanding at December 31, 2023

 26,195,434

 $
 0.6410

 9.37

 $
 226,821,848

 Outstanding and exercisable at December 31, 2023

 21,144,321

 $
 0.2501

 7.44

 $
 197,262,356

 F- 15

 The Company determines 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:

 Years Ended

 Assumptions:

 2023

 2022

 Risk-free interest rate

 1.26 - 4.24
 %

 0.08 - 4.45
 %

 Expected dividend yield

 %

 %

 Expected volatility

 109.48 - 130.00
 %

 126.33
 %

 Expected life (in years)

 Restricted Stock

31, 2023, the company issued restricted stock units covering an aggregate of 1,075,909 shares for services rendered pursuant to an amendment
to a master services agreement with a consultant and employee agreements.

 As
of December 31, 2023, the company has $ 5,181,584 of unrecognized compensation cost related to unvested restricted stock units granted
and outstanding.

 The fair value of restricted
stock and restricted stock units was estimated using the closing price of our common stock on the date of award and fully recognized upon
vesting. Restricted stock activity for the years ended December 31, 2023 and 2022, was as follows:

 Restricted Stock

 Outstanding

 Fair Value
 per Share at
 Grant Date

 Outstanding at December 31, 2021

 $
 0.52

 Granted – restricted stock units and awards

 2,604,545

 2.06

 Granted – performance – based stock units

 -

 -

 Canceled

 -

 -

 Vested and converted to shares

 -

 -

 Outstanding at December 31, 2022

 2,819,545

 $
 1.93

 Granted – restricted stock units and awards

 1,075,909

 1.86

 Granted – performance – based stock units

 -

 -

 Canceled

 ( 50,000
)

 -

 Vested and converted to shares*

 ( 365,000
)

 ( 0.30
)

 Outstanding at December 31, 2023

 3,480,454

 $
 2.15

 *
 Of which 75,000 shares were issued in the first quarter of 2021
and 130,416 were issued in the first quarter of 2022.

 F- 16

 Warrants

 The following table summarizes
the activity of our warrants for the years ended December 31, 2023 and 2022:

 Warrant Activity

 Exercise
 Price

 Remaining
 Contractual
 Term
 (years)

 Outstanding at December 31, 2021

 1,775,000

 $
 0.0599

 7.43

 Granted

 -

 -

 -

 Exercised

 ( 25,000
)

 0.0500

 -

 Forfeited or expired

 -

 -

 -

 Outstanding at December 31, 2022

 1,750,000

 0.0600

 6.53

 Granted

 -

 -

 -

 Exercised

 -

 -

 -

 Forfeited or expired

 -

 -

 -

 Outstanding at December 31, 2023

 1,750,000

 $
 0.0600

 5.53

 Outstanding and exercisable at December 31, 2023

 1,750,000

 $
 0.0600

 5.53

 NOTE 7 – REVENUE RECOGNITION

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

 The following table summarizes the company's
accounts receivable, net,

 2023

 2022

 Accounts receivable

 $
 153,029

 $
 353,149

 Unbilled receivable

 414,763

 -

 Total

 $
 567,792

 $
 353,149

 Concentrations

the year ended December 31, 2023, the company earned revenue from three contracts with two separate customers. One customer accounted
for $ 1,946,715 or 74 % of revenue recognized during the period. As of December 31, 2023, the company has $ 567,792 of accounts receivable
recorded as current assets on the balance sheet. As of December 31, 2023, one customer accounted for $ 567,792 or 100 % of accounts receivable.

 F- 17

the year ended December 31, 2022, the company earned revenue from two contracts with two separate customers. One customer accounted for
$ 1,135,584 or 87 % of revenue recognized during the period. As of December 31, 2022, the company has $ 353,149 of accounts receivable recorded
as current assets on the balance sheet. As of December 31, 2022, one customer accounted for $ 324,452 or 92 % of accounts receivable.

 NOTE 8 – COMMITEMENTS AND CONTINGENCIES

 Operating Leases

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

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

 The company incurred lease
expense for its operating leases of $ 212,054 which was included in general and administrative expenses in the statements of operation
for the year ended December 31, 2023. During the year ended December 31, 2023, the company made cash lease payments in the amount of $ 180,502.

 At December 31, 2023, we had
approximately $ 262,000 in future minimum lease payments due in less than a year. The below table presents the future minimum lease payments
due reconciled to lease liabilities.

 Operating

 Lease

 For the fiscal years ending December 31,:

 $

 2024

 262,296

 2025

 296,284

 2026

 324,427

 2027

 343,545

 Thereafter

 205,111

 Total undiscounted lease payments

 1,431,663

 Present value discount, less interest

 270,245

 Lease Liability

 $
 1,161,418

 Guarantees

 The company agrees to indemnify
its officers and directors for certain events or occurrences arising as a result of the officers or directors serving in such capacity.
The maximum amount of future payments that the company could be required to make under these indemnification agreements is unlimited.
However, the company maintains a director's and officer's liability insurance policy that limits its exposure and enables
it to recover a portion of any future amounts paid. As a result, it believes the estimated fair value of these indemnification agreements
is minimal because of its insurance coverage, and it has not recognized any liabilities for these agreements as of December 31, 2023 and
2022.

 F- 18

 Litigation

 On
July 3, 2019, Gusrae, Kaplan & Nusbaum and its partner, Ryan Whalen filed a complaint in the United States District Court for the
Southern District of New York against the company, its directors, officers, attorneys and a consultant. The action alleged libel, securities
fraud and related claims. The company filed a motion to dismiss the complaint on October 24, 2019. On December 13, 2019, Gusrae Kaplan
and Mr. Whalen filed an opposition to the company's motion. On January 10, 2020, the company filed a reply brief. On August 5, 2021,
the plaintiffs filed a Notice of Voluntary Dismissal of the action without prejudice.

 On
January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan
& Nusbaum and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel to
the company. On May 28, 2021, Gusrae, Kaplan & Nusbaum and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021, the
company filed an opposition to the motion. On July 13, 2021, Gusrae Kaplan & Nusbaum and Mr. Whalen filed their reply brief. On March
30, 2022, United States Magistrate Judge Debra Freeman signed an order denying the motion of GKN and Mr. Whalen to dismiss the company's
claim for malpractice and for rescission of the shares-for-fees agreement under which GKN and Whalen received 1,242,710 shares of the
company's common stock. The motion was partially granted as to the separate claim for violation of NYRPC 1.7 and 1.8 because the
court found that it was duplicative of the malpractice claim. The parties are currently engaged in discovery. No trial date has been set.

 On
July 26, 2023, the company filed a complaint in the Superior Court of the State of Delaware against Gusrae Kaplan Nusbaum PLLC and Ryan
Whalen, for malicious prosecution of a federal securities fraud lawsuit which was filed by these defendants against the company and certain
of its directors, attorneys and their law firms and an outside consultant, in July 2019 in the United States District Court for the Southern
District of New York. The complaint filed by the company alleges that the claims by these defendants against it were frivolous and prosecuted
for the improper purpose of hindering the company's prosecution of a then pending case against George Farley, the company's
former CEO, which was later settled. The complaint further alleges that the defendants prosecuted their claim with malice causing the
company damages valued in excess of $ 40 million. On September 11, 2023, Gusrae, Kaplan & Nusbaum and Mr. Whalen filed a motion to
dismiss the complaint. On October 25, 2023, the company filed an opposition to the motion. The court heard oral argument on the motion
on January 19, 2024, and took the motion under submission. The court has not yet ruled on the motion.

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

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

 NOTE 9 – INCOME TAXES

 An analysis of the difference
between the expected federal income tax for the years ended December 31, 2023, and 2022, and the effective income tax rate is as follows:

 Noncurrent deferred tax assets (liabilities):

 2023

 2022

 Deferred Tax Assets

 Research and Development

 $
 108,115

 $
 -

 Accrued Compensation

 3,179,367

 1,999,477

 Fixed Assets and intangibles

 ( 271,594
)

 ( 162,853
)

 Right of Use Asset

 26,533

 -

 Other Assets

 105,790

 -

 Net Operating Loss Carryforwards and Credits

 12,207,478

 13,457,207

 Total Deferred Tax Assets

 $
 15,355,688

 $
 15,293,832

 Valuation Allowance

 ( 15,355,688
)

 ( 15,293,832
)

 Net deferred tax / (liabilities)

 $
 -

 $
 -

 F- 19

 Tax effects of temporary differences at December
31, 2023 and December 31, 2022 are as follows:

 2023

 2022

 Taxes calculated at federal rate

 $
 ( 1,543,591
)

 21.0
 %

 $
 ( 1,212,045
)

 21.0
 %

 State income tax, net of federal benefit

 ( 265,169
)

 3.6
 %

 ( 202,970
)

 3.5
 %

 Change in Valuation Allowance

 61,856

 - 0.8
 %

 ( 1,558,025
)

 %

 Expiration of tax attributes

 1,350,377

 - 18.4
 %

 2,973,040

 - 51.5
 %

 Prior period adjustment

 410,461

 - 5.6
 %

 -

 0.0
 %

 Permanent Items

 ( 13,933
)

 0.2
 %

 -

 0.0
 %

 Provision (benefit) for taxes

 $
 -

 0.0
 %

 $
 -

 0.0
 %

 Deferred tax assets and liabilities
are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax
attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers
whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences
reverse. During the year ended December 31, 2023, the deferred tax assets and the valuation allowance increased by $ 133,598 mainly as
a result of current year tax loss.

 As of December 31, 2023, we
have cumulative federal and Arizona net operating loss carryforwards of approximately $ 80.4 million and $ 16.8 million, respectively, which
can be used to offset future income subject to taxes. Of the $80.4 million, of Federal net operating loss carryforwards, $65.1 begin to
expire in 2024. The remaining balance of $15.3 million is limited in annual usage of 80% of current years taxable income but do not have
an expiration. Arizona net operating loss carryforwards begin to expire in 2037. In addition there are federal net operating loss carryforwards
of approximately $27.0 million from USHG related to pre-merger losses. We also have pre-merger federal capital loss carryforwards of approximately
$520,000.

 As of December 31, 2023, we
had cumulative federal and state unused research and development tax credits of approximately $ 290,000 and $ 122,000, which can be used
to reduce future federal and Arizona income taxes, respectively. As of December 31, 2023, 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 are 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, 2020

 $
 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, 2021

 $
 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, 2022

 $
 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, 2023

 $
 9,635,824

 F- 20

 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, 2023, for federal tax purposes the tax years 2020-2023 and for Arizona
the tax years 2017 through 2023 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, 2023, and 2022, we had no accrued interest or
penalties related to our unrecognized tax benefits.

 NOTE 10 – SUBSEQUENT EVENTS

 The company's management
has evaluated subsequent events occurring after December 31, 2023, the date of our most recent balance sheet, through the date our financial
statements were issued.

 Premium Financing

 Subsequent to the year ended
December 31, 2023, the company entered into a $ 199,184 financing agreement to finance its Directors and Officers insurance premiums.

 Common Stock

 Subsequent to the year ended December 31, 2023, the company issued
 30,000 shares of common stock upon the exercise of options at an exercise price of $ 0.35 per share. The company received $ 10,500 in cash
proceeds, minus required withholding, from the exercise of such options.

 Subsequent to the year ended December 31, 2023, the company issued
 30,000 shares of common stock upon the exercise of options at an exercise price of $ 0.07 per share. The company received $ 2,100 in cash
proceeds, minus required withholding, from the exercise of such options.

 Subsequent to the year ended December 31, 2023, the company issued
 66,000 shares of common stock upon exercise of warrants at an exercise price of $ 0.06 per share. The company received $ 3,960 in proceeds
from the exercise of such options.

 Commencing January 29, 2024,
the company is conducting an offering of up to one million shares of its common stock, par value, $ 0.001 per share. To date, the company
has received subscriptions in the amount of $ 1,200,000 but has not yet conducted a closing of the offering.

 Newly Elected Director

 On
March 25, 2024, the company's Board of Directors voted by Unanimous Written Consent to elect Michael J. Alber to serve as a director.
Mr. Alber's term is to commence on April 1, 2024. As compensation for his services on the Board, the company intends to issue
to Mr. Alber options to purchase up to 250,000 shares of its common stock at an exercise price equal to the fair market value on the date
of grant. These options will be subject to vesting in the amount of 100,000 shares on the first anniversary of his service and 75,000
on each of the second and third anniversaries of his service and to further terms and conditions as set forth in a Nonqualified Stock
Option Agreement to be entered into between the company and Mr. Alber under the company's 2018 Equity Incentive Plan.

 Contract Modification

 On
March 11, 2024, the company modified its existing contract with one of its customers for which the company has already performed work.
The contract term was extended until November 2024 and the contract price was modified.

 NONE

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 2023-06-07

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