STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2012

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred Stock

As of December 31, 2012 and 2011, there were 107,172 shares of Series A Redeemable Convertible Preferred Stock (the “Series A Preferred Stock”) outstanding.

Our Series A Preferred Stock has a liquidation preference of $25.00 per Share. The Series A Preferred Stock bears dividends at the rate of 6.5% of the liquidation preference per share per annum, which accrues from the date of issuance, and is payable quarterly, when declared. Dividends may be paid in: (i) cash, (ii) shares of our common stock (valued for such purpose at 95% of the weighted average of the last sales prices of our common stock for each of the trading days in the ten trading day period ending on the third trading day prior to the applicable dividend payment date), provided that the issuance and/or resale of all such shares of our common stock are then covered by an effective registration statement or (iii) any combination of the foregoing. If the Company fails to make a dividend payment within five business days following a dividend payment date, the dividend rate shall immediately and automatically increase by 1% from 6.5% of the liquidation preference per offered share of Series A preferred stock to 7.5% of such liquidation preference for as long as such failure continues and immediately return to 6.5% of the liquidation preference per share of Series A preferred stock per annum at such time as such failure no longer continues.

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

Dividends on our Preferred Stock are payable quarterly on the first day of February, May, August and November, in cash or shares of Common Stock, at our discretion. We declared and paid dividends on our 6.5% Series A Preferred Stock in May, August and November, 2012 and February, 2013.

For the payment of dividends in 2011, we issued 550,915 shares of common stock with a market value of approximately $138,000. For the payment of dividends in 2012, we paid approximately $174,000, and accrued approximately $29,000 as of December 31, 2012 which was paid in cash on February 1, 2013.

Share-Based Payments

Applied Energetics adopted an Amended and Restated 2007 Stock Incentive Plan (“2007 Plan”) and a 2004 Stock Incentive Plan as amended (“2004 Plan”) both of which provides for the grant of any or all of the following types of awards: (1) stock options, (2) restricted stock, (3) deferred stock, (4) stock appreciation rights, and (5) other stock-based awards, including restricted stock units, for periods up to 10 years. Stock options granted under the plans are generally for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. Options granted to employees will generally vest over two to four years. Most options granted have a contractual life of 5 years from the grant date. Restricted stock granted under the plans to employees generally vest immediately and/or over a period of up to four years. Some restricted stock granted under the plans vest only upon meeting certain departmental or company-wide performance goals. Both restricted stock and options granted to non-employee directors generally vest immediately on the date of grant. We have, from time to time, also granted non-plan options to certain officers, directors and employees. Total stock-based compensation expense for grants to officers, employees and consultants was approximately $63,000 and $256,000 for the years ended December 31, 2012 and 2011, respectively, which was charged to general and administrative expense.

At December 31, 2012 and 2011, there were outstanding options to purchase 1.2 million and 3.8 million, respectively, of common stock. There are 76,458 unvested restricted stock units outstanding as of December 31, 2012. As of December 31, 2012 and 2011, respectively, there were 0 and 11,040 unvested restricted stock awards outstanding.

The following table sets forth information regarding awards under our 2004 and 2007 Stock Incentive Plans:

As of December 31, 2012
					Restricted Stock		Restricted		Shares
	Share Grants		Options		Awards		Stock Units		Available for
	Approved		Outstanding		Outstanding		Outstanding		Award*
2004 Stock Incentive Plan		5,000,000		695,500		-		-		2,238,974
2007 Stock Incentive Plan		10,000,000		476,666		-		76,458		7,821,943
Total				1,172,166		-		76,458		10,060,917

* Please see information included in this note which describes the limits placed upon the 2007 Stock Incentive Plan

On June 28, 2005, our stockholders approved an amendment to the company's 2004 Plan to (i) increase the number of shares of the company's common stock, $.001 par value, authorized for issuance under the 2004 Plan by 2,000,000 shares from 3,000,000 shares to 5,000,000 shares, and (ii) set the maximum number of shares of common stock which may be issued upon the exercise of incentive stock options at 3,000,000 shares. As of December 31, 2012 and 2011, options to purchase 695,500 and 2,485,195 shares, respectively, were outstanding under this plan. Additionally, as of December 31, 2012 and 2011, respectively, there were no unvested restricted stock units outstanding under this plan.

On September 10, 2007, the stockholders of Applied Energetics approved the adoption of the company’s 2007 Plan. A total of 10,000,000 shares of common stock have been reserved for distribution pursuant to the 2007 Plan; provided, however, that the maximum number of shares available for award or grant during the first five years of the 2007 Plan shall be an aggregate of 5,000,000 shares; and provided further that the maximum number of shares available for award or grant during any consecutive twelve month period shall be 1,000,000 shares during the first two years of the 2007 Plan and 2,000,000 shares during the third through fifth years of the 2007 Plan. The five-year limitation period ended September 10, 2012. As of December 31, 2012 and 2011, options to purchase 476,666 and 1,338,065 shares, respectively, were outstanding under this plan. There were 76,458 and 231,595 unvested restricted stock units outstanding as of December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011 respectively, there were 0 and 11,040 restricted stock awards outstanding. Grants from the 2007 Plan can be either service based, where the grant vests with the passage of time, or performance based, where the grant vests based on the attainment of a pre-defined company or departmental goal.

There are 10,060,917 aggregate shares available for grant from the Stock Incentive Plans as of December 31, 2012.

The fair value of restricted stock and restricted stock units was estimated using the closing price of our common stock on the date of award and fully recognized upon vesting.

No options were granted in 2012. For those options granted in 2011, the fair value of option awards was estimated using the Black-Scholes-Merton option pricing model with the following assumptions and weighted average fair values:

	For the year ended December 31,
	2011
Weighted average grant date fair value of grants		$0.71
Expected volatility		93.56%
Expected dividends		0%
Expected term (years)		2.5
Risk free rate		.41% - 1.105%

The following table summarizes the activity of our stock options for the years ended December 31, 2011, and 2012:

				Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2010		4,184,921		$	0.50
Granted		82,000		$	0.71
Exercised		(48,084	)	$	0.50
Forfeited or expired		(395,577	)	$	0.61
Outstanding at December 31, 2011		3,823,260		$	0.52
Granted		-		$	-
Exercised		-		$	-
Forfeited or expired		(2,651,094	)	$	0.53
Outstanding at December 31, 2012		1,172,166		$	0.51
Exercisable at December 31, 2012		1,172,166		$	0.51

As of December 31, 2012 and December 31, 2011, the aggregate intrinsic value (amount by which Applied Energetics’ closing stock price on the last trading day of the year exceeds the exercise price of the option) of options outstanding was $0, as the exercise price was greater than the market price. The intrinsic value of options exercised during 2012 and 2011 was $0 and $6,586, respectively. As of December 31, 2012 and 2011, the weighted average remaining contractual life of options outstanding and options exercisable was 1.72 and 2.29 years, respectively. At December 31, 2012, there was approximately $0 of unrecognized compensation costs related to unvested stock options, net of estimated forfeitures. The cost is expected to be recognized on a weighted-average basis over a period of approximately 0 years.

The following table summarizes the activity of our restricted stock units and restricted stock grants for the years ended December 31, 2012 and 2011:

	Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2010		12,530		$	3.28
Granted		325,636		$	0.83
Vested		(4,326	)	$	0.83
Forfeited		(91,205	)	$	0.87
Unvested at December 31, 2011		242,635		$	0.94
Granted		-		$	-
Vested		(76,510	)	$	0.96
Forfeited		(89,667	)	$	1.02
Unvested at December 31, 2012		76,458		$	0.83

As of December 31, 2012, there was approximately $44,000 of unrecognized stock-based compensation related to unvested restricted stock, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 1.21 years. Of the 76,458 restricted stock units unvested at December 31, 2012, all are expected to vest with the filing of the Company’s Annual Reports with the Securities and Exchange Commission for the years 2012 and 2013.

Compensation expense recorded for shares and options delivered to non-employee consultants for the years ended December 31, 2012 and 2011 was approximately $0 and $8,700, respectively, which was charged to operating expenses with offsetting entries to additional paid-in capital or prepaid assets.

Warrants

In August 2006, as a part of our sale of 4,616,327 shares of our common stock, we issued 923,272 warrants to purchase our common stock. The warrants were exercisable for a period of five (5) years at an exercise price of $9.15 per warrant share and expired in August 2011.

Warrant activity is summarized as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)
Outstanding and exercisable at December 31, 2010		923,272		$	9.15
Warrants exercised		-
Warrants expired		(923,272	)	$	9.15
Outstanding and exercisable at December 31, 2011 and December 31, 2012		-		$	-		-