Stephen McCahon
About Stephen McCahon
Dr. Stephen W. McCahon is Chief Science Officer (CSO) of Applied Energetics (AERG) since May 1, 2023. Age 65, he holds BSEE/MSEE (USC) and a Ph.D. in Photonics (University of Iowa), co-founded Applied Energetics in 2002, and previously led Directed Energy Weapons at Raytheon (Hughes) . Company operating performance during his tenure shows revenue down 76.6% YoY and net loss widening by ~$3.8M for the nine months ended Sep 30, 2025, reflecting suspended contract funding and increased opex .
| Metric | 9M 2024 | 9M 2025 |
|---|---|---|
| Revenue (USD) | $1,662,598 | $389,072 |
| Net Loss (USD) | $(7,047,014) | $(10,862,572) |
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Hughes Research Laboratory (Hughes) | Member of Research Staff, Optical Physics | 1986–1996 | Basic research in optical physics and nonlinear materials |
| Raytheon (Hughes) Missile Systems Co. | Chief Scientist; led Directed Energy Weapons product line | 1996–2002 | Created and developed directed energy weapons programs |
| Applied Energetics, Inc. | Co-founder | 2002 | Developed ultrashort pulse laser sources and Laser Guided Energy (LGE) technologies |
| Applied Optical Sciences, Inc. (AOS) | Founder/majority stockholder | 2010–2019 | Built photonics and USP laser technologies; assets later acquired by AERG |
| Applied Energetics | Chief Scientist (Consultant) | 2019–May 2023 | Strategic input; defense market relationships |
External Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| SWM Consulting LLC | Principal (Consulting to AERG) | 2019–May 2023 | Consulting agreement including equity/lock-up provisions |
Fixed Compensation
| Year | Contracted Base Salary (USD) | Actual Salary Paid (USD) | Notes |
|---|---|---|---|
| 2023 | $300,000 (annualized) | $300,000 | Transitioned from consulting to CSO May 1, 2023 |
| 2024 | $325,000 | $350,000 | Proxy reports $350k salary for 2024 |
| 2025 | $350,000 | Not disclosed | Agreement calls for $350k base in 2025 |
- No target bonus or actual bonus disclosed for McCahon; agreement provides standard benefits and expense reimbursement .
Performance Compensation
- No RSUs, PSUs, or option awards disclosed to McCahon for 2023–2024 in the NEO tables ; no performance metrics linked to his pay are disclosed for CSO.
- Company-level equity plan has change-of-control and clawback mechanics (see Employment Terms) .
Equity Ownership & Alignment
| As-of Date | Total Beneficial Ownership (shares) | Ownership (%) | Components / Notes |
|---|---|---|---|
| Sep 6, 2024 | 14,257,861 | 6.8% | Based on Schedule 13D/Forms; includes warrants (see below) |
| Jul 28, 2025 | 14,257,861 | 6.5% | Includes 1,435,000 shares underlying warrants; “significant stockholder” |
Additional ownership details:
- 2019 Asset Purchase from AOS included warrants to purchase 2,500,000 shares at $0.06; company paid associated $2.5M promissory note in full by Apr 2023 .
- Under the 2019 SWM Consulting Agreement, 5,000,000 shares (of an additional 15,000,000 shares held) were subject to a lock-up releasing pro rata monthly during the agreement term, with potential acceleration on termination other than for cause or change-in-control; consulting terminated upon CSO employment on May 1, 2023 .
Pledging/hedging, ownership guidelines:
- No disclosure of pledged shares, hedging, or stock ownership guideline requirements for executives; company has a clawback policy under the 2025 Equity Plan .
Employment Terms
| Provision | Details |
|---|---|
| Role & Term | Executive Employment Agreement effective May 1, 2023; initial term through Dec 31, 2025, renewable in one-year periods; terminable for cause or Good Reason (definitions in agreement) |
| Compensation | Base salary $300k (2023, annualized), $325k (2024), $350k (2025); monthly pay; standard benefits; expense reimbursement |
| Severance | If terminated for cause or he terminates without Good Reason: base pay and expenses through termination date; forfeiture of unvested equity |
| Change-of-Control & Vesting | Company-level 2025 Plan defaults to double-trigger vesting acceleration for options/SARs upon termination without cause or for Good Reason within 18 months post-CoC; performance awards settled based on target or achieved performance at CoC; awards may be canceled for zero intrinsic value; plan allows repricing only with stockholder approval |
| Company Policy | Proxy discloses no separate termination or CoC agreements requiring payments beyond standard 90-day severance and vesting provisions for executive officers, consistent with smaller reporting company context |
Related Party Transactions
| Date | Counterparty | Transaction | Consideration / Terms |
|---|---|---|---|
| May 24, 2019 (amended Feb 2021, May 23, 2022) | Applied Optical Sciences, Inc. (majority stockholder McCahon) | Asset Purchase (IP, contracts, equipment) | $2,500,000 promissory note (paid in full Apr 2023) and warrants for 2,500,000 shares at $0.06; note payment schedule amended; monthly $100k payments in 2022 extension |
| May 24, 2019; extended Jan 1, 2023 | SWM Consulting LLC (McCahon principal) | Consulting Agreement (Chief Scientist) with cash comp and equity/lock-up | Cash: $180k first year; $250k in years 2–3; repurchase of 5,000,000 shares at $0.06; lock-up on 5,000,000 of additional 15,000,000 shares with monthly release; extended in 2023 at $300k/$325k/$350k but terminated when CSO agreement executed |
Risk Indicators & Red Flags
- Government funding risk and macro headwinds: suspension of funds on two contracts led to revenue collapse and higher losses; budget uncertainty highlighted by management in MD&A .
- Large insider ownership: McCahon’s ~6.5–6.8% stake aligns interests but creates potential supply from legacy lock-up releases and warrant exercises; monitor Section 16 filings for activity (company notes McCahon-related Form 4 references) .
- Clawback policy in place under 2025 Equity Plan; no disclosure of pledging/hedging or ownership guidelines; option repricing requires stockholder approval .
- No guaranteed severance multiples or rich change-of-control cash terms (suggests controlled severance costs), but plan-level vesting acceleration on double trigger can be material for equity holders .
Investment Implications
- Alignment: High due to McCahon’s significant equity stake and absence of guaranteed cash incentives; lack of disclosed performance-linked incentives for CSO suggests pay emphasis on fixed salary and long-term equity value .
- Retention risk: Moderate; compensation is straightforward with no severance multiples, but role critical to IP development; double-trigger vesting under the plan may reduce turnover risk around strategic events .
- Trading signals: Watch for Form 4 activity around legacy lock-up releases and warrant exercises, plus revenue rebound or funding restoration on suspended contracts—both likely to impact sentiment and any management equity vesting under plan mechanics .