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Appendix 4C – Quarterly Cash Flow Report and Business Update

27 / 04 / 2018

Highlights for the quarter ended 31 March 2018
• Worldwide net revenue of US$1.8 million dollars, essentially the same as the fourth quarter of 2017, driven by slight U.S. sales growth and an expected decrease in Australia sales due to seasonality
• The number of physician users in the U.S. continues to increase
• Cash and short-term investments balance as of 31 March 2018 of US$13.6 million

Palo Alto, CA, United States - AirXpanders, Inc. (ASX: AXP), a medical device company focused on the design, manufacture, sale and distribution of the AeroForm® Tissue Expander System, today released its Appendix 4C - Quarterly Cash Flow report for the quarter ended 31 March 2018.

Net revenue performance for the quarter and the fiscal year was as follows: 

(US$ in ‘000, unaudited)

Q1 2018

Q2 2017

% Growth

Net revenue




Units Sold






Worldwide unit sales of the AeroForm Tissue Expander were 675 units in the first quarter of 2018, a slight decrease from 693 units in the fourth quarter of 2017. In the United States, there was a slight increase of 1% in unit sales of AeroForm in the first quarter of 2018, with net unit sales of 577 units, compared to 570 units in the fourth quarter of 2017 and an increase from 38 units in the first quarter of 2017. In Australia, unit sales were 98 units, a decrease of 20% over the fourth quarter of 2017 due to expected seasonality in that market, but an increase of 18% over the first quarter of 2017. Worldwide revenue growth in the first quarter of 2018 continued to outpace unit growth due to the additive impact of higher average unit selling prices (ASPs) in the United States, which have remained consistent since our commercial launch in early 2017.

In the U.S., the Company continued to grow the number of physician users in the first quarter of 2018. The Company estimates that over 170 physicians in the U.S. have ordered AeroForm to date, with approximately 40% reordering in the first quarter. This reorder rate is a decrease from the fourth quarter of 2017, but reflective of the significant number of new surgeons - around 80 - brought into the adoption process in the last two quarters, all of whom are at various early stages of adoption.

"We are optimistic about our prospects for the business in light of the strong positive response to our product from physicians. In the last few weeks, we have taken major steps towards refining and improving the effectiveness of our sales model, while focusing on achieving operating cost efficiencies to reduce our quarterly cash burn rate and provide a clearer path to future profitability.  The Board of Directors has commenced a search for a new Chief Executive Office to drive the Company to the next phase of U.S. commercialization, with a number of strong candidates in the pipeline," commented Co-Founder and Chairman of the Board Barry Cheskin. "In the meantime, Scott Murcray, named as Interim CEO, along with a newly organized Operating Advisory Committee of the Board, are hard at work moving the business forward."

Scott Murcray, Interim Chief Executive Officer of AirXpanders, added, "There are many positive signs for the business looking ahead. For example, key territories in the U.S. continue to exhibit strong performance with an increasing customer base. Further, generally, the longer a surgeon has used AeroForm, the more they use it."

Mr Murcray continued, "We believe that by applying the practices from our best territories to the rest of the country, among other things, we can achieve accelerated market adoption of our technology. The improved sales tactics we are implementing will take a little time to implement and accordingly we expect the second quarter will see less emphasis on simply achieving sales growth and more emphasis on implementing the efficiencies and positioning ourselves for the future."

The Company had total cash and short-term investment balances of US$13.6 million as of 31 March 2018. Short-term investments consist of highly liquid, U.S. Treasury securities. Cash outflow for operating activities during the quarter was US$8.4 million, compared to US$7.6 million in the previous quarter. This increase of US$0.8 million was primarily attributable to an increase in staffing costs and increased inventory receipts as compared to the fourth quarter of 2017, offset by higher customer receipts.

The Company expects cash outflow for the second quarter of 2018 to decrease by approximately one-third compared to the first quarter of 2018 with continued decreases expected in the second half of the year due to the full effect of changes we are making to our operating model, as noted here. At this stage, based on our recent projections, the Company believes its current cash balance can cover its operating expenses through 2018.

Workforce changes and other activities

The Company is seeking to refine and improve the effectiveness of its sales model while achieving operating cost efficiencies to reduce cash outflow. To this end, the Company is implementing certain changes, including headcount reductions of around 25% of our workforce.

The headcount reductions are focused outside the Company's U.S. sales organization, though the Company has made some important changes to its U.S. sales force, including removing the former vice president of our U.S. sales group, promoting the best performing regional sales director to the head of U.S. sales and reducing a few other individual positions to improve efficiency. These initiatives are intended to promote the sales tactics of the Company's best performing region across the U.S. including improving efforts towards going deeper with existing accounts versus obtaining new accounts.

The Company has also reduced purchases of raw materials to reduce the rate of inventory build.

Distributor model for Australia

The Company has decided to pursue a transition to a distributor model in the Australian market.  Given the relative small size of the Australian market, the Company believes that it can continue to supply and grow the market in Australia with AeroForm via an established distributor, whilst reducing direct sales and marketing costs in Australia.

The Company believes a suitable distributor with complementary product offerings and similar sales channels is available in the Australian market. The Company will make an announcement to ASX as soon as the terms of the appointment are finalised and a distributor is appointed.

Oxford Finance Loan

Oxford Finance LLC (Oxford) and the Company have entered into a waiver and second amendment to the loan and security agreement, pursuant to which the Company has received a waiver of the potential noncompliance with a financial covenant relating to revenue at the end of the first quarter (which the Company would otherwise be required to report to Oxford at the end of April); has granted Oxford a further security interest in its intellectual property; and has agreed to issue a warrant to purchase additional shares of the Company's Class A Common Stock.

The Company and Oxford have a strong partnership and are planning to discuss further amendments to the loan and security agreement to take account of the changes the Company is making to the business. The Company will file appropriate announcements to the ASX outlining any amendment(s) when agreed.

Scott Murcray
Interim President & CEO
Tel: +1 (650)-282-8106

Investor relations
Kyahn Williamson
WE Buchan
Tel: +61 (3) 9866 4722 / + 61 (0)401018828

About AirXpanders
Founded in 2005, AirXpanders, Inc. ( designs, manufactures and markets innovative medical devices to improve breast reconstruction. The Company's AeroForm Tissue Expander System, is used in patients undergoing two-stage breast reconstruction following mastectomy. Headquartered in Palo Alto, California, AirXpanders' vision is to be the global leader in reconstructive surgery products and to become the standard of care in two-stage breast reconstruction. AirXpanders is a publicly listed Company on the Australian Securities Exchange under the symbol "AXP." AeroForm was granted U.S. FDA de novo marketing authorization in 2016, first CE mark in Europe in 2012 and is currently licensed for sale in Australia.

Forward-Looking Statements
This announcement contains or may contain forward-looking statements that are based on management's beliefs, assumptions and expectations and on information currently available to management.

All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. These include, but are not limited to, future financial results, including projected cash burn and cash sufficiency forecast, U.S. commercial market adoption and U.S. and Australia sales of our product, ability to achieve operating efficiencies and future profitability, timing of hiring a permanent CEO, ability to identify and enter into a contract with a distributor in Australia, the ability to successfully negotiate with its lender and the ability to recognize efficiency as a result of restructuring our sales team in the US and sales model in Australia.

Management believes that these forward-looking statements are reasonable when made. You should not place undue reliance on forward-looking statements because they speak only as of the date when made. AirXpanders may not actually achieve the plans, projections or expectations disclosed in forward-looking statements. Actual results, developments or events could differ materially from those disclosed in the forward-looking statements. For additional information and considerations regarding the risks faced by AirXpanders that could cause actual results to differ materially, see its most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 28, 2018, including under the caption "Risk Factors," as well as other periodic reports filed with the SEC from time to time. AirXpanders disclaims any obligation to update information contained in any forward-looking statement, except as required by law.

For more information, refer to the Company's website at