Note 7 — Agreements Related to Acquired Intellectual Property Rights

Patent License Agreement - Case Western Reserve University - EsoGuard Technology

On May 12, 2018, Lucid Diagnostics Inc., a majority-owned subsidiary of the Company, entered into a patent license agreement with Case Western Reserve University (“CWRU”), referred to as the “EsoGuard™ License Agreement”. See Note 14, Stockholders’ Equity and Common Stock Purchase Warrants, for a discussion of the Company’s majority-owned subsidiary Lucid Diagnostics Inc. and the corresponding noncontrolling interest.

The EsoGuard License Agreement provides for the exclusive worldwide license of the intellectual property rights for the proprietary technologies of two distinct components - the “EsoCheck Cell Collection Device” referred to as the “EsoCheck, and EsoGuard, a panel of methylated DNA biomarkers, and together are collectively referred to as the “EsoGuard Technology”.

Under the EsoGuard License Agreement, Lucid Diagnostics Inc. incurred a payment obligation to CWRU of approximately $273,000, referred to as the “EsoGuard License Agreement Fee”, with such license fee requiring an initial payment of $50,000, which the Company has paid, and quarterly payments of $50,000 until such fee is paid-in-full, provided, however, the commencement of such quarterly payments is subject to Lucid Diagnostics Inc. consummation of a bona fide financing with an unrelated third-party in excess of $500,000. As of December 31, 2019, there is $222,553 EsoGuard License Agreement that is unpaid and included in Accrued expenses and other current liabilities.

Lucid Diagnostics Inc. will also be required to pay a minimum annual royalty commencing the year after the first commercial sale of products resulting from the commercialization of the EsoGuard Technology, with the minimum amount based on net sales of such product(s), if any. Additionally, the EsoGuard License Agreement provides for Lucid Diagnostics Inc. to make payments to CWRU upon the achievement of certain regulatory milestones. The EsoGuard License Agreement also provides for potential payments upon the achievement of certain product development and regulatory clearance milestones. In this regard, upon FDA clearance on June 21, 2019 of the EsoCheck device, the Company paid a $75,000 milestone payment. The license agreement also provides for two additional milestone obligations with a payment of $100,000 due within 30 days upon the first commercial sale of a licensed product and a payment of $200,000 due upon a PMA submission to the FDA related to a licensed product.

On the May 12, 2018 effective date of the EsoGuard License Agreement, the EsoGuard License Agreement fee was recognized as a current period research and development expense in the consolidated statement of operations, with the remaining unpaid balance included in accrued expenses and other current liabilities in the consolidated balance sheet. The EsoGuard License Agreement was determined to not meet the “business combination” criteria under FASB ASC Topic 805, Business Combinations (“ASC 805”), as such license agreement did not meet the ASC 805 definition of a business, as the transaction resulted in an intangible asset of acquired intellectual property rights only, and the Company did not acquire any employees or tangible assets, or any processes, protocols, or operating systems. Accordingly, the transaction was determined to be to be an asset acquisition under ASC 805. Further, as noted, the cost of the acquired intellectual property rights were recognized as a current period research and development expense, as required under FASB ASC Topic 730, Research and Development (ASC 730), as the acquired intellectual property rights were purchased from others for use in a research and development activity, and for which there are no alternative future uses.

The EsoGuard License Agreement also provides for potential payments upon the achievement of certain product development and regulatory clearance milestones. If Lucid Diagnostics Inc. does not meet certain milestones listed in the EsoGuard License Agreement, then CWRU has the right, in its sole discretion, to require the Company to transfer to CWRU a percentage, varying up to 100%, of the shares of common stock of Lucid Diagnostics Inc. held by the Company. Lucid has not yet met all the milestones required by this provision. Lucid Diagnostics Inc. will also be required to pay a minimum annual royalty commencing the year after the first commercial sale of products resulting from the commercialization of the EsoCheck™ Technology, with the minimum amount rising based on net sales of such product(s), if any. Such contingent milestone and /or royalty payments, if any, will be recognized in the period in which such payment obligations are incurred. Reimbursement of CWRU billed patent fees incurred under the EsoCheck™ License Agreement of $200,437 and $20,978 were recognized as research and development expense in each of the years ended December 31, 2019 and 2018, respectively.

The EsoGuard License Agreement terminates upon the expiration of certain related patents, or on May 12, 2038 in countries where no such patents exist, or upon expiration of any exclusive marketing rights granted by the FDA or other U.S. government agency, whichever comes later.

The three physician inventors of the EsoGuard™ Technology, each entered into consulting agreements with Lucid Diagnostics Inc. to continue to support the development of the EsoGuard Technology. In addition to cash compensation based on a contractual rate per hour, additional compensation under each such consulting agreement includes: the grant under the Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan of stock options dated May 12, 2018 to each individual to purchase 100,000 shares of common stock of Lucid Diagnostics Inc. at an exercise price of $0.50 per share of such common stock; and, the grant under the PAVmed Inc. 2014 Long-Term Incentive Plan of stock options dated May 12, 2018 to each individual to purchase 25,000 shares of PAVmed Inc. common stock at an exercise price of $1.59 per share of such common stock.

In June 2018, Lucid Diagnostics Inc. entered into a contract development and manufacturing organization (CDMO) agreement with an unrelated third-party for the supply of the EsoCheck device, principally for use in research and development activities - referred to herein as the “EsoCheck CDMO Supply Agreement”. The EsoCheck CDMO Supply Agreement contains a firm price per unit, and a contractual EsoCheck purchase minimum quantity, is cancellable with 10 day notice, among other routine and customary provisions. With respect to the EsoCheck purchase contractual minimum quantity, if Lucid Diagnostics Inc. terminates the EsoCheck CDMO Supply Agreement without “good reason”, as defined, prior to placing purchase orders for 5,000 units of EsoCheck, then Lucid Diagnostics Inc. will make a single one-time $50,000 payment to the unrelated third-party CDMO. The minimum quantity contingent payment, if any, will be recognized as a current period expense if and when such payment obligation is incurred. Further, in June 2018 Lucid Diagnostics Inc. entered into a separate consulting agreement with the owner of the unrelated third-party supplier of the EsoCheck device, with the sole compensation under such consulting agreement being the grant under the Lucid Diagnostics Inc. 2018 Long-Term Incentive Equity Plan of stock options dated June 23, 2018 to purchase 75,000 shares of common stock of Lucid Diagnostics Inc. at an exercise price of $1.00 per share of such common stock. See Note 10, Stock-Based Compensation, for information regarding the separate “Lucid Diagnostics Inc 2018 Long-Term Incentive Equity Plan”.

Patent License Agreement – Liquid Sensing Inc. – Nondispersive Infared (“NDIR”) Laser Technology

On November 14, 2019, Solys Diagnostics Inc., a majority-owned subsidiary of the Company, entered into definitive license and shareholder agreements with Airware Inc., and its newly formed subsidiary Liquid Sensing Inc., each an unrelated third party, to develop and commercialize non-invasive diagnostic products using Nondispersive Infrared (NDIR) laser technology. The agreements are referred to herein as the “Liquid Sensing License Agreement” and “Liquid Sensing Shareholder Agreement”.

Pursuant to Liquid Sensing Shareholder Agreement executed concurrently with the Liquid Sensing License Agreement, PAVmed Inc. and Airware Inc. granted to each other 15% non-dilutive equity ownership interests in each of their respective majority-owned subsidiaries of Solys Diagnostics Inc. and Liquid Sensing Inc., respectively, of which, 50% of such equity ownership interests vest immediately and the remaining 50% will vest upon achievement of certain milestones. Such investment in Liquid Sensing Inc. was de minimis as of December 31, 2019, and is included in other assets classified as non-current on the accompanying consolidated balance sheet. The shareholder agreements also provide PAVmed with a right of first offer on any future investment in Liquid Sensing, which would permit it to increase its equity stake at its discretion if the value of the company and its portable or wearable noninvasive glucose technology is realized.

Patent License Agreement - Tufts University - Antimicrobial Resorbable Ear Tubes

In November 2016, the Company executed a Patent License Agreement (the “Tufts Patent License Agreement”) with Tufts University and its co-owners, the Massachusetts Eye and Ear Infirmary and Massachusetts General Hospital (the “Licensors”). Pursuant to the Tufts Patent License Agreement, the Licensors granted the Company the exclusive right and license to certain patents in connection with the development and commercialization of antimicrobial resorbable ear tubes based on a proprietary aqueous silk technology conceived and developed by the Licensors.

Upon execution of the Tufts Patent License Agreement, the Company paid the Licensors an upfront non-refundable fee of $50,000, with such fee recognized as of the transaction date as a current period research and development expense in the statement of operations. The Tufts Patent License Agreement was determined not to be meet the “business combination” criteria under FASB ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the transaction was determined to be to be an asset acquisition under ASC 805, with the cost of the acquired intellectual property rights recognized as a current period research and development expense, under ASC Topic 730, Research and Development (ASC 730).

The Tufts Patent License Agreement also provides for potential payments from the Company to the Licensors upon the achievement of certain product development and regulatory clearance milestones as well as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents. The Company will recognize as a current period expense for contingent milestone payments or royalties in the period in which such payment obligations are incurred, if any. Reimbursement of Tufts University billed patent fees incurred under the Tufts Patent License Agreement of $70,996 and $113,688 were recognized as research and development expense in 2019 and 2018, respectively.