10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

OR

x 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)

3590 East Columbia Street
Tucson, Arizona	85714
(Address of Principal Executive Offices)	(Zip Code)

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

Indicate by check mark 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 o No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer: ¨	Accelerated filer: x	Non-accelerated filer: ¨	Smaller reporting company: ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.  As of May 7, 2009, there were 86,543,672 shares of the issuer's common stock, par value $.001 per share, outstanding.

APPLIED ENERGETICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008	1
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 (Unaudited)	2
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (Unaudited)	3
		Notes to Condensed Consolidated Financial Statements	4
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		10
ITEM 4.	Controls and Procedures		13
PART II.  OTHER INFORMATION
ITEM 6.	Exhibits		14
SIGNATURES			15

i

PART I.  FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APPLIED ENERGETICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	15,282,987		$	15,467,386
Accounts receivable		1,327,686			2,727,853
Inventory		251,794			157,189
Prepaid expenses and deposits		337,392			495,718
Other receivables		193,649			17,183
Total current assets		17,393,508			18,865,329
Long term receivables - net		253,130			253,130
Property and equipment - net		3,337,005			3,523,641
Intangible assets - net		24,600			36,900
Other assets		15,972			29,089
TOTAL ASSETS	$	21,024,215		$	22,708,089
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	558,133		$	883,228
Estimated loss on uncompleted contract		98,239			98,239
Accrued expenses		555,500			326,697
Accrued compensation		1,548,116			1,048,774
Customer deposits		81,381			11,565
Billings in excess of costs		1,774			-
Current portion of capital lease obligations		-			2,028
Total current liabilities		2,843,143			2,370,531
Deferred rent		-			4,049
Total liabilities		2,843,143			2,374,580
Commitments and contingencies
Stockholders’ equity
Series A Convertible Preferred Stock, $.001 par value, 2,000,000 shares authorized;135,572 shares issued and outstanding at March 31, 2009 and at December 31, 2008		136			136
Common stock, $.001 par value, 125,000,000 shares authorized; 86,527,672 shares issued and outstanding at March 31, 2009 and 86,370,026 shares issued and outstanding at December 31, 2008		86,520			86,370
Additional paid-in capital		74,813,023			73,936,085
Accumulated deficit		(56,718,607	)		(53,689,082	)
Total stockholders’ equity		18,181,072			20,333,509
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	21,024,215		$	22,708,089

See accompanying notes to condensed consolidated financial statements (unaudited)

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APPLIED ENERGETICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended March 31,
	2009			2008
Revenue	$	2,587,398		$	1,961,090
Cost of revenue		2,401,446			1,740,108
Gross profit		185,952			220,982
Operating expenses:
General and administrative		2,435,723			3,365,464
Selling and marketing		238,023			38,584
Research and development		517,661			361,938
Total operating expenses		3,191,407			3,765,986
Operating loss		(3,005,455	)		(3,545,004	)
Other (expense) income
Interest expense		(19	)		(1,313	)
Interest income		31,027			249,828
Other		-			10
Total other		31,008			248,525
Net loss		(2,974,447	)		(3,296,479	)
Preferred stock dividends		(55,076	)		(295,091	)
Net loss attributable to common stockholders	$	(3,029,523	)	$	(3,591,570	)
Net loss per common share – basic and diluted	$	(0.04	)	$	(0.04	)
Weighted average number of shares outstanding, basic and diluted		86,444,383			80,404,613

See accompanying notes to condensed consolidated financial statements (unaudited)

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APPLIED ENERGETICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the three months ended March 31,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		(2,974,447	)	$	(3,296,479	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		195,148			237,888
Loss on equipment disposal		559			-
Deferred rent adjustment on purchase of premises		-			118,594
Non-cash stock based compensation expense		877,089			1,349,361
Changes in assets and liabilities:
Accounts receivable		1,400,167			1,415,842
Other receivable		(176,466	)		(112,833	)
Inventory		(94,605	)		(863,520	)
Prepaid expenses and deposits		171,443			118,367
Accounts payable		(325,095	)		(563,443	)
Billings in excess of costs		1,774			306,509
Accrued expenses, deposits and deferred rent		793,912			(515,535	)
Net cash used in operating activities		(130,521	)		(1,805,249	)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)/disposal of land, building and equipment		3,226			(2,324,513	)
Net cash (used in)/provided by investing activities		3,226			(2,324,513	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (preferred stock)		(55,076	)		-
Principal payments on capital lease obligations		(2,028	)		(5,527	)
Net cash used in financing activities		(57,104	)		(5,527	)
Net decrease in cash and cash equivalents		(184,399	)		(4,135,289	)
Cash and cash equivalents, beginning of period		15,467,386			14,981,192
Cash and cash equivalents, end of period	$	15,282,987		$	10,845,903

See accompanying notes to condensed consolidated financial statements (unaudited)

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying interim unaudited condensed consolidated financial statements include the accounts of Applied Energetics, Inc. and its wholly owned subsidiaries, Ionatron Technologies, Inc. and North Star Power Engineering, Inc. as of March 31, 2009 (collectively, "company," "Applied Energetics," "we," "our" or "us").  All intercompany balances and transactions have been eliminated.  In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made.  The results for the three-month period ended March 31, 2009, may not be indicative of the results for the entire year.  The interim unaudited condensed consolidated financial statements should be read in conjunction with the company's audited consolidated financial statements contained in our Annual Report on Form 10-K.

The following unaudited condensed financial statements are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other estimates that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation.  Such estimates and assumptions could change in the future, as more information becomes known which could impact the amounts reported and disclosed herein.  Significant estimates include revenue recognition under the percentage of completion method of contract accounting, estimate to forecast loss on a contract under the completed contract method of accounting, the valuation of inventory, and estimate to forecast expected forfeiture rate on stock-based compensation.

RECENT ACCOUNTING PRONOUNCEMENTS

The FASB has issued Statement of Financial Accounting Standard (“SFAS”) No. 107-1, “Interim Disclosures about Fair Value of Financial Instruments” and Accounting Principles Board (“APB”) Opinion No. 28 “Interim Financial Reporting”.  SFAS 107-1 is intended to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies.  This statement is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The adoption of the standard is not expected to have a significant impact on the company’s consolidated financial statements.

In November 2007, the FASB Emerging Issues Task Force (“EITF”) issued EITF 07-5, Determining Whether an instrument is Indexed to an Entity’s Own Stock. As a result of EITF 07-5, freestanding warrants and certain other instruments containing protective features, which provide for adjustments to the exercise or conversion price if the entity subsequently issues shares or other equity-related contracts to a new investor with more favorable pricing, will no longer be eligible to be recorded in equity. EITF 07-5 became effective for us on January 1, 2009. EITF 07-05 has not impacted us to date as we have no outstanding instruments that contain these protective features. We will assess the impact of EITF 07-5 if and when we issue instruments that contain these protective features.

CASH AND MARKETABLE SECURITIES

At March 31, 2009, we had approximately $15.3 million of cash and cash equivalents.   Our cash position decreased during the first three months of 2009 by approximately $184,000.  During the first three months of 2009, operating activities used $131,000 in cash.

We anticipate that short-term and long-term funding needs will be provided by the cash flows from current and future contracts and existing cash and cash equivalents.  We determined that we have sufficient working capital to fulfill existing contracts and expected contracts in 2009 and 2010.

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

2. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

	March 31, 2009		December 31, 2008
Contracts receivable	$	1,173,156	$	1,677,929
Costs and estimated earnings on uncompleted contracts		154,530		1,049,924
		1,327,686		2,727,853
Less:
Allowance for doubtful accounts		-		-
Total	$	1,327,686	$	2,727,853
Long term receivable, net (contract retention)		253,130		253,130
	$	1,580,816	$	2,980,983

Contracts receivable at March 31, 2009 and December 31, 2008 are expected to be collected within a year.

Costs and Estimated Earnings on Uncompleted Contracts

	March 31, 2009			December 31, 2008
Costs incurred on uncompleted contracts	$	20,575,799		$	20,118,499
Estimated earnings		1,600,620			1,564,814
Total billable costs and estimated earnings		22,176,419			21,683,313
Less:
Billings to date		22,023,663			20,633,389
Total	$	152,756		$	1,049,924
Included in accompanying balance sheet:
Unbilled costs and estimated earnings on uncompleted contracts included in accounts receivable	$	154,530		$	1,049,924
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,774	)		-
Total	$	152,756		$	1,049,924

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

3.         INVENTORY

Our inventories consist of the following:

	March 31, 2009		December 31, 2008
Raw materials	$	155,896	$	124,849
Work-in-process		95,898	$	32,340
Total	$	251,794	$	157,189

4.         PROPERTY AND EQUIPMENT

Our property and equipment consist of the following:

	March 31, 2009			December 31, 2008
Land and buildings	$	2,072,215		$	2,072,215
Equipment		2,798,860			3,214,640
Furniture and building improvements		1,107,245			1,107,245
Software		875,298			787,331
Total		6,853,618			7,181,431
Less accumulated depreciation and amortization		(3,516,613	)		(3,657,790	)
Net property and equipment	$	3,337,005		$	3,523,641

Periodically, we evaluate general impairment of assets.  As an element of our annual business planning process  conducted in the fourth quarter of each year, we consider expected revenues and resulting cash flow from operations. Revenue planning is based upon actual and expected contract awards as the majority of our revenues are sourced from Government contracts. During this process, we evaluate the current carrying values of all long-lived assets on our books.  We compare these values against business plans to determine if carrying values are recoverable.

Our most recent asset impairment test was performed on February 18, 2009, when we determined that as of December 31, 2008 the net book values of long-lived assets were recoverable through expected undiscounted business cash flows based on anticipated and actual future revenue bookings and backlog. We will continue to evaluate the carrying values in the future.  We evaluate impairments as such circumstances warrant.

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

5. SHARE-BASED COMPENSATION

Share-Based Compensation – Employees and Directors

For the three months ended March 31, 2009 and 2008, share-based compensation expense totaled $877,000 and $1.35 million, respectively.

There was no related income tax benefit recognized because our deferred tax assets are fully offset by a valuation allowance. During the three months ended March 31, 2009, we granted 105,000 shares of restricted stock to one newly hired employee and two non-employee consultants, which vest up to 3 years.  The weighted average fair value of the restricted stock grants of $0.24 per share is being expensed over the requisite service period.  Additionally, during the three months ended March 31, 2009, we granted options to purchase an aggregate of 800,000 shares of our common stock in connection with a contract extension to our then President, Chief Executive Officer and Chairman of the Board.  These options have a weighted average exercise price of $0.50 and all of these options have now vested fully.

The compensation committee determined to offer employees the right to exchange their “out of the money” options for new three-year, fully vested options with an exercise price of $0.50 per share.  The exchange offer was affected in lieu of broad based equity compensation grants in 2008.  In connection with the exchange offer, which was completed on March 9, 2009, employees and members of the board were offered the right to exchange two existing options for one new option.  In the exchange offer, the company issued 1,751,269 new options in exchange for 3,502,536 old, 2004 Plan options.  The associated non-cash expense for this exchange was approximately $400,000.

On March 31, 2009, the company and Dana A. Marshall entered into a separation agreement (the “Separation Agreement”) pursuant to which Mr. Marshall no longer serves as President, Chief Executive Officer or Chairman of the Board. Pursuant to the terms of the Separation Agreement, Mr. Marshall has received a $135,000 lump sum payment and will receive twelve (12) monthly payments of $29,167.  In addition, the company agreed to accelerate the vesting of 137,500 unvested shares of restricted stock and unvested options to purchase 800,000 shares of common stock.  As such, all of Mr. Marshall’s equity awards were modified pursuant to the SFAS No. 123(R), “Share-Based Payment”, and all appropriate charges have been expensed.

The weighted average grant-date fair value of all outstanding option grants was $0.35 and $2.20, per share, for the three months ended March 31, 2009 and 2008, respectively.  We determine the fair value of share-based awards at their grant date, using a Black-Scholes Option-Pricing Model applying the assumptions in the following table.

	Three Months Ended March 31,
	2009			2008
Expected life (years)	2 years			4 years
Dividend yield		0.0	%		0.0	%
Expected volatility		67.3	%		65.0	%
Risk free interest rates		1.3	%		2.8	%
Weighted average fair value of options at grant date	$	0.35		$	2.20

During the three months ended March 31, 2009, 272,427 shares of restricted stock vested and 31,500 shares of restricted stock were forfeited, no options were exercised, 3,502,536 were tendered to us for cancellation in the exchange offer and 1,191,062 options were forfeited.  As of March 31, 2009, $1.4 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted average period of approximately 1.5 years.  Due to the exchange offer and forfeitures, all SFAS No. 123(R) expense for outstanding options has been included in current or prior Statements of Operations.

Warrants – Non-Employees

At March 31, 2009 and December 31, 2008 there were outstanding warrants to purchase approximately 1.1 million and 1.1 million shares of common stock, respectively, which were either (i) issued in connection with the August 2007 financing, (ii) issued to outside consultants, or (iii) outstanding prior to our reverse merger in March 2004.

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

6.         COMPREHENSIVE LOSS

Total comprehensive loss consisted of the following:

	Three Months Ended March 31,
	2009			2008
Comprehensive Loss
Net loss	$	(2,974,447	)	$	(3,296,479	)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities		-			(375,000	)
Total	$	(2,974,447	)	$	(3,671,479	)

7.         SIGNIFICANT CUSTOMERS

Approximately 100% and 90% of revenues for the three-month periods ended March 31, 2009 and 2008, respectively, are generated from either the U.S. Government or contractors to the U.S. Government.  Ten percent of our 2008 revenue was generated from customers within the aerospace, high-voltage and technology industries.

8. NET LOSS PER SHARE

Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents.  Diluted net income (loss) per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to convertible preferred stock, stock options, warrants and restricted stock units. Contingently issuable shares are included in the computation of basic earnings (loss) per share when issuance of the shares is no longer contingent. Due to the losses from continuing operations for the three months ended March 31, 2009 and 2008, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

Potentially dilutive securities not included in the diluted loss per share calculation, due to net losses from continuing operations, were as follows:

	Three Months Ended March 31,
	2009		2008
Options to purchase common shares		2,690,519		4,882,036
Warrants to purchase common shares		1,091,605		1,141,605
Unvested restricted stock units		339,742		1,357,950
Convertible preferred stock		135,572		690,000
Total potentially dilutive securities		4,257,438		8,071,591

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APPLIED ENERGETICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

9. DIVIDENDS

As of March 31, 2009, we had 135,572 shares of our 6.5% Series A Convertible Preferred Stock outstanding.  A dividend was declared and paid in cash on May 1, 2009 to the holders of record as of April 15, 2009.

Dividends on Preferred Stock are accrued when the amount and kind of the dividend is determined and  are payable quarterly on the first day of February, May, August and November, in cash or shares of common stock, at the discretion of the company.

10. COMMITMENTS AND CONTINGENCIES

LITIGATION

In July 2006, two class action complaints were filed by George Wood and Raymond Deedon against Applied Energetics, Inc. (formerly Ionatron, Inc.) and its founders. Each of the class actions was filed in the United States District Court for the District of Arizona and allege, among other things, violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, claiming that we issued false and misleading statements concerning the development of our counter-IED product. The court consolidated these cases, and a consolidated amended complaint was served. The action has been dismissed against Joseph C. Hayden and Stephen W. McCahon with prejudice, and is proceeding against us and the remaining defendants. We are unable to evaluate the likelihood of an unfavorable outcome in this matter or estimate the range of potential loss, if any. However, we intend to defend ourselves vigorously in these legal proceedings.

In September 2006, a derivative action was filed by John T. Johnasen in Arizona State Court, Pima County, against certain of our current and former officers and directors, alleging, among other things, breach of fiduciary duty.  On April 30, 2008, the state court continued a stay of the derivative action until 30 days notice from any party or until further court order terminating the stay.

In addition, we may from time to time be involved in legal proceedings arising from the normal course of business.  As of the date of this report, we have not received notice of any other legal proceedings.

11. SUBSEQUENT EVENTS

On April 24, 2009, the Board approved a reorganization plan, which included the closing of our St. Louis, Missouri operation and included a reduction in force of 22%. In connection with this reorganization, Joseph Hayden was appointed Chief Operating Officer and principal executive officer.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related disclosures included elsewhere herein and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2008.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws.  Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as "may", "believe", "will", "expect", "expected", "project", "anticipate", "anticipated”, “estimates", "plans", "strategy", "target", "prospects" or "continue".  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. Important factors that could cause our actual results to differ materially from our expectations are described in Item 1A.  (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2008.  In making these forward-looking statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Reform Act of 1995.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct.  We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.

OVERVIEW

Applied Energetics is a developer and manufacturer of applied energy systems, primarily for military applications, utilizing our proprietary knowledge of high performance lasers, high-voltage electronics, advanced dynamic optics and atmospheric and plasma energy interactions.  We apply these technologies to deliver innovative solutions to urgent military missions, including neutralizing improvised explosive devices (“IEDs”) among other high priority missions of U.S. and allied military forces.  Additionally, we develop and manufacture high-voltage and laser products for government and commercial customers for a range of applications.

On March 28, 2009 James McDivitt, the then Lead Independent Director resigned from the Board for personal reasons.  On March 31, 2009, we entered into a separation agreement with Dana Marshall, resulting in Mr. Marshall no longer serving as our Chief Executive officer, President, Director and Chairman of the Board.  Pursuant to the terms of the Separation Agreement, Mr. Marshall has received a $135,000 lump sum payment and will receive twelve (12) monthly payments of $29,167.  In addition, we agreed to accelerate the vesting of 137,500 unvested shares of restricted stock and unvested options to purchase 800,000 shares of common stock.  On March 31, 2009, General James Feigley was appointed non-executive Chairman of the Board.

On April 24, 2009, the Board approved a reorganization plan, which included the closing of our St. Louis, Missouri operation and included a reduction in force of 22%. In connection with this reorganization, Joseph Hayden was appointed Chief Operating Officer and principal executive officer.

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RESULTS OF OPERATIONS

COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008:

	2009			2008
Revenue	$	2,587,398		$	1,961,090
Cost of revenue		2,401,446			1,740,108
General and administrative		2,435,723			3,365,464
Selling and marketing		238,023			38,584
Research and development		517,661			361,938
Other (expense) income:
Interest expense		(19	)		(1,313	)
Interest income		31,027			249,828
Other		-			10
Net loss	$	(2,974,447	)	$	(3,296,479	)

REVENUE

Revenue increased approximately $626,000 for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, which was attributable to increases in revenue from Counter-IED projects of approximately $742,000 from the U.S. Marine Corps contract received in June 2008, and from our LGE projects of approximately $80,000 from a funded modification to the current contract.  These increases were offset by a reduction in revenue on High Voltage projects of $197,000.

COST OF REVENUE

Cost of revenue increased approximately $661,000 compared to the three months ended March 31, 2008, which was in line with the increase in revenues of 32% for the same period.  In 2008, cost of revenue included gains from the sale of inventory, which had previously been written down to lower of cost or market of $36,000.  Cost of revenue includes manufacturing labor, fringe and overhead, and an allocation of allowable general and administration and research and development costs in accordance with the terms of our government contracts.

GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased approximately $930,000 for the three months ended March 31, 2009 compared to the three months ended March 31, 2008.  Salaries, benefits and temporary help decreased by $74,000, which is a result of reduced headcount of $472,000 offset by separation expenses of approximately $398,000.  In addition, non-cash employee compensation decreased by $466,000, operational expenses decreased by $85,000, insurance and professional fees decreased by $14,000, travel and related expenses decreased by $56,000 and depreciation and amortization decreased by $43,000.  Applied labor and overhead was favorable as a direct result of increased revenues and research and development activities of $192,000.

In connection with the re-organization plan approved by the Board in April, 2009, the company expects to experience a reduction in general and administrative expenses of approximately $1.2 million in the current year.

SELLING AND MARKETING

Selling and marketing expenses increased approximately $199,000 for the quarter ended March 31, 2009 from the same period in 2008, reflecting increased allocation of time of existing personnel and costs associated with professional conferences, exhibitions, marketing literature, and updated web content.

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RESEARCH AND DEVELOPMENT

Internal research and development expenses increased approximately $156,000 during the three months ended March 31, 2009 as compared to the same period in 2008. The increase was primarily due to the additional staff and materials associated with the development of proprietary high voltage and laser technologies.

Our short-term research and development goals are to develop efficient and compact laser sources, novel high-voltage electrical sources, efficient optical systems to extend the range of our LGE system and to engineer laser hardware to smaller and more rugged technologies as an essential element of moving our LGE technology to practical fielding.  Longer-term research objectives include development of tunable and eye safe laser sources to improve safety and utility of LGE, adjunct military applications for lasers to expand accessible military markets for our technology, and integrated weapon and counter-weapon system technologies to facilitate our role as an integrated system provider.

INTEREST INCOME AND INTEREST EXPENSE

Net interest income for the first quarter of 2009 was lower by approximately $218,000 from the same period of 2008 primarily due to the lower balance of invested funds and lower interest rates on our investments in 2009.

NET LOSS

Our operations for the three months ended March 31, 2009 resulted in a net loss of approximately $3.0 million, a reduction of approximately $322,000 compared to the $3.3 million loss for the same period of 2008.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2009, we had approximately $15.3 million of cash and cash equivalents.  Our cash position decreased during the first quarter of 2009 by approximately $184,000.  During the first three months of 2009, we used $131,000 of cash in operating activities, which is comprised of our net loss of $3.0 million, plus adjustments in depreciation and amortization of $195,000, non-cash share-based compensation expense of $877,000 and loss on equipment disposal of $1,000.  Changes in assets and liabilities that provided cash include a decrease in accounts receivable of $1.4 million, in billings in excess of costs of $2,000 and in accrued expenses, deposits and deferred rent of $794,000, and decreases in prepaid expenses and deposits of $171,000.  Changes in assets and liabilities that used cash were increases in other receivables of $176,000 and in inventory of $95,000, and a decrease in accounts payable of $325,000.

As part of our total cash use during the first three months of 2009, investment activities provided approximately $3,000.  Financing activities used approximately $57,000 (primarily from the preferred stock cash dividend paid in February 2009).

We anticipate that short-term and long-term funding needs will be provided by the cash flows from current and future contracts and existing cash and cash equivalents.  We determined that we have sufficient working capital to fulfill existing contracts and expected contracts in 2009 and 2010.

BACKLOG OF ORDERS

At March 31, 2009, we had a backlog (workload remaining on signed contracts) of approximately $2.7 million to be completed within the next twelve months.  The backlog does not include proposals and contracts under negotiation at March 31, 2009.

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ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2009.  Based on that evaluation, our Principal Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 

During the three months ended March 31, 2009, there was no significant change in our internal controls over financial reporting that has materially affected or which is reasonably likely to materially affect our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 6.     EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
10.1	Agreement and Complete and Full General Release by and between Dana A. Marshall and the Registrant dated March 31, 2009
10.2	Consulting Agreement between Dr. Stephen W. McCahon and the Registrant dated as of March 31, 2009.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 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 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements 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.

APPLIED ENERGETICS, INC.
By	/s/ Joseph C. Hayden
	Joseph C. Hayden
	Chief Operating Officer and Principal Executive Officer

Date:  May 11, 2009

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EX-10.1

AGREEMENT AND COMPLETE AND

FULL GENERAL RELEASE

Dana A. Marshall (“Executive”) and Applied Energetics, Inc., (the “Company”), have agreed to conclude their employment relationship.  The parties have agreed that, based upon Executive’s past service to Company and the parties’ mutual desire to amicably conclude the employment relationship, that Executive and Company enter into this Agreement and Complete and Full General Release (“Agreement”).  In consideration of the sum to be paid and other promises set out in this Agreement, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree to the following terms (capitalized terms used herein and not otherwise defined herein shall have the same meanings as ascribed to such terms in the Employment Agreement entered into on August 18, 2008 by and between the Company and the Executive, as amended (the “Employment Agreement”)):

1.           Conclusion of Employment.  Executive’s employment by Company will terminate on March 31, 2009 (“Separation Date”).  Executive hereby terminates his position as Chairman of the Board, Chief Executive Officer and President (a reporting a person and a named executive officer with respect to the Company under the federal securities laws) and director and any other positions he holds with the Company or any subsidiary of the Company.  Executive and the Company hereby waive any and all rights to receive notice of termination of Executive’s employment under the Employment Agreement.

2.           Payment Upon Separation; Consideration for Executive’s Agreements.  Assuming the Executive does not revoke this Agreement within the revocation period set forth in Paragraph 6, below, in consideration for executing this Agreement and complying with its terms, Executive will receive as severance payments from the Company pursuant to Section 5.4.2 of the Employment Agreement (i) $135,000 upon the expiration of the revocation period set forth in Section 6 and (ii) twelve (12) monthly payments of $29,167 per month, less appropriate tax withholdings and authorized deductions, commencing on the first Company pay date subsequent to the expiration of the revocation period.  Notwithstanding the vesting and exercisability schedule in any stock option agreement between the Company and the Executive, all unvested stock options granted by the Company to the Executive shall vest and become exercisable upon the expiration of the revocation period and all other unvested equity awards shall vest upon the expiration of the revocation period.

The Company shall assume Executive’s obligations under (i) the lease for the residence rented by Executive in Tucson, Arizona pursuant to the Employment Agreement through the expiration of the lease term on September 30, 2009 and (ii) the lease for the automobile leased by Executive pursuant to the Employment Agreement through the expiration of the lease term on September 25, 2009.  Executive represents and warrants to the Company that a true and correct copy of the lease have been delivered to the Company.  Executive shall vacate the premises covered by the residential lease and deliver all sets of keys to such premises and the original lease to the Company on or before May 31, 2009, and leave such premises in good condition.  Executive shall deliver the automobile in good condition and all sets of keys and the original registration and the original lease to such automobile to the Company upon execution of this Agreement.  The Company agrees to indemnify and hold harmless Executive for all losses, liabilities, expenses and claims under the leases described in this Section 2 (other than for damages caused to the leased premises or automobile by Executive).

Initials: Executive _________    Company _________

Page 1 of 5

3.           Health Insurance Transitional Support.  Company will comply with its obligations and provide all required notices to Executive of Executive’s rights under the Consolidated Omnibus Budget Reconciliation Act ("COBRA").

4.           Confidentiality.  Executive agrees to keep the terms of this Agreement strictly confidential.  Executive may only disclose the information in this Agreement to Executive’s immediate family, attorney(s) and/or tax advisor(s) unless ordered to do so by a duly authorized subpoena issued by an appropriate agency or court of law.

5.           Confidential Information; Non-solicitation and Cooperation.   Executive acknowledges, it agrees and reaffirms that he remains bound by the provisions of Sections 7 and 8 of the Employment Agreement, which sections are incorporated herein and remain in full force and effect.

6.           Waiver of Claims.  Executive, individually and on behalf of Executive’s estate, heirs, personal representatives, and assigns hereby release, remise and forever discharge the Company of and from any and all actions, causes of action, claims, debts, dues, accounts, accountings, losses, liabilities, contracts, commitments, rights, obligations, damages, costs and expenses, including without limitation litigation expenses and attorneys fees, of any nature whatsoever, whether known or unknown, liquidated or contingent, whether now existing or hereafter arising, (each individually a “Claim” and all of the foregoing collectively called “Claims”), which Executive had, now has, or may in the future have, including without limitation any Claims: (a) for libel, slander, defamation, or tortuous interference with actual or prospective business or contractual relations, which are based in whole or in part on any facts, circumstances or events which are now existing or which occurred on or prior to the date hereof, or (b) for breach of contract, wrongful discharge, non-payment of wages or other sums with the sole exception of Claims arising under the express provisions of this Agreement.

Except as expressly provided to the contrary in the first paragraph of this Section 6, the Claims and rights being released in this section include, but are not limited to: all Claims and rights arising from or in connection with any agreement of any kind Executive may have had with Company, or in connection with Executive’s status or separation of employment from Company; all Claims and rights for wrongful discharge (whether in common law or pursuant to the Arizona Employment Protection Act), breach of contract, either express or implied, emotional distress, back pay, front pay, benefits, fraud, or misrepresentation; all Claims and rights, if any, arising under the Civil Rights Acts of 1964 and 1991, as amended, (which prohibits the discrimination in employment based on race, color, national origin, religion or sex), the Americans with Disabilities Act (ADA), as amended (which prohibits discrimination in employment based on disability), the Age Discrimination in Employment Act (ADEA), as amended (which prohibits age discrimination in employment), the Employee Retirement Income Act of 1974 (ERISA), as amended, all other wage and hour/wage payment statutes and laws, the Arizona Civil Rights Act and all similar state or local fair employment practices statutes and laws, and the Health Insurance Portability and Accountability Act (HIPPA), to the extent such statutes and laws may be applicable; and, any and all other Claims or rights whether arising under federal, state, or local law, rule, regulation, constitution, ordinance or public policy.

Initials: Executive _________    Company _________

Page 2 of 5

Executive acknowledges that the Executive is waiving any rights Executive may have under the Age Discrimination in Employment Act, that Executive was advised to review this Agreement with Executive’s legal counsel before signing the Agreement, that Executive has been advised to carefully read the provisions of this release, that Executive understands its contents, that Executive has twenty one (21) days from the date Executive received a copy of this release to consider entering into this release and accepting the payments provided for herein, and that if Executive signs and returns this release before the end of the 21-day period, Executive will have voluntarily waived Executive’s right to consider this release for the full twenty one (21) days.

Executive acknowledges that Executive may revoke this release withinseven (7) days of Executive’s execution of this Agreement by submitting written notice of Executive’s revocation of this release and of this Agreement to the Chief Financial Officer of the Company.  Executive also understands that this release and Agreement shall not become effective or enforceable until the expiration of that 7-day period without Executive having given such notice.  If Executive gives such notice of revocation, then this Agreement will be null and void and of no further force and effect.

Executive agrees that if any provision of this release is or shall be declared invalid or unenforceable by a court of competent jurisdiction, then such provision will be modified only to the extent necessary to cure such invalidity and with a view to enforcing the parties’ intention as set forth in this release to the extent permissible and the remaining provisions of this release shall not be affected thereby and shall remain in full force and effect.

7.           No Wronging by Company.  Executive acknowledges and understands that by offering and/or executing this Agreement, Company does not admit, and indeed expressly denies, that Company, its employees, managers, agents, directors and officers have done anything improper or violated any law.  The signing of this Agreement is not an admission of liability or wrongdoing by Company, its employees, managers, agents, directors or officers.

8.           Taxes.  Company will withhold all appropriate taxes and issue to Executive an IRS Tax Form W-2.  The parties acknowledge, however, that there may be tax consequences for Executive in excess of the amounts withheld from the consideration described in Paragraphs 2 and 3 of this Agreement.  It is expressly understood that Executive is responsible for all taxes which Executive may owe as a result of Executive receiving the consideration under this Agreement.  Executive expressly understands that if Executive or Executive’s family owe taxes, or additional taxes, at any time as a result of the impact of this Agreement, that Executive alone is responsible for making those payments and that Executive will not seek additional sums from Company to make those payments.  Similarly, if Executive seeks to recover certain portions of or all of the withheld amounts from the appropriate taxation authorities, such a recovery would be a private matter between Executive and the appropriate government agency or agencies.  Company will not provide Executive with, nor will Executive ask for, any additional funds to offset the amount paid or owed in taxes, accrued interest, penalties or for attorneys fees which Executive may incur in resolving Executive’s claims with any government agency or agencies or courts of law.

Initials: Executive _________    Company _________

Page 3 of 5

9.           Executive’s Coverage Under Directors and Officers Liability Policy.  The conclusion of Executive’s employment with Company does not affect Executive’s coverage under Company’s Directors and Officers Liability Policy for acts or omissions by Executive which occurred in the course of Executive’s performance of Executive’s duties and responsibilities on behalf of Company.  Executive will not have coverage under Company’s Directors and Officers Liability Policy for services, acts or omissions to act by Executive subsequent to the Separation Date.

10.           Complete Interpretation.  The terms contained in this Agreement are the only terms agreed upon by Executive and Company.  Notwithstanding any other statements, all benefits which Executive had as a result of Executive’s employment, and which are not expressly listed in this Agreement, terminate in accordance with Company’s benefit contracts, but in no case later than the end of the revocation period referred to in Section 6.  It is the express intent of the parties that this Agreement fully integrates and expressly replaces any other terms (other than sections 7 and 8 of the Employment Agreement which sections are incorporated herein and remain in full force and effect), conditions, conversations, discussions, or any other issues which were discussed regarding Executive’s employment at Company, or for any and all reasons based on conduct which has occurred through the date of executing this Agreement.  With the exception of the Confidentiality and Assignment Acknowledgement and Agreement signed by Executive while employed by Company and Sections 7 and 8 of the Employment Agreement (which sections are incorporated herein and remain in full force and effect), any other conversations, promises or conditions which do not appear in this document are waived or rejected by agreement of Executive and Company.

11.           Interpretation and Enforcement.  Because Executive has been advised to seek counsel prior to signing this Agreement, the parties agree that the general rule that the document shall be interpreted against the party that drafted it shall not apply to any subsequent issue of interpretation.  In the event a dispute arises over the terms of this Agreement, both Executive and Company are equal without regard to who authored this document.  All claims, disputes or issues of interpretation which arise, or may arise, out of this Agreement shall be resolved by an Arbitrator under the American Arbitration Association’s Rules and Procedures for Employment Cases.  The Arbitrator shall have the power to order appropriate remedies for any proven breaches of this Agreement.  However, each side shall bear its own attorneys fees.  The decision and award of any Arbitrator shall be final and binding.  The Parties agree to keep any Decision and Award confidential.

Initials: Executive _________    Company _________

Page 4 of 5

12.           Counterparts.  This Agreement may be signed in separate counterparts.

13.           Signatures

\s\ Dana A. Marshall	March 31, 2009
Dana A. Marshall
\s\ Kenneth M. Wallace	March 31, 2009
Applied Energetics, Inc.

By:	Kenneth M. Wallace
	Chief Financial Officer

Authorized Agent of Company

Presented to Executive on: March 30, 2009 and finalized March 31, 2009

Initials: Executive _________    Company _________

Page 5 of 5

EX-10.2

CONSULTING AGREEMENT

Consulting Agreement (this “Agreement”), dated as of March 31, 2009 (the "Effective Date") between Applied Energetics, Inc. (the "Company") and Stephen W. McCahon (“Consultant”).

1.           Consultant's Services.  The Company hereby engages Consultant to provide to the Company, and Consultant agrees to provide to the Company under the terms of this Agreement, business and technical consulting services as requested by the Company from time to time (hereinafter the "Services") during the Term (defined below).  During the Term, Consultant shall be available to provide up to forty (40) hours per week of Services as reasonably requested by, and upon reasonable notice from,  the Company.  The Services shall be performed under the direct supervision of the Board of Directors and the Chief Executive Officer or such other officer as appointed by the Board of directors and shall be performed at such times and places and in such manner (whether by conference, telephone, electronic communication or otherwise) as the Company shall reasonably determine (subject to reasonable accommodation as to scheduling and location).  Consultant shall make reasonable efforts to meet with the Company’s employees, directors and customers as reasonably requested by the Company.  It is understood and agreed that while serving as a consultant to the Company hereunder, Consultant may engage in any business or employment activities in any field either for his own account or for the account of others subject to the provisions of Section 3 below.

2.           Term; Compensation; Reimbursement of Expenses.  Consultant shall render the Services during the period from the Effective Date through March 31, 2010 (the “Term”); provided that the Term shall automatically extend on a monthly basis, unless terminated in accordance with Section 4 below.  In exchange for the performance of the Services, and specifically for the covenants contained in Section 3 hereof, the Company shall pay Consultant (in addition to the payments set forth in Section 1 hereof), a fee at the rate of $18,750 per month, payable on or prior to the fifth (5th) business day of the following month.  The Company shall report his earnings at year-end on a Form 1099.  In addition, the Company will reimburse Consultant for business expenses, to the extent such expenses relate to Consultant’s performance of the Services (and, for any expense in excess of $1,000, as pre-approved in writing by the Company), he actually incurs in the performance of the Services hereunder.

3.           Confidentiality; Noncompetition; nonsolicitation; nondisparagement.

3.1.                 The Company and Consultant acknowledge that the Services to be performed by Consultant under this Agreement are unique and extraordinary and, as a result of such engagement, Consultant shall be in possession of confidential information relating to the business practices of the Company.  The term “confidential information” shall mean any and all information (oral and written) relating to the Company or any of its affiliates, or any of their respective activities, as well as any distributors, vendors, suppliers, customers or other third party of which Consultant shall possess in connection with performing the Services and his prior employment with the Company, other than such information which (i) can be shown by Consultant to be in the public domain (such information not being deemed to be in the public domain merely because it is embraced by more general information which is in the public domain) other than as the result of breach of the provisions of this Section 3 or (ii) Consultant is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law.  Consultant shall not, during the Term and thereafter, except as may be required in the course of the performance of his duties hereunder, directly or indirectly, use, communicate, disclose or disseminate to any person, firm or corporation any confidential information regarding the clients, customers or business practices of the Company acquired by Consultant, without the prior written consent of the Company; provided, however, that Consultant understands that Consultant shall be prohibited from misappropriating any trade secret at any time during or after the Term.

3.2.                 Upon the termination of Services under this Agreement for any reason whatsoever, all documents, records, notebooks, equipment, price lists, specifications, programs, customer and prospective customer lists and other materials which refer or relate to any aspect of the business of the Company which are in the possession of Consultant, including all copies thereof, shall be promptly returned to the Company.

3.3.                 Consultant hereby agrees that he shall not, during the Term and for a period of two years after the termination of Services under this Agreement, directly or indirectly, within any county (or adjacent county) in any State within the United States or territory outside of the United States in which the Company is engaged in business during the Term, engage, have an interest in or render any services to any business (whether as owner, manager, operator, licensor, licensee, lender, partner, stockholder, joint venturer, employee, consultant, advisor or otherwise), other than the Company, competitive with the Business (as defined below).  The term “Business” means (i) laser guided energy technologies, (ii) laser induced plasma channel technologies, (iii) counter-IED technologies, (iv) high voltage laser technologies and (v) other laser technologies as to which (solely in the use of clause (vi)) the Company is specifically engaged in (including through research and development) as of the date of this Agreement. Notwithstanding the foregoing, nothing herein shall prevent Consultant from (i) owning stock in a publicly traded corporation whose activities compete with those of the Company’s, provided that such stock holdings are not greater than two percent (2%) of such corporation, or (ii) pursuing any business opportunities, either as a sole proprietorship, company, corporation, partnership or other business enterprise, that is not competitive with the Business.

3.4.                 Consultant shall not, during the Term and for a period of two years after the termination of Services under this Agreement, directly or indirectly, take any wrongful action which constitutes an interference with or a disruption of any of the Company’s business activities including, without limitation, the solicitations of the Company’s customers, distributors or vendors in connection with any activities or for any person or entity engaged in or seeking to engage in business competitive with the Business.

3.5.                 Consultant hereby acknowledges and agrees that he is prohibited from, during the Term and for a period of two years after the termination of Services under this Agreement, (i) directly or indirectly, enticing or soliciting the hiring of any officer or employee of the Company or (ii) in any manner enticing, soliciting, persuading or attempting to persuade any agent, lessor, lessee, licensor, licensee or customer of the Company (but only those suppliers existing during the time of Consultant’s preference of Services under this Agreement), to discontinue or alter his, her or its relationship with the Company.  In addition, if during the Term and for a period of two years after the termination of Services under this Agreement Consultant hires any person who is an officer or employee of the Company during such period, Consultant shall provide the Company prompt written notice of such hiring.

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3.6.           (a)  Consultant agrees that all processes, technologies and inventions (“Inventions”), including new contributions, improvements, ideas and discoveries, whether patentable or not, conceived, developed, invented or made by him during the Term shall belong to the Company, provided that such Inventions were the product of Consultant’s work with the Company or are conceived, developed, invented or made with the use of the Company’s facilities or materials.  Consultant shall further: (a) promptly disclose such Inventions to the Company; (b) assign to the Company, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of his inventorship;

(b)             Consultant shall promptly provide written notice of any Invention  that is described in a patent application or is disclosed to third parties, directly or indirectly, by Consultant within two (2) years after the termination of his Services; and

(c)             Consultant agrees that he will not assert any rights to any Invention as having been made or acquired by him prior to the date of this Agreement, except for Inventions, if any, disclosed to the Company in writing prior to the date of this Agreement or within fifteen (15) days from the date of this Agreement (it being understood that none of the Inventions disclosed or to be disclosed are being used in the Business).

3.7.                 The Company shall be the sole owner of all products and proceeds of Consultant’s services hereunder, including, but not limited to, all materials, ideas, concepts, formats, suggestions, developments, arrangements, packages, programs and other intellectual properties that Consultant may acquire, obtain, develop or create in connection with and during the term of Consultant’s employment hereunder, free and clear of any claims by Consultant (or anyone claiming under Consultant) of any kind or character whatsoever (other than Consultant’s right to receive payments hereunder).  Consultant shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, or title and interest in or to any such properties.

3.8.                 At no time during or after the Term shall Consultant, directly or indirectly, disparage the commercial, business, professional, financial, or personal, as the case may be, reputation of the Company or its officers or directors.  At no time during or after the Term shall the Company or its officers or directors, directly or indirectly, disparage the commercial, business, professional, financial, or personal, as the case may be, reputation of Consultant.

3.9.                 Without intending to limit the remedies available to the Company, Consultant acknowledges that a breach of any of the covenants contained in this Section 3 may result in material and irreparable injury to the Company, or its affiliates or subsidiaries, for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining Consultant from engaging in activities prohibited by this Section 3 or such other relief as may be required specifically to enforce any of the covenants in this Section 3.  Consultant hereby acknowledges and agrees that the type and periods of restrictions imposed in this Section 3 are fair and reasonable and are reasonably required for the protection of the Company’s confidential information and the goodwill associated with the business of the Company.  Further, Consultant acknowledges and agrees that the restrictions imposed in this Section 3 will not prevent him from obtaining suitable employment after his employment with Consultant ceases or from earning a livelihood.  If for any reason it is held that the restrictions under this Section 3 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this Section as will render such restrictions valid and enforceable.

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4.           Termination.   The performance of Services by Consultant under Section 3 hereunder may be terminated by the Company or Consultant after the initial 12-month Term upon thirty (30) days notice to the Company.  In the event of any such termination, Consultant shall be entitled to no further benefits other than payment of amounts owed to Consultant through the date of such termination (pro rata for the month in which the termination occurs) and any such payments shall be made within five (5) business days after termination of this Agreement.  Termination of the performance of Services by Consultant pursuant to this Section 6 shall not terminate or otherwise effect Consultant’s obligations under Section 3 of this Agreement.

5.           Independent Contractor.  It is expressly understood and agreed that during the term of this Agreement, Consultant's relationship to the Company will be that of an independent contractor and that neither this Agreement nor the services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create, expressly or by implication, any employer-employee relationship, partnership, joint venture or other relationship with the Company other than that of independent parties contracting with each other solely for the purpose of carrying out the provisions of the Agreement.  Consultant is not authorized to bind the Company, or to incur any obligation or liability on behalf of the Company, except as expressly authorized by the Company in writing.  Consultant understands and agrees that the work to be performed is not covered under the unemployment compensation laws and that the work to be performed is not intended to be covered by applicable worker's compensation laws.

6.           Miscellaneous.

(a)           This Agreement contains, and is intended as, a complete statement of all of the terms of the arrangement between the parties with respect to its subject matter and supersedes all previous negotiations, promises, agreements and understandings with respect to those matters, whether oral or written.

(b)           No provision of this Agreement shall be waived, amended, modified, superceded, canceled, terminated, renewed or extended except in a written instrument signed by the party against whom any of the foregoing actions is asserted.  Any waiver shall be limited to the particular instance and for the particular purpose when and for which it is given.

(c)           Consultant hereby agrees that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses of the Agreement.  Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear.  Consultant hereby further agrees that the language of all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either of the parties.

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(d)This Agreement, the Services to be performed and all rights hereunder are unique to Consultant and may not be performed on Consultant’s behalf by any person other than Consultant and may not be transferred or assigned by Consultant or by the Company at any time; provided, however, that Consultant may assign this Agreement to a corporation or limited liability company wholly-owned by him (a “Successor”), provided, further that (i) the Consultant shall remain liable for all of its obligations under this Agreement, (ii) the Successor shall agree in writing to be bound by the terms of this Agreement and (iii) Successor shall cause Stephen McCahon to perform all Services required to be performed by Consultant under this Agreement

(e)This Agreement shall be construed and enforced in accordance with the internal laws of the State of Arizona without reference to its conflicts of laws provisions.

IN WITNESS WHEREOF, the parties hereby execute this Agreement on the date first written above.

APPLIED ENERGETICS, INC.
By:	/s/ Kenneth M. Wallace
	Name: Kenneth M. Wallace Title: Chief Financial Officer
By:	/s/ Stephen A McCahon
	Stephen A. McCahon, individually

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph C. Hayden, the Principal Executive Officer of Applied Energetics, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Applied Energetics Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Joseph C. Hayden

Joseph C. Hayden

Chief Operating Officer and Principal Executive Officer

Date: May 11, 2009

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth M. Wallace, the Chief Financial Officer of Applied Energetics, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Applied Energetics Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Kenneth M. Wallace

Kenneth M. Wallace

Chief Financial Officer

Date: May 11, 2009

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing by Applied Energetics, Inc. (the “company”) of its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 (the “Report”) I, Joseph C. Hayden, Principal Executive Officer of the company, certify pursuant to 18 U.S.C. Section. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the company.

This certificate is being made for the exclusive purpose of compliance by the principal executive officer of Applied Energetics, Inc. with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used for any other purposes. A signed original of this written statement required by Section 906 has been provided to Applied Energetics, Inc. and will be retained by Applied Energetics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Joseph C. Hayden

Joseph C. Hayden

Chief Operating Officer and Principal Executive Officer

Date: May 11, 2009

EX-32.2

EXHIBIT 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

In connection with the filing by Applied Energetics, Inc. (the “company”) of its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 (the “Report”) I, Kenneth M. Wallace, Chief Financial Officer of the company certify pursuant to 18 U.S.C. Section. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the company.

This certificate is being made for the exclusive purpose of compliance by the Chief Financial Officer of Applied Energetics, Inc. with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used for any other purposes. A signed original of this written statement required by Section 906 has been provided to Applied Energetics, Inc. and will be retained by Applied Energetics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Kenneth M. Wallace

Kenneth M. Wallace

Chief Financial Officer

Date: May 11, 2009