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 September 30, 2011

OR

¨           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 x 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: x*
(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 November 7, 2011, there were 91,671,673 shares of the issuer's common stock, par value $.001 per share, outstanding.

*The company has determined that it qualifies as a smaller reporting company based on the market value of its public float.

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 September 30, 2011 (Unaudited) and December 31, 2010	1
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements	5
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
ITEM 4.	Controls and Procedures	14
PART II.  OTHER INFORMATION
ITEM 1.	Legal Proceedings	15
ITEM 1A.	Risk Factors	15
ITEM 5.	Other Information	16
ITEM 6.	Exhibits	16
SIGNATURES		17

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PART I.  FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APPLIED ENERGETICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	5,464,258		$	8,983,281
Accounts receivable		374,327			2,022,292
Inventory		93,756			683,546
Prepaid expenses and deposits		72,693			365,506
Other receivables		50,673			48,717
Total current assets		6,055,707			12,103,342
Long term receivables		205,313			205,313
Property and equipment - net		2,460,119			2,507,814
Other assets		-			10,000
TOTAL ASSETS	$	8,721,139		$	14,826,469
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	329,979		$	870,009
Accrued expenses		203,629			1,005,682
Accrued compensation		322,813			507,341
Customer deposits		13,779			126,282
Billings in excess of costs		1,859			6,505
Total current liabilities		872,059			2,515,819
Total liabilities		872,059			2,515,819
Commitments and contingencies - See Note 9
Stockholders’ equity
Series A Convertible Preferred Stock, $.001 par value, 2,000,000 shares authorized;107,172 shares issued and outstanding at September 30, 2011 and at December 31, 2010		107			107
Common stock, $.001 par value, 125,000,000 shares authorized; 91,671,673 shares issued and outstanding at September 30, 2011 and 91,068,357 shares issued and outstanding at December 31, 2010		91,672			91,068
Additional paid-in capital		79,136,472			78,738,520
Accumulated deficit		(71,379,171	)		(66,519,045	)
Total stockholders’ equity		7,849,080			12,310,650
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,721,139		$	14,826,469

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 September 30,
	2011			2010
Revenue	$	611,206		$	3,260,087
Cost of revenue		633,868			2,986,640
Gross profit/(loss)		(22,662	)		273,447
Operating expenses
General and administrative		844,135			412,496
Selling and marketing		220,522			135,013
Research and development		677,665			55,518
Total operating expenses		1,742,322			603,027
Operating loss		(1,764,984	)		(329,580	)
Other (expense) income
Interest expense		(1,392	)		(1,111	)
Interest income		707			2,074
Total other (expense) income		(685	)		963
Net loss		(1,765,669	)		(328,617	)
Preferred stock dividends		(45,830	)		(45,839	)
Net loss attributable to common stockholders	$	(1,811,499	)	$	(374,456	)
Net loss per common share – basic and diluted	$	(0.02	)	$	(0.004	)
Weighted average number of shares outstanding, basic and diluted		91,100,100			89,791,303

See accompanying notes to condensed consolidated financial statements (unaudited).

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APPLIED ENERGETICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the nine months ended September 30,
	2011			2010
Revenue	$	4,450,549		$	9,734,797
Cost of revenue		4,233,710			9,150,009
Gross profit		216,839			584,788
Operating expenses
General and administrative		2,742,705			2,015,082
Selling and marketing		886,422			439,366
Research and development		1,309,453			92,038
Total operating expenses		4,938,580			2,546,486
Operating loss		(4,721,741	)		(1,961,698	)
Other (expense) income
Interest expense		(3,732	)		(4,446	)
Interest income		2,847			6,646
Total other (expense) income		(885	)		2,200
Net loss		(4,722,626	)		(1,959,498	)
Preferred stock dividends		(137,500	)		(161,380	)
Deemed dividend from induced conversion of Series A Preferred Stock		-			(11,478	)
Net loss attributable to common stockholders	$	(4,860,126	)	$	(2,132,356	)
Net loss per common share – basic and diluted	$	(0.05	)	$	(0.02	)
Weighted average number of shares outstanding, basic and diluted		90,969,324			89,179,404

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 nine months ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,722,626	)	$	(1,959,498	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		254,069			305,668
Loss on equipment disposal		4,793			5,725
Provision for inventory reserves		(73,830	)		36,000
Non-cash stock based compensation expense		237,081			814,422
Changes in assets and liabilities:
Accounts receivable		1,647,965			(1,192,253	)
Other receivable		(1,956	)		1,710
Inventory		663,620			(20,491	)
Prepaid expenses, deposits and other assets		302,813			126,533
Accounts payable		(540,030	)		372,758
Billings in excess of costs		(4,646	)		(37,684	)
Accrued expenses and deposits		(1,099,084	)		312,087
Net cash used in operating activities		(3,331,831	)		(1,235,023	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment		(214,567	)		(78,670	)
Proceeds from sale of short term investments		-			225,000
Proceeds from disposal of equipment		3,400			14,062
Net cash (used in)/provided by investing activities		(211,167	)		160,392
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options		23,975			577,406
Net cash provided by financing activities		23,975			577,406
Net decrease in cash and cash equivalents		(3,519,023	)		(497,225	)
Cash and cash equivalents, beginning of period		8,983,281			9,604,643
Cash and cash equivalents, end of period	$	5,464,258		$	9,107,418

See accompanying notes to condensed consolidated financial statements (unaudited).

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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 September 30, 2011 (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- and nine- month periods ended September 30, 2011, 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, estimating costs at completion on a contract, the valuation of inventory, carrying amount of long-lived assets, expected forfeiture rate on stock-based compensation and measurements of income tax assets and liabilities.

CASH AND CASH EQUIVALENTS

Cash equivalents are investments in money market funds or securities with an initial maturity of three months or less.  These money market funds are invested in government and U. S. Treasury based securities.

FAIR VALUE OF CURRENT ASSETS AND LIABILITIES

The carrying amount of the accounts receivable, accounts payable and accrued expenses approximate fair value due to the short maturity of these instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) 2011-08, “Intangibles – Goodwill and Other (Topic 350):  Testing Goodwill for Impairment”.  The objective of ASU 2011-08 is to simplify how entities, both public and nonpublic, test goodwill for impairment.  The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350.  The more-likely-than-not threshold is defied as having a likelihood of more than 50 percent.  ASU 2011-08 is effective for us for reporting periods after December 15, 2011.  The adoption of the standard is not expected to have a significant impact on the company’s consolidated financial statements, as we currently do not have goodwill recorded on our financial statements.

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2. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

	September 30, 2011		December 31, 2010
Contracts receivable	$	373,660	$	2,012,027
Costs and estimated earnings on uncompleted contracts		667		10,265
Accounts receivable, net		374,327		2,022,292
Short term  receivable (contract retention)		47,817		47,817
Long term  receivable (contract retention)		205,313		205,313
	$	627,457	$	2,275,422

Contracts receivable are expected to be collected within a year.

Costs and Estimated Earnings on Uncompleted Contracts

	September 30, 2011			December 31, 2010
Costs incurred on uncompleted contracts	$	33,378,820		$	29,648,466
Estimated earnings		2,523,276			2,359,922
Total billable costs and estimated earnings		35,902,096			32,008,388
Less:
Billings to date		35,903,288			32,004,628
Total	$	(1,192	)	$	3,760
Included in accompanying balance sheet:
Unbilled costs and estimated earnings on uncompleted contracts included in accounts receivable	$	667		$	10,265
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,859	)		(6,505	)
Total	$	(1,192	)	$	3,760

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3. INVENTORY

Our inventories consist of the following:

	September 30, 2011		December 31, 2010
Raw materials	$	81,303	$	81,646
Work-in-process		12,453		675,730
Provision for loss on project		-		(73,830	)
Total	$	93,756	$	683,546

4. PROPERTY AND EQUIPMENT

Our property and equipment consist of the following:

	September 30, 2011			December 31, 2010
Land	$	410,728		$	410,728
Buildings and improvements, leasehold improvements		2,313,004			2,246,153
Equipment		2,333,019			2,261,115
Furniture		270,248			282,278
Software		813,799			813,799
Total		6,140,798			6,014,073
Less accumulated depreciation and amortization		(3,680,679	)		(3,506,259	)
Net property and equipment	$	2,460,119		$	2,507,814

We review long-lived assets, including intangible assets subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of such long-lived assets by determining whether the amortization of the balances over their remaining lives can be recovered through undiscounted future operating cash flows.  The amount of impairment, if any, is measured based on projected discounted future operating cash flows.  The assessment of the recoverability of long-lived assets will be impacted if estimated future operating cash flows are not achieved.  We conducted an impairment test for property and equipment in February 2011 for the December 31, 2010 reporting period and concluded that the carrying value of these assets is recoverable through expected future operating cash flows.

5. SHARE-BASED COMPENSATION

Share-Based Compensation – Employees and Directors

For the three months ended September 30, 2011 and 2010, share-based compensation expense totaled approximately $51,000 and $156,000, respectively.  For the nine months ended September 30, 2011 and 2010, share-based compensation expense totaled approximately $237,000 and $814,000, respectively.

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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 September 30, 2011, the compensation committee granted options to purchase 16,000 shares of our common stock to members of our Senior Advisory Board pursuant to the terms of their independent consultant agreements.  As of September 30, 2011, $230,000 of total unrecognized compensation cost related to restricted stock and restricted stock units is expected to be recognized over a weighted average period of approximately 2.34 years.

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

	Nine Months Ended September 30,
	2011			2010
Expected life (years)	2.5 years			2.9 - 3 years
Dividend yield		0.0	%		0.0	%
Expected volatility		93.6	%		93.6	%
Risk free interest rates		0.85 - 1.12	%		1 - 1.5	%
Weighted average fair value of options at grant date	$	0.40		$	0.37

During the nine months ended September 30, 2011, 34,415 shares of restricted stock vested or were forfeited, options to purchase 48,084 shares were exercised, and options to purchase 190,247 shares were forfeited.

Warrants – Non-Employees

At September 30, 2011, there were no outstanding warrants to purchase shares of common stock as all previously outstanding warrants expired unexercised on August 8, 2011.  At December 31, 2010, there were outstanding warrants to purchase approximately 1.0 million shares of common stock, which were issued in connection with the August 2006 financing.  The exercise price of the warrants was $9.15.

6. SIGNIFICANT CUSTOMERS

Approximately 53% and 99% of revenues for the three-month periods ended September 30, 2011 and 2010, respectively, are generated from either the U.S. Government or contractors to the U.S. Government.  Approximately 90% and 99% of revenues for the nine-month periods ended September 30, 2011 and 2010, respectively, are generated from either the U.S. Government or contractors to the U.S. Government.

7. NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents.  Diluted net loss per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to convertible preferred stock, stock options, warrants and restricted stock units.  Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent.  Due to the losses from continuing operations for the nine months ended September 30, 2011 and 2010, basic and diluted loss per common share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

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

	Nine Months Ended September 30,
	2011		2010
Options to purchase common shares		4,028,590		4,245,255
Warrants to purchase common shares		-		1,024,939
Unvested restricted stock units		291,221		-
Convertible preferred stock		107,172		107,172
Total potentially dilutive securities		4,426,983		5,377,366

8. DIVIDENDS

As of September 30, 2011, we had 107,172 shares of our 6.5% Series A Convertible Preferred Stock outstanding.  A dividend was declared and paid in common stock on November 1, 2011 to the holders of record as of October 15, 2011.

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.

9. COMMITMENTS AND CONTINGENCIES

LITIGATION

On or about January 14, 2010, NewOak Capital Markets LLC ("NewOak"), formerly known as J. Giordano Securities, LLC, the placement agent for our October 2005 private placement of preferred stock, filed a Statement of Claim against us with Financial Industry Regulatory Authority ("FINRA").  NewOak alleges that we made material misrepresentations between May 2005 and May 10, 2006 concerning the status of our products.

NewOak was seeking indemnification and recovery for alleged breach of contract, unjust enrichment, quantum meruit, fraudulent misrepresentation, tortious interference with prospective economic relations and violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks an award of monetary damages in excess of $50,000,000, plus punitive damages and attorney’s fees and costs.

On July 13, 2011, the United States Court of Appeals, Second Circuit dismissed the arbitration.

NewOak has advised us that it will continue to pursue its claim.  We intend to defend ourselves vigorously in any legal proceeding, and believe we have substantial defenses to the claims.  No accrual for loss has been established in connection with this potential matter as a reasonable estimate of the loss or range of loss cannot be made at this time.

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.

10. SUBSEQUENT EVENTS

We performed an evaluation of subsequent events and determined that no events required disclosure.

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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, 2010.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws.  Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as "may", "believe", "will", “would”, “could”, “should”, "expect", "project", "anticipate", “estimates", “possible”, "plan", "strategy", "target", "prospect" or "continue" and other similar terms and phrases.  These forward looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, 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, as amended, for the year ended December 31, 2010.  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 develops and manufactures applied energy systems for military and commercial applications.  Through our technology development efforts, we have gained expertise and proprietary knowledge in high performance lasers and high-voltage electronics.  We have delivered innovative technologies and systems to address urgent military requirements, including neutralizing improvised explosive devices (“IEDs”) and other high priority missions of U.S. military forces.  Additionally, we develop and manufacture high-voltage and ultrafast laser systems for government and commercial customers for a range of applications.

Early in the third quarter of 2011, we initiated cost reduction measures that included reductions in force of non-critical personnel and reductions in employee, executive and board compensation.  These reductions were intended to enable us to preserve resources and better weather the current government fiscal policy as we waited for official results of our C-IED technology from the US Marine Corps (“USMC”).  Later in the third quarter, we were informed that the USMC was re-evaluating their plan for fielding direct electrical discharge technology for C-IED and would not be funding further procurement of our tested system.  As of the date of this filing, we have not received official communications from the USMC regarding further C-IED efforts.

Also during the third quarter of 2011, we were issued a patent for an invention relating to igniting explosive devices through electric and/or electromagnetic discharge following the removal of a secrecy order.  The patent claims priority to, and the benefit of, the earlier filing date from our provisional patent application filed on May 3, 2005.  

In addition, we received an increase in funding of $379,000 from our customer, the U.S. Army’s Armament Research, Development and Engineering Command, to improve high voltage systems and optics to advance the Laser Guided Energy (“LGE”) technology toward a fielded system for testing at military installations.

We continued work on our High Voltage project for the Air Force Research Laboratory Phase II SBIR.  This project utilizes our nested high voltage generator architecture to power a compact Marx generator for U.S. Air Force High Power Microwave applications.  The project has a value of $746,000.

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Our proprietary ultrafast laser systems, which are a commercial adaptation of our military development activities, offer better performance for high pulse energy, high average power or high repetition rate than other commercial ultrafast lasers for micromachining and other commercial applications.  Micromachining applications include drilling, cutting, and engraving metals, composites and ceramics.  During the third quarter of 2011, we completed our ultrafast laser application center, which is a major part of our strategy for the development of customers and partners for our new ultrafast laser products into the commercial industrial markets.  This new application center enables potential customers and strategic partners to use our ultrafast laser systems to demonstrate and validate new and emerging applications prior to purchasing our ultrafast lasers systems.  In the short time our ultrafast laser application center has been operational, we have processed samples of stainless steel, quartz, glass, graphite, copper and polymer materials.  In addition, we have entered into a cooperative work agreement with Laser Light Technologies, a leading contract manufacturer in the commercial micromachining market, to jointly develop ultra-short pulse lasers and processes for the laser micromachining market.

In the High Voltage product area, we have developed equipment that produces electron beams based on our proprietary nested high voltage generator design and components that are readily scalable to increasing power levels on the order 1 million volts of electricity and above.  The small form factor for the power levels achievable from our equipment should be an advantage in a range of commercial applications that utilize electron beam radiation.  This system can be used in a variety of commercial applications including materials processing, cross-linking of polymers, and electron beam sterilization.  We have constructed an Electron Beam application center to demonstrate our compact nested high voltage generator products to potential manufacturing customers who use electron and ion beams in their manufacturing processes, and so they can appreciate the significantly smaller size of the system compared to other commercially available systems with similar capabilities.  This center enables these potential customers and strategic partners to use our nested high voltage generator system to develop and validate new and emerging applications prior to purchasing new Electron Beam systems.

We continuously evaluate the commercial viability of each of our technologies and, if we determine that the commercial viability of a technology is not justified by the investment needed to generate meaningful revenues, we may determine to discontinue such efforts.

RESULTS OF OPERATIONS

COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010:

	2011			2010
Revenue	$	611,206		$	3,260,087
Cost of revenue		633,868			2,986,640
General and administrative		844,135			412,496
Selling and marketing		220,522			135,013
Research and development		677,665			55,518
Other (expense) income:
Interest expense		(1,392	)		(1,111	)
Interest income		707			2,074
Net loss	$	(1,765,669	)	$	(328,617	)

REVENUE

Revenue decreased by approximately $2.6 million to $611,000 for the three months ended September 30, 2011 compared to $3.2 million for the three months ended September 30, 2010.  Revenues from the C-IED product line decreased by $2.4 million to $0 as we completed all deliverables and testing required in the second quarter of 2011.  LGE revenues decreased by $459,000 to $407,000.  High Voltage revenues increased by $178,000 to $205,000 for the three months ended September 30, 2011 compared to the three months ended September 30, 2010.

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COST OF REVENUE

Cost of revenue includes manufacturing labor, benefits and overhead, and an allocation of allowable general and administration and research and development costs in accordance with the terms of our government contracts.

Cost of revenue decreased by approximately $2.4 million to $633,000 for the three months ended September 30, 2011, compared to $3.0 million for the three months ended September 30, 2010.  The decrease in cost of revenue is mostly tied to the decrease in sales, but includes an obsolete inventory adjustment charge of approximately $36,000 and increased cost relating to our High Voltage product line, causing a loss on this line of approximately $47,000.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased approximately $432,000 to $844,000 for the three months ended September 30, 2011 compared to $412,000 for the three months ended September 30, 2010.  This increase is attributable to the lack of absorption of $1.2 million of applied labor and overheads previously charged to government contracts, and an increase in litigation expense of $28,000.  These increases were partially offset by decreases in salaries, wages and benefits of $535,000, professional services of $157,000, non-cash compensation costs $90,000, and depreciation and amortization expense of $14,000.

SELLING AND MARKETING

Selling and marketing expenses increased by $86,000 to $221,000 for the three months ended September 30, 2010 compared to $135,000 for the three months ended September 30, 2010. The increase in sales and marketing is mostly tied to increases in business development expenses of $33,000 associated with the introduction of our new products into the commercial market and bid and proposal expenses of $53,000.

RESEARCH AND DEVELOPMENT

Research and development expenses increased by $622,000 to $678,000 during the three months ended September 30, 2011 as compared to $56,000 for the three months ended September 30, 2010.  During the third quarter of 2011, we accelerated development of commercial applications for our ultrafast laser technologies and our Electron Beam Nested High Voltage technologies.  These two key projects involve establishing commercial product lines for ultrafast Lasers offering higher energy and average power than currently available and for our nested high voltage electron beam gun technologies to enable a wider range of commercial applications.

INTEREST INCOME AND INTEREST EXPENSE

Net interest income for the three months ended September 30, 2011 was lower by approximately $1,000 as compared to the three months ended September 30, 2010.

NET LOSS

Our operations for the three months ended September 30, 2011 resulted in a net loss of approximately $1.8 million, an increase of approximately $1.4 million compared to the $329,000 loss for the three months ended September 30, 2010.

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COMPARISON OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010:

	2011			2010
Revenue	$	4,450,549		$	9,734,797
Cost of revenue		4,233,710			9,150,009
General and administrative		2,742,705			2,015,082
Selling and marketing		886,422			439,366
Research and development		1,309,453			92,038
Other (expense) income:
Interest expense		(3,732	)		(4,446	)
Interest income		2,847			6,646
Net loss	$	(4,722,626	)	$	(1,959,498	)

REVENUE

Revenue decreased approximately $5.2 million to $4.5 million for the nine months ended September 30, 2011 compared to $9.7 million for the nine months ended September 30, 2010.  Revenues from the C-IED product line decreased by $4.5 million to $2.2 million, as we completed all deliverables and testing required under the C-IED contract during the second quarter of 2011.  LGE product line revenue decreased $750,000 to $1.6 million, and the ultrafast laser revenue decreased by $484,000 to $181,000.  Offsetting these decreases was the increase in the High Voltage product line revenue of $427,000 to $478,000.

COST OF REVENUE

Cost of revenue includes manufacturing labor, benefits and overhead, and an allocation of allowable general and administration and research and development costs in accordance with the terms of our government contracts.

Cost of revenue decreased approximately $4.9 million to $4.2 million for the nine months ended September 30, 2011, compared to $9.1 million for the nine months ended September 30, 2010.  The decrease in cost of revenue is mostly tied to the decrease in sales.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased approximately $728,000 to $2.7 million for the nine months ended September 30, 2011 compared to $2.0 million for the nine months ended September 30, 2010.  The increase is attributable to the lack of absorption of $2.3 million of applied labor and overheads previously charged to government contracts.  There was also an increase in litigation professional fees of $105,000.  These increases were partially offset by reductions in salaries, wages, benefits and temporary help of $818,000, in non-cash compensation costs of approximately $553,000, in professional services of $241,000, and supplies and building related expenses of $57,000.

SELLING AND MARKETING

Selling and marketing and business development expenses increased by approximately $447,000 to $886,000 for the nine months ended September 30, 2011 compared to $439,000 for the nine months ended September 30, 2010.  The increase in sales and marketing is mostly tied to increases in business development expenses of $331,000 associated with the introduction of our new products into the commercial market and bid and proposal expenses of $116,000.

RESEARCH AND DEVELOPMENT

Research and development expenses increased by $1.2 million to $1.3 million for the nine months ended September 30, 2011 as compared to $92,000 for the nine months ended September 30, 2010.  During 2011, we accelerated development of commercial applications for our ultrafast laser technologies and our Electron Beam Nested High Voltage technologies.  These two key projects involve establishing commercial product lines for ultrafast lasers offering higher energy and average power than currently available and for our nested high voltage electron beam gun technologies to enable a wider range of commercial applications

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INTEREST INCOME AND INTEREST EXPENSE

Net interest income for the nine months ended September 30, 2011 was lower by approximately $4,000 as compared to the nine months ended September 30, 2010.

NET LOSS

Our operations for the nine months ended September 30, 2011 resulted in a net loss of approximately $4.7 million, an increase of approximately $2.7 million compared to the $2.0 million loss for the nine months ended September 30, 2010.  Our net loss attributable to common stockholders per common share – basic and diluted - increased by $0.03 per share, largely due to an increase in our net loss.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2011, we had approximately $5.5 million of cash and cash equivalents.  Our cash position decreased during the first nine months of 2011 by approximately $3.5 million.  During the first nine months of 2011, we received approximately $6.0 million in cash from customers, and paid approximately $9.4 million to our suppliers and employees.  Investing activities resulted in net cash outflow of approximately $211,000 and financing activities resulted in net cash inflow of approximately $24,000.

We anticipate that short-term funding needs will be provided by existing cash and cash equivalents.  Based upon our current level of cash expenditures, we anticipate net cash outflows in the range of $1.8 – 2.7 million during the next twelve month period ending September 30, 2012.  We expect to continue to have negative cash outflows until such time, if ever, that we begin to generate meaningful sales of our non-defense commercial products.  We believe that we have sufficient working capital to fulfill existing contracts and expected contracts for at least the next twelve months.

BACKLOG OF ORDERS

At September 30, 2011, we had a backlog (workload remaining on signed contracts) of approximately $925,000, to be completed within the next twelve months.

ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2011.  Based on that evaluation, our Principal Executive Officer and Principal 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 September 30, 2011, 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 1. LEGAL PROCEEDINGS

On or about January 14, 2010, NewOak Capital Markets LLC ("NewOak"), formerly known as J. Giordano Securities, LLC, the placement agent for our October 2005 private placement of preferred stock, filed a Statement of Claim against us with Financial Industry Regulatory Authority ("FINRA").  NewOak alleged that we made material misrepresentations between May 2005 and May 10, 2006 concerning the status of our products.

NewOak was seeking indemnification and recovery for alleged breach of contract, unjust enrichment, quantum meruit, fraudulent misrepresentation, tortious interference with prospective economic relations and violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks an award of monetary damages in excess of $50,000,000, plus punitive damages and attorney’s fees and costs.

On July 13, 2011 the United States Court of Appeals, Second Circuit dismissed the arbitration.

NewOak has advised us that it will continue to pursue its claim.  We intend to defend ourselves vigorously in any legal proceeding, and believe we have substantial defenses to the claims.

ITEM 1A. RISK FACTORS

The following risk factors are applicable to our commercial laser operations:

The long sales cycles for our products may cause us to incur significant expense without offsetting revenues.

Our potential customers are likely to view the purchase of our products as a significant and strategic decision.  As a result, we expect them to expend significant effort in evaluation, testing and qualifying our products before making a decision to purchase them, resulting in a lengthy initial sales cycle.  While our customers are evaluating our products and before they place an order with us, we may incur substantial sales and marketing and research and development expenses to customize our products to the customers’ needs.  We may also expend significant management efforts, increase manufacturing capacity and order long lead-time components or materials prior to receiving an order.  Even after this evaluation, a potential customer may not purchase our products.  As a result, these long sales cycles may cause us to incur significant expenses without ever receiving revenue to offset such expense.

Our commercial laser systems are complex in design and may contain defects that are not detected until installed and operated by our customers, which could increase our costs and reduce our revenues.

Laser systems are inherently complex in design and require ongoing regular maintenance.  The manufacture of our lasers involves a highly complex and precise process.  As a result of the technological complexity of our products, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective materials by us or our suppliers could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product reliability.  To the extent that we do not achieve and maintain our projected yields or product reliability, our business operating results, financial condition and customer relationships would be adversely affected.

Our customers may discover defects in our products after the products have been fully installed and operated under the end user’s peak stress conditions.  In addition, some of our products are combined with products from other vendors, which may contain defects.  As a result, should problems occur, it may be difficult to identify the source of the problem,  If we are unable to identify and fix defects or other problems, we could experience, among other things:

· Loss of customers;

· Increased costs of product returns and warranty expenses;

· Damage to our brand reputation

· Failure to attract new customers or achieve market acceptance;

· Diversion of development and engineering resources; and

· Legal actions, including for personal injury and property damage, by our customers and/or their end users.

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The occurrence of any one or more of the foregoing factors could seriously harm our business, financial condition and results of operations.

The commercial markets for our laser products are unpredictable and characterized by rapid technological changes and evolving standards demanding a significant investment in research and development, and, if we fail to address changing market conditions, our business and operating results will be harmed.

The photonics industry is characterized by extensive research and development, rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards.  Because this industry is subject to rapid change, it is difficult to predict its potential size or future growth rate.  Our success in generating revenues in this industry will depend on, among other things:

· Building our relationships with our customers;

· the education of potential end-user customers about the benefits of lasers and laser systems; and

· our ability to accurately predict, and develop our products to meet, industry standards.

We cannot assure you that our expenditures for research and development will result in the introduction of new products or, if such products are introduced, that those products will achieve sufficient market acceptance or to generate sales to offset the costs of development.  Our failure to address rapid technological changes in our markets could adversely affect our business and results of operations.

We continuously evaluate the commercial viability of each of our technologies and, if we determine that the commercial viability of a technology is not justified by the investment needed to generate meaningful revenues, we may determine to discontinue such efforts.

ITEM 5. OTHER INFORMATION

On November 9, 2011, our board of directors approved the adoption of a form of Indemnification Agreement for directors and executive officers of the Company and its subsidiaries (the “Indemnification Agreement”).

The Indemnification Agreement requires us, to the fullest extent permitted by Delaware law, and subject to certain exceptions specified in the Indemnification Agreement, to indemnify the director or officer party thereto (the “Indemnitee”), if the Indemnitee is a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including, without limitation, any action or suit by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that Indemnitee is or was or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such action, suit or proceeding and any appeal therefrom. The indemnification agreement also requires us to advance expenses incurred by the Indemnitee and to maintain insurance on behalf of the Indemnitee.

The foregoing description is qualified in its entirety by reference to the terms of the Form of Indemnification Agreement attached hereto as Exhibit 10.1 and incorporated herein by reference.

ITEM 6. EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
10.1	Form of Indemnification Agreement with directors and executive officers of the Company
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 Principal 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	Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document

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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
	President and Principal Executive Officer

Date:  November 9, 2011

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EX-10.1

EXHIBIT 10.1

FORM OF

INDEMNIFICATION AGREEMENT

This Indemnification Agreement, dated as of November 9, 2011, is made by and between Applied Energetics, Inc., a Delaware corporation (the "Corporation"), and [Indemnitee] (the "Indemnitee").

RECITALS

A.           The Corporation recognizes that competent and experienced persons are increasingly reluctant to serve or to continue to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance or indemnification, or both, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers;

B.           The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take;

C.           The Corporation and Indemnitee recognize that plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors and officers;

D.           The Corporation believes that it is unfair for its directors and officers to assume the risk of huge judgments and other expenses which may occur in cases in which the director or officer received no personal profit and in cases where the director or officer was not culpable;

E.           The Corporation's Certificate of Incorporation and By-Laws require the Corporation to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law (the "DGCL"). The Certificate of Incorporation and By-Laws expressly provide that the indemnification provisions set forth therein are not exclusive, and contemplate that agreements may be entered into between the Corporation and its directors and officers with respect to indemnification;

F.           Section 145 of the DGCL ("Section 145"), under which the Corporation is organized, empowers the Corporation to indemnify its officers, directors, employees and agents by agreement and to indemnify persons who serve, at the request of the Corporation, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive;

G.           Section 102(b)(7) of the DGCL allows a corporation to include in its certificate of incorporation a provision limiting or eliminating the personal liability of a director for monetary damages in respect of claims by shareholders and corporations for breach of certain fiduciary duties, and the Corporation has so provided in its Certificate of Incorporation that each director shall be exculpated from such liability to the maximum extent permitted by law;

H.           The Board of Directors has determined that contractual indemnification as set forth herein is not only reasonable and prudent but also promotes the best interests of the Corporation and its stockholders;

I.            The Corporation desires and has requested Indemnitee to serve or continue to serve as a director, officer or employee of the Corporation or another corporation or enterprise free from undue concern for unwarranted claims for damages arising out of or related to such services; and

 J.           Indemnitee is willing to serve, continue to serve or to provide additional service for or on behalf of the Corporation or such other corporation or enterprise on the condition that he is furnished the indemnity provided for herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section  1.            GENERALLY.

To the fullest extent permitted by the laws of the State of Delaware:

(a)              The Corporation shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including, without limitation, any action or suit by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that Indemnitee is or was or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity. For the avoidance of doubt, the foregoing indemnification obligation includes, without limitation, claims for monetary damages against Indemnitee in respect of an alleged breach of fiduciary duties, to the fullest extent permitted under Section 102(b)(7) of the DGCL as in existence from time to time.

(b)              The indemnification provided by this Section 1 shall be from and against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such action, suit or proceeding and any appeal therefrom, but shall only be provided if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action, suit or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful.

(c)              Notwithstanding the foregoing provisions of this Section 1, in the case of any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation unless, and only to the extent that, the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

(d)              The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful.

Section 2.             SUCCESSFUL DEFENSE; PARTIAL INDEMNIFICATION. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 hereof or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred in connection therewith. For purposes of this Agreement and without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) an adjudication that Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by Indemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe Indemnitee's conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.

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If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with any action, suit, proceeding or investigation, or in defense of any claim, issue or matter therein, and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which Indemnitee is entitled.

Section 3.              DETERMINATION THAT INDEMNIFICATION IS PROPER. Any indemnification hereunder shall (unless otherwise ordered by a court) be made by the Corporation upon a determination that indemnification of such person is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1(b) hereof.  Any such determination, with respect to an Indemnitee who is an officer or director at the time of such determination, shall be made (i) by a majority vote of the directors who are not parties to the action, suit or proceeding in question ("disinterested directors"), even if less than a quorum, (ii) by a majority vote of a committee of disinterested directors designated by majority vote of disinterested directors, even if less than a quorum, (iii) by a vote of the stockholders of the Corporation,  or (iv) by independent legal counsel.

Section 4. ADVANCE PAYMENT OF EXPENSES; NOTIFICATION AND DEFENSE OF CLAIM.

(a)           Expenses (including attorneys' fees) incurred by Indemnitee in defending a threatened or pending civil, criminal, administrative or investigative action, suit or proceeding, or in connection with an enforcement action pursuant to Section 5(b), shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding within ten (10) days after receipt by the Corporation of (i) a statement or statements from Indemnitee requesting such advance or advances from time to time, and (ii) an undertaking by or on behalf of Indemnitee to repay such amount or amounts, only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as authorized by this Agreement or otherwise. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment. Advances shall be unsecured and interest-free.

(b)           Promptly after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if a claim thereof is to be made against the Corporation hereunder, notify the Corporation of the commencement thereof. The failure to promptly notify the Corporation of the commencement of the action, suit or proceeding, or Indemnitee's request for indemnification, will not relieve the Corporation from any liability that it may have to Indemnitee hereunder, except to the extent the Corporation is prejudiced in its defense of such action, suit or proceeding as a result of such failure.

(c)           In the event the Corporation shall be obligated to pay the expenses of Indemnitee with respect to an action, suit or proceeding, as provided in this Agreement, the Corporation shall be entitled to assume the defense of such action, suit or proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same action, suit or proceeding, provided that (1) Indemnitee shall have the right to employ Indemnitee’s own counsel in such action, suit or proceeding at Indemnitee’s expense and (2) if (i) the employment of counsel by Indemnitee has been previously authorized in writing by the Corporation, (ii) counsel to the Corporation or Indemnitee shall have reasonably concluded that there may be a conflict of interest or position, or reasonably believes that a conflict is likely to arise, on any significant issue between the Corporation and Indemnitee in the conduct of any such defense, or (iii) the Corporation shall not, in fact, have employed counsel to assume the defense of such action, suit or proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Corporation, except as otherwise expressly provided by this Agreement.  The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Corporation or Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.

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(d)           Notwithstanding any other provision of this Agreement to the contrary, to the extent that Indemnitee is, by reason of Indemnitee's corporate status with respect to the Corporation or any corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee is or was serving or has agreed to serve at the request of the Corporation, a witness or otherwise participates in any action, suit or proceeding at a time when Indemnitee is not a party in the action, suit or proceeding, the Corporation shall indemnify Indemnitee against all expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection therewith.

Section 5.              PROCEDURE FOR INDEMNIFICATION

(a)           To obtain indemnification, Indemnitee shall promptly submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)           The Corporation's determination whether to grant Indemnitee's indemnification request shall be made promptly, and in any event within 60 days following receipt of a request for indemnification pursuant to Section 5(a). The right to indemnification as granted by Section 1 of this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or fails to respond within such 60-day period. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 4 hereof where the required undertaking, if any, has been received by the Corporation) that Indemnitee has not met the standard of conduct set forth in Section 1 hereof, but the burden of proving such defense by clear and convincing evidence shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or one of its committees, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct set forth in Section 1 hereof, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors or one of its committees, its independent legal counsel, and its stockholders) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has or has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing Indemnitee's right to indemnification, in whole or in part, in any such proceeding or otherwise shall also be indemnified by the Corporation.

(c)           The Indemnitee shall be presumed to be entitled to indemnification under this Agreement upon submission of a request for indemnification pursuant to this Section 5, and the Corporation shall have the burden of proof in overcoming that presumption in reaching a determination contrary to that presumption. Such presumption shall be used as a basis for a determination of entitlement to indemnification unless the Corporation overcomes such presumption by clear and convincing evidence.

Section 6.              INSURANCE AND SUBROGATION.

(a)           The Corporation shall purchase and maintain insurance on behalf of Indemnitee who is or was or has agreed to serve at the request of the Corporation as a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against, and incurred by, Indemnitee or on Indemnitee's behalf in any such capacity, or arising out of Indemnitee's status as such, whether or not the Corporation would have the power to indemnify Indemnitee against such liability under the provisions of this Agreement, and shall maintain “tail coverage” in effect for six years after the termination of the last such service. If the Corporation has such insurance in effect at the time the Corporation receives from Indemnitee any notice of the commencement of a proceeding, the Corporation shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the policy. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.

(b)           In the event of any payment by the Corporation under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee with respect to any insurance policy, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights in accordance with the terms of such insurance policy. The Corporation shall pay or reimburse all expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.

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(c)           The Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) if and to the extent that Indemnitee has otherwise actually received such payment under this Agreement or any insurance policy, contract, agreement or otherwise.

 Section 7.             CERTAIN DEFINITIONS. For purposes of this Agreement, the following definitions shall apply:

(a)           The term "action, suit or proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, the giving of testimony in, and the being interviewed by any governmental authority in connection with, any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative.

(b)           The term "by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Corporation, or while serving as a director or officer of the Corporation, is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise" shall be broadly construed and shall include, without limitation, any actual or alleged act or omission to act.

(c)           The term "expenses" shall be broadly and reasonably construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements, appeal bonds, other out-of-pocket costs and reasonable compensation for time spent by Indemnitee for which Indemnitee is not otherwise compensated by the Corporation or any third party, provided that the rate of compensation and estimated time involved is approved by the Board, which approval shall not be unreasonably withheld), actually and reasonably incurred by Indemnitee in connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise.

(d)           The term "judgments, fines and amounts paid in settlement" shall be broadly construed and shall include, without limitation, all direct and indirect payments of any type or nature whatsoever (including, without limitation, all penalties and amounts required to be forfeited or reimbursed to the Corporation), as well as any penalties or excise taxes assessed on a person with respect to an employee benefit plan.

(e)           The term "Corporation" shall include, without limitation and in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.  The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement in form and substance reasonably satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

(f)           The term "other enterprises" shall include, without limitation, employee benefit plans.

(g)           The term "serving at the request of the Corporation" shall include, without limitation, any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries.

5

(h)           A person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement.

Section 8.              LIMITATION ON INDEMNIFICATION.  Notwithstanding any other provision herein to the contrary, the Corporation shall not be obligated pursuant to this Agreement:

(a)           CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to an action, suit or proceeding (or part thereof) initiated by Indemnitee, except with respect to an action, suit or proceeding brought to establish or enforce a right to indemnification (which shall be governed by the provisions of Section 8(b) of this Agreement), unless such action, suit or proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

(b)           ACTION FOR INDEMNIFICATION. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, unless Indemnitee is successful in establishing Indemnitee's right to indemnification in such action, suit or proceeding, in whole or in part, or unless and to the extent that the court in such action, suit or proceeding shall determine that, despite Indemnitee's failure to establish Indemnitee’s right to indemnification, Indemnitee is entitled to indemnity for such expenses; provided, however, that nothing in this Section 8(b) is intended to limit the Corporation's obligation with respect to the advancement of expenses to Indemnitee in connection with any such action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, as provided in Section 4 hereof.

(c)           SECTION 16 VIOLATIONS. To indemnify Indemnitee on account of any proceeding with respect to which final judgment is rendered against Indemnitee for payment or an accounting of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

(d)           NON-COMPETE AND NON-DISCLOSURE. To indemnify Indemnitee in connection with proceedings or claims involving the enforcement of non-compete and/or non-disclosure agreements or the non-compete and/or non-disclosure provisions of employment, consulting or similar agreements the Indemnitee may be a party to with the Corporation or any subsidiary of the Corporation.

Section 9.              CERTAIN SETTLEMENT PROVISIONS. The Corporation shall have no obligation to indemnify Indemnitee under this Agreement for amounts paid in settlement of any action, suit or proceeding without the Corporation's prior written consent, which shall not be unreasonably withheld. The Corporation shall not settle any action, suit or proceeding in any manner that would impose any fine or other obligation on Indemnitee without Indemnitee's prior written consent, which shall not be unreasonably withheld.

Section 10.            SAVINGS CLAUSE. If any provision or provisions of this Agreement shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the full extent permitted by applicable law.

Section 11.            CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or in part, it is agreed that, in such event, the Corporation shall, to the fullest extent permitted by law, contribute to the payment of Indemnitee's costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, in an amount that is just and equitable in the circumstances, taking into account, among other things, contributions by other directors and officers of the Corporation or others pursuant to indemnification agreements or otherwise; provided, that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to (i) the failure of Indemnitee to meet the standard of conduct set forth in Section 1 hereof, or (ii) any limitation on indemnification set forth in Section 6(c), 8 or 9 hereof.

 Section 12.           FORM AND DELIVERY OF COMMUNICATIONS. Any notice, request or other communication required or permitted to be given to the parties under this Agreement shall be in writing and either delivered in person or sent by overnight mail or courier service, or certified or registered mail, return receipt requested, postage prepaid, and in each case shall be deemed given upon receipt, to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice):

6

If to the Corporation:

Applied Energetics, Inc.

3590 East Columbia Street

Tucson AZ 85714

If to Indemnitee:

Section 13.            SUBSEQUENT LEGISLATION. If the DGCL is amended after adoption of this Agreement to expand further the indemnification permitted to directors or officers, then the Corporation shall indemnify Indemnitee to the fullest extent permitted by the DGCL, as so amended.

 Section 14.           NONEXCLUSIVITY. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Corporation's Certificate of Incorporation or By-Laws, in any court in which a proceeding is brought, the vote of the Corporation's stockholders or disinterested directors, other agreements or otherwise, and Indemnitee's rights hereunder shall continue after Indemnitee has ceased acting as an agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of Indemnitee. However, no amendment or alteration of the Corporation's Certificate of Incorporation or By-Laws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement

Section 15.            ENFORCEMENT. The Corporation shall be precluded from asserting in any judicial proceeding that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation agrees that its execution of this Agreement shall constitute a stipulation by which it shall be irrevocably bound in any court of competent jurisdiction in which a proceeding by Indemnitee for enforcement of his rights hereunder shall have been commenced, continued or appealed, that its obligations set forth in this Agreement are unique and special, and that failure of the Corporation to comply with the provisions of this Agreement will cause irreparable and irremediable injury to Indemnitee, for which a remedy at law will be inadequate. As a result, in addition to any other right or remedy Indemnitee may have at law or in equity with respect to breach of this Agreement, Indemnitee shall be entitled to injunctive or mandatory relief directing specific performance by the Corporation of its obligations under this Agreement.

 Section 16.           INTERPRETATION OF AGREEMENT. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law.

Section 17.            ENTIRE AGREEMENT. This Agreement and the documents expressly referred to herein constitute the entire agreement between the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby are expressly superseded by this Agreement.

 Section 18.           MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 19.            SUCCESSOR AND ASSIGNS. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives.

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 Section 20.           SERVICE OF PROCESS AND VENUE. For purposes of any claims or proceedings to enforce this agreement, the Corporation consents to the jurisdiction and venue of any federal or state court of competent jurisdiction in the states of Delaware and New York, and waives and agrees not to raise any defense that any such court is an inconvenient forum or any similar claim.

 Section 21.           GOVERNING LAW. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. If a court of competent jurisdiction shall make a final determination that the provisions of the law of any state other than Delaware govern indemnification by the Corporation of its officers and directors, then the indemnification provided under this Agreement shall in all instances be enforceable to the fullest extent permitted under such law, notwithstanding any provision of this Agreement to the contrary.

Section 22.            EMPLOYMENT RIGHTS. Nothing in this Agreement is intended to create in Indemnitee any right to employment or continued employment.

 Section 23.           COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument, notwithstanding that both parties are not signatories to the original or same counterpart.

Section 24.            HEADINGS. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the date first above written.

APPLIED ENERGETICS, INC.
By
	Name:
	Title:

INDEMNITEE:

8

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

President and Principal Executive Officer

Date: November 9, 2011

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

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

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Humberto A. Astorga, the Principal 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/ Humberto A. Astorga

Humberto A. Astorga

Principal Financial Officer and Principal Accounting Officer

Date: November 9, 2011

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, 2011 (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

President and Principal Executive Officer

Date: November 9, 2011

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL 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, 2011 (the “Report”) I, Humberto A. Astorga, Principal 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/ Humberto A. Astorga

Humberto A. Astorga

Principal Financial Officer and Principal Accounting Officer

Date: November 9, 2011

XML

Condensed Consolidated Balance Sheet (unaudited) (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Balance Sheet [Abstract]
Preferred stock, par value (In dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (In shares)	2,000,000	2,000,000
Preferred stock, shares issued (in shares)	107,172	107,172
Preferred stock, shares outstanding (in shares)	107,172	107,172
Common stock, par value (In dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	125,000,000	125,000,000
Common stock, shares issued (in shares)	91,671,673	91,068,357
Common stock, shares outstanding (in shares)	91,671,673	91,068,357

XML

Condensed Consolidated Statements Of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Condensed Consolidated Statements Of Operations (Unaudited) [Abstract]
Revenue	$ 611,206	$ 3,260,087	$ 4,450,549	$ 9,734,797
Cost of revenue	633,868	2,986,640	4,233,710	9,150,009
Gross profit	(22,662)	273,447	216,839	584,788
Operating expenses
General and administrative	844,135	412,496	2,742,705	2,015,082
Selling and marketing	220,522	135,013	886,422	439,366
Research and development	677,665	55,518	1,309,453	92,038
Total operating expenses	1,742,322	603,027	4,938,580	2,546,486
Operating loss	(1,764,984)	(329,580)	(4,721,741)	(1,961,698)
Other (expense) income
Interest expense	(1,392)	(1,111)	(3,732)	(4,446)
Interest income	707	2,074	2,847	6,646
Total other	(685)	963	(885)	2,200
Net loss	(1,765,669)	(328,617)	(4,722,626)	(1,959,498)
Preferred stock dividends	(45,830)	(45,839)	(137,500)	(161,380)
Deemed dividend from induced conversion of Series A Preferred Stock			0	(11,478)
Net loss attributable to common stockholders	$ (1,811,499)	$ (374,456)	$ (4,860,126)	$ (2,132,356)
Net loss per common share - basic and diluted	$ (0.02)	$ (0.004)	$ (0.05)	$ (0.02)
Weighted average number of shares outstanding, basic and diluted	91,100,100	89,791,303	90,969,324	89,179,404

XML

Document And Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Nov. 07, 2011	Jun. 30, 2010
Entity Registrant Name	APPLIED ENERGETICS, INC.
Entity Central Index Key	0000879911
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 86,947,000
Entity Common Stock, Shares Outstanding		91,671,673
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011

XML

NET LOSS PER SHARE

9 Months Ended

Sep. 30, 2011

Net Loss Per Share [Abstract]

Net Loss Per Share

7. NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period before giving effect to stock options, stock warrants, restricted stock units and convertible securities outstanding, which are considered to be dilutive common stock equivalents.  Diluted net loss per common share is calculated based on the weighted average number of common and potentially dilutive shares outstanding during the period after giving effect to convertible preferred stock, stock options, warrants and restricted stock units.  Contingently issuable shares are included in the computation of basic loss per share when issuance of the shares is no longer contingent.  Due to the losses from continuing operations for the nine months ended September 30, 2011 and 2010, 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:

	Nine Months Ended September 30,
	2011		2010
Options to purchase common shares		4,028,590		4,245,255
Warrants to purchase common shares		-		1,024,939
Unvested restricted stock units		291,221		-
Convertible preferred stock		107,172		107,172
Total potentially dilutive securities		4,426,983		5,377,366

XML

INVENTORY

9 Months Ended

Sep. 30, 2011

Inventory [Abstract]

Inventory

3. INVENTORY

Our inventories consist of the following:

	September 30, 2011		December 31, 2010
Raw materials	$	81,303	$	81,646
Work-in-process		12,453		675,730
Provision for loss on project		-		(73,830	)
Total	$	93,756	$	683,546

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. COMMITMENTS AND CONTINGENCIES

LITIGATION

On or about January 14, 2010, NewOak Capital Markets LLC ("NewOak"), formerly known as J. Giordano Securities, LLC, the placement agent for our October 2005 private placement of preferred stock, filed a Statement of Claim against us with Financial Industry Regulatory Authority ("FINRA").  NewOak alleges that we made material misrepresentations between May 2005 and May 10, 2006 concerning the status of our products.

NewOak was seeking indemnification and recovery for alleged breach of contract, unjust enrichment, quantum meruit, fraudulent misrepresentation, tortious interference with prospective economic relations and violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks an award of monetary damages in excess of $50,000,000, plus punitive damages and attorney's fees and costs.

On July 13, 2011, the United States Court of Appeals, Second Circuit dismissed the arbitration.

NewOak has advised us that it will continue to pursue its claim.  We intend to defend ourselves vigorously in any legal proceeding, and believe we have substantial defenses to the claims.  No accrual for loss has been established in connection with this potential matter as a reasonable estimate of the loss or range of loss cannot be made at this time.

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.

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2011

Subsequent Events

10. SUBSEQUENT EVENTS

We performed an evaluation of subsequent events and determined that no events required disclosure.

XML

DIVIDENDS

9 Months Ended

Sep. 30, 2011

Dividends [Abstract]

Dividends

8. DIVIDENDS

As of September 30, 2011, we had 107,172 shares of our 6.5% Series A Convertible Preferred Stock outstanding.  A dividend was declared and paid in common stock on November 1, 2011 to the holders of record as of October 15, 2011.

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.

XML

BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

BASIS OF PRESENTATION

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 September 30, 2011 (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- and nine- month periods ended September 30, 2011, 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, estimating costs at completion on a contract, the valuation of inventory, carrying amount of long-lived assets, expected forfeiture rate on stock-based compensation and measurements of income tax assets and liabilities.

CASH AND CASH EQUIVALENTS

Cash equivalents are investments in money market funds or securities with an initial maturity of three months or less.  These money market funds are invested in government and U. S. Treasury based securities.

FAIR VALUE OF CURRENT ASSETS AND LIABILITIES

The carrying amount of the accounts receivable, accounts payable and accrued expenses approximate fair value due to the short maturity of these instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) 2011-08, “Intangibles – Goodwill and Other (Topic 350):  Testing Goodwill for Impairment”.  The objective of ASU 2011-08 is to simplify how entities, both public and nonpublic, test goodwill for impairment.  The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350.  The more-likely-than-not threshold is defied as having a likelihood of more than 50 percent.  ASU 2011-08 is effective for us for reporting periods after December 15, 2011.  The adoption of the standard is not expected to have a significant impact on the company's consolidated financial statements, as we currently do not have goodwill recorded on our financial statements.

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2011

Property and Equipment [Abstract]

Property and Equipment

4. PROPERTY AND EQUIPMENT

Our property and equipment consist of the following:

	September 30, 2011			December 31, 2010
Land	$	410,728		$	410,728
Buildings and improvements, leasehold improvements		2,313,004			2,246,153
Equipment		2,333,019			2,261,115
Furniture		270,248			282,278
Software		813,799			813,799
Total		6,140,798			6,014,073
Less accumulated depreciation and amortization		(3,680,679	)		(3,506,259	)
Net property and equipment	$	2,460,119		$	2,507,814

We review long-lived assets, including intangible assets subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of such long-lived assets by determining whether the amortization of the balances over their remaining lives can be recovered through undiscounted future operating cash flows.  The amount of impairment, if any, is measured based on projected discounted future operating cash flows.  The assessment of the recoverability of long-lived assets will be impacted if estimated future operating cash flows are not achieved.  We conducted an impairment test for property and equipment in February 2011 for the December 31, 2010 reporting period and concluded that the carrying value of these assets is recoverable through expected future operating cash flows.

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SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Share Based Compensation [Abstract]

Share Based Compensation

5. SHARE-BASED COMPENSATION

Share-Based Compensation – Employees and Directors

For the three months ended September 30, 2011 and 2010, share-based compensation expense totaled approximately $51,000 and $156,000, respectively.  For the nine months ended September 30, 2011 and 2010, share-based compensation expense totaled approximately $237,000 and $814,000, 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 September 30, 2011, the compensation committee granted options to purchase 16,000 shares of our common stock to members of our Senior Advisory Board pursuant to the terms of their independent consultant agreements.  As of September 30, 2011, $230,000 of total unrecognized compensation cost related to restricted stock and restricted stock units is expected to be recognized over a weighted average period of approximately 2.34 years.

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

	Nine Months Ended September 30,
	2011			2010
Expected life (years)	2.5 years			2.9 - 3 years
Dividend yield		0.0	%		0.0	%
Expected volatility		93.6	%		93.6	%
Risk free interest rates		0.85 - 1.12	%		1 - 1.5	%
Weighted average fair value of options at grant date	$	0.40		$	0.37

During the nine months ended September 30, 2011, 34,415 shares of restricted stock vested or were forfeited, options to purchase 48,084 shares were exercised, and options to purchase 190,247 shares were forfeited.

Warrants – Non-Employees

At September 30, 2011, there were no outstanding warrants to purchase shares of common stock as all previously outstanding warrants expired unexercised on August 8, 2011.  At December 31, 2010, there were outstanding warrants to purchase approximately 1.0 million shares of common stock, which were issued in connection with the August 2006 financing.  The exercise price of the warrants was $9.15.

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SIGNIFICANT CUSTOMERS

9 Months Ended

Sep. 30, 2011

Significant Customers [Abstract]

Significant Customers

6. SIGNIFICANT CUSTOMERS

Approximately 53% and 99% of revenues for the three-month periods ended September 30, 2011 and 2010, respectively, are generated from either the U.S. Government or contractors to the U.S. Government.  Approximately 90% and 99% of revenues for the nine-month periods ended September 30, 2011 and 2010, respectively, are generated from either the U.S. Government or contractors to the U.S. Government.

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Condensed Consolidated Statement of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Condensed Consolidated Statement of Cash Flows (Unaudited) [Abstract]
Net loss	$ (4,722,626)	$ (1,959,498)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	254,069	305,668
Loss on equipment disposal	4,793	5,725
Provision for inventory reserves	(73,830)	36,000
Provision for losses on projects		0
Non-cash stock based compensation expense	237,081	814,422
Changes in assets and liabilities:
Accounts receivable	1,647,965	(1,192,253)
Other receivable	(1,956)	1,710
Inventory	663,620	(20,491)
Prepaid expenses, deposits and other assets	302,813	126,533
Accounts payable	(540,030)	372,758
Billings in excess of costs	(4,646)	(37,684)
Accrued expenses, deposits and deferred rent	(1,099,084)	312,087
Net cash used in operating activities	(3,331,831)	(1,235,023)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment	(214,567)	(78,670)
Proceeds from sale of short term investments	0	225,000
Proceeds from disposal of equipment	3,400	14,062
Net cash used in investing activities	(211,167)	160,392
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options	23,975	577,406
Net cash provided by financing activities	23,975	577,406
Net decrease in cash and cash equivalents	(3,519,023)	(497,225)
Cash and cash equivalents, beginning of period	8,983,281	9,604,643
Cash and cash equivalents, end of period	$ 5,464,258	$ 9,107,418

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ACCOUNTS RECEIVABLE

9 Months Ended

Sep. 30, 2011

Accounts Receivable [Abstract]

ACCOUNTS RECEIVABLE

2. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

	September 30, 2011		December 31, 2010
Contracts receivable	$	373,660	$	2,012,027
Costs and estimated earnings on uncompleted contracts		667		10,265
Accounts receivable, net		374,327		2,022,292
Short term  receivable (contract retention)		47,817		47,817
Long term  receivable (contract retention)		205,313		205,313
	$	627,457	$	2,275,422

Contracts receivable are expected to be collected within a year.

Costs and Estimated Earnings on Uncompleted Contracts

	September 30, 2011			December 31, 2010
Costs incurred on uncompleted contracts	$	33,378,820		$	29,648,466
Estimated earnings		2,523,276			2,359,922
Total billable costs and estimated earnings		35,902,096			32,008,388
Less:
Billings to date		35,903,288			32,004,628
Total	$	(1,192	)	$	3,760
Included in accompanying balance sheet:
Unbilled costs and estimated earnings on uncompleted contracts included in accounts receivable	$	667		$	10,265
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,859	)		(6,505	)
Total	$	(1,192	)	$	3,760

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Condensed Consolidated Balance Sheet (unaudited) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Current assets
Cash and cash equivalents	$ 5,464,258	$ 8,983,281
Accounts receivable	374,327	2,022,292
Inventory	93,756	683,546
Prepaid expenses and deposits	72,693	365,506
Other receivables	50,673	48,717
Total current assets	6,055,707	12,103,342
Long term receivables - net	205,313	205,313
Property and equipment - net	2,460,119	2,507,814
Other assets	0	10,000
TOTAL ASSETS	8,721,139	14,826,469
Current liabilities
Accounts payable	329,979	870,009
Accrued expenses	203,629	1,005,682
Accrued compensation	322,813	507,341
Customer deposits	13,779	126,282
Billings in excess of costs	1,859	6,505
Total current liabilities	872,059	2,515,819
Total liabilities	872,059	2,515,819
Commitments and contingencies - See Note 9
Stockholders' equity
Series A Convertible Preferred Stock, $.001 par value, 2,000,000 shares authorized;107,172 shares issued and outstanding at September 30, 2011 and at December 31, 2010	107	107
Common stock, $.001 par value, 125,000,000 shares authorized; 91,371,191 shares issued and outstanding at September 30, 2011 and 91,068,357 shares issued and outstanding at December 31, 2010	91,672	91,068
Additional paid-in capital	79,136,472	78,738,520
Accumulated deficit	(71,379,171)	(66,519,045)
Total stockholders' equity	7,849,080	12,310,650
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 8,721,139	$ 14,826,469