NOTE

– COMMITMENTS AND CONTINGENCIES

As of

March 31, 2018

, the future rental commitments due under the lease are (in thousands):

Year ending December 31,
2018 (remaining 9 months)	$	632
2019		681
2020		18
2021		—
2022 and beyond		—
Total	$	1,331

The Company maintains an inventory purchase agreements with its

third

-party contract manufacturer in Costa Rica.

The Company’s liability under this purchase commitment is generally restricted to a forecasted

three

month period. The Company estimates its open inventory purchase commitment as of

March 31, 2018

was approximately

$1.2

million. The Company recorded a

$0.2

million inventory write-down to market value related to this commitment, which is included in accrued expenses in the accompanying condensed consolidated balance sheet.

Indemnifications

The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The Company has a directors and officers

’ liability insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid resulting from the indemnification of its officers and directors. In addition, the Company enters into indemnification agreements with other parties in the ordinary course of business. The Company has

not

incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. The Company's management believes the estimated fair value of these indemnification agreements is minimal and has

not

recorded a liability for these agreements as of

March 31, 2018

and

December 31, 2017.

Royalties

The Company uses AeroForm technology in the products it is developing. AeroForm embodies inventions that have been patented in certain key jurisdictions. Certain of those patents are held by Shalon Ventures (either alone or jointly with AirXpanders). Shalon Ventures and AirXpanders have entered into a License Agreement dated

March 9, 2005 (

as amended on

March 9, 2009

and

January 9, 2012)

in relation to those inventions (Shalon Ventures License Agreement). Pursuant to the Shalon Ventures License Agreement, Shalon Ventures granted AirXpanders an exclusive license to develop, make, have made, use, offer for sale, sell, have sold, import and export products that, but for the license, would infringe

one

or more claims of the patents. The license covers all human uses of self-expanding tissue expanders anywhere in the world and includes the right to sublicense.

In consideration for the license, AirXpanders pays Shalon Ventures a running royalty of

of net sales of the licensed invention. If the amount of royalties paid in a calendar year is less than

$10,000,

then AirXpanders shall also pay Shalon Ventures

’ out of pocket costs for prosecuting and maintaining the relevant patents. Each party indemnifies the other for any liability arising out of its material breach of the license, or its gross negligence, intentional misconduct and illegal actions. AirXpanders also indemnifies Shalon Ventures for any liability arising out of the commercialization of products using the license. For the

three

months ended

March 31, 2018

and

2017,

respectively, the Company recorded approximately

$35,000

and

$5,000

in royalty fees, which is included in cost of goods sold in the accompanying condensed consolidated statements of operations. For the

nine

months ended

March 31, 2018

and

2017,

respectively, the Company recorded approximately

$0.1

million and

$12,000

in royalty fees, which is included in cost of goods sold in the accompanying condensed consolidated statements of operations. Mr. Teddy Shalon is the Chief Executive Officer and sole shareholder of Shalon Ventures. Mr. Shalon and Mr. Barry Cheskin are each party to an agreement with Shalon Ventures, under which Shalon Ventures has agreed to pay Mr. Shalon

58%,

and Mr. Cheskin

8%,

of any royalties due to Shalon Ventures from AirXpanders under the Shalon Ventures License Agreement.

Mr. Shalon was a director of the Company through

May 2018,

and a current stockholder of the Company. Mr. Cheskin is a director and stockholder of the Company. Mr. Cheskin is also the co-founder and chairman of the board of the Company.