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Item 9A. Controls and Procedures

2021-03-25 compared with 2020-03-30 · 291 added, 323 removed, 576 unchanged (52% of the section changed)

CONTROLS AND PROCEDURES

Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with GAAP.

This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

We will be required, under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10‑K for the year ending December 31, 2020.

This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

The SEC defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be detected or prevented on a timely basis.

In accordance with the provisions of the Sarbanes-Oxley Act, neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period included in this annual report.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K.

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020.

Management’s Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our

receipts and expenditures are being made only in accordance with authorizations of our management and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting may not prevent or detect all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved.

Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs.

Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected.

These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate.

Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected.

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives.

We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures.

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

Changes in Internal Control over Financial Reporting

During the fourth quarter ended December 31, 2020, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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The information required by Item 11 of Form 10-K is incorporated by reference to the information contained in our definitive proxy statement for the 2021 annual meeting of stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 of Form 10-K is incorporated by reference to the information contained in our definitive proxy statement for the 2021 annual meeting of stockholders.

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Reference is made to the Exhibit Index on page 96 of this Annual Report for a list of exhibits required by Item 601 of Regulation S-K to be filed as part of this Annual Report.

FORM 10-K SUMMARY

TELA BIO, INC.

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’

Equity (Deficit)

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of TELA Bio, Inc.

and its subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’

equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

and subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S.

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Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (U.S.) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditors since 2013.

We have served as the Company’s auditor since 2013.

Philadelphia, Pennsylvania

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Intangible assets, net

Liabilities, redeemable convertible preferred stock and stockholders’

equity (deficit)

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued expenses

Other current liabilities

Accrued expenses and other current liabilities

Total current liabilities

Long‑term debt with related party

Preferred stock warrant liability

Other long‑term liabilities

Long‑term debt with related party

Other long‑term liabilities

Total liabilities

Contingencies and commitments (Note 11)

Redeemable convertible preferred stock;

$0.001 par value:

Series A Preferred stock:

22,501,174 shares previously authorized, no shares issued or outstanding at December 31, 2019 and 22,501,174 issued and outstanding at December 31, 2018

Series B Preferred stock:

82,891,619 shares previously authorized, no shares issued or outstanding at December 31, 2019 and 63,032,500 issued and outstanding at December 31, 2018

Total redeemable convertible preferred stock

Stockholders’

equity (deficit):

Stockholders’ equity:

Preferred stock;

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Accumulated deficit

Total stockholders’

equity (deficit)

Total liabilities, redeemable convertible preferred stock and stockholders’

equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial statements.

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Change in fair value of preferred stock warrant liability

Total other (expense) income

Total other expense

Accretion of redeemable convertible preferred stock to redemption value

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TELA Bio, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’

Equity (Deficit )

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit )

(In thousands, except share amounts)

Redeemable Convertible Preferred Stock

Stockholders’

Equity (Deficit)

paid‑in

Stockholders’ Equity (Deficit)

comprehensive

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Exercise of stock options

Issuance of Series B redeemable convertible preferred stock upon conversion of promissory notes

Sale of Series B redeemable convertible preferred stock, net of stock issue costs of $206

Stock‑based compensation expense

Accretion of redeemable convertible preferred stock to redemption value

Balance at December 31, 2017

Vesting of common stock previously subject to repurchase

Exercise of stock options

Sale of Series B redeemable convertible preferred stock, net of stock issue costs of $206

Stock‑based compensation expense

Stock ‑ based compensation expense

Accretion of redeemable convertible preferred stock to redemption value

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Foreign currency translation adjustment

Stock‑based compensation expense

Stock ‑ based compensation expense

Accretion of redeemable convertible preferred stock to redemption value

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Balance at December 31, 2019

Vesting of common stock previously subject to repurchase

Exercise of stock options

Issuance of common stock under the employee stock purchase plan

Foreign currency translation adjustment

Stock ‑ based compensation expense

Issuance of common stock upon follow-on offering, net of underwriting discounts, commissions and offering costs

Balance at December 31, 2020

See accompanying notes to consolidated financial statements.

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Inventory excess and obsolescence charge

Beneficial conversion feature upon conversion of promissory notes

Change in fair value of warrants

Stock‑based compensation expense

Loss (gain) on sale of property and equipment

Stock ‑ based compensation expense

Gain on sale of equipment

Change in operating assets and liabilities:

Accounts receivable

Accounts receivable, net

Prepaid expenses and other assets

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Accounts payable

Accrued expenses and other liabilities

Accrued expenses and other current liabilities

Foreign currency remeasurement gain

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Purchases of short-term investments

Proceeds from the sale and maturity of short-term investments

Payment for intangible asset

Purchase of property and equipment

Proceeds from sale of property and equipment

Net cash used in investing activities

Proceeds from the sale of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from follow-on offering, net of underwriting discounts, commissions and offering costs

Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs

Proceeds from issuance of long‑term debt with related party

Proceeds from issuance of long‑term debt and preferred stock warrants

Repayment of long‑term debt

Proceeds from issuance of long ‑ term debt with related party

Proceeds from issuance of long ‑ term debt and preferred stock warrants

Repayment of long ‑ term debt

Borrowings under revolving credit facility

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Proceeds from issuance of Series B redeemable convertible preferred stock, net of offering costs

Proceeds from issuance of convertible promissory notes and preferred stock warrants

Payment of initial public offering costs

Payment of deferred financing costs

Payment of capital lease obligations

Proceeds from exercise of stock options

Proceeds from issuance of common stock under the employee stock purchase plan

Net cash provided by financing activities

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Conversion of outstanding preferred stock warrants

Offering costs in accounts payable

Conversion of convertible promissory notes and accrued interest to Series B redeemable convertible preferred stock

Intangible assets in accrued expenses and other liabilities

Offering costs in accounts payable and accrued expenses and other current liabilities

Property and equipment in accounts payable

Intangible assets in accrued expenses and other current liabilities

Recognition of exit fee for debt discount

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Unrealized loss on short-term investments

Liability-classified stock-based compensation in accrued expenses and other current liabilities

See accompanying notes to consolidated financial statements.

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TELA Bio, Inc.

(the “Company”) was incorporated in the state of Delaware on April 17, 2012 and wholly owns TELA Bio Limited, a company incorporated in the United Kingdom.

The Company is focused on the commercialization and sale of OviTex Reinforced Tissue Matrix (“OviTex”), which utilizes surgical reconstruction medical device technology licensed from a strategic partner, Aroa Biosurgery (“Aroa”), as described in Note 11, and on the research and development of additional medical devices with Aroa and on other internally developed technologies.

(the “Company”) was incorporated in the state of Delaware on April 17, 2012 and wholly owns TELA Bio Limited, a company incorporated in the United Kingdom.

(“Aroa”), as described in Note 11, and on the research and development of additional medical devices with Aroa and on other internally developed technologies.

In April 2019, the Company received 510(k) clearance from the U.S.

Food and Drug Administration (“FDA”) for OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which addresses unmet needs in plastic reconstruction surgery.

The Company’s principal corporate office and research facility is located in Malvern, Pennsylvania.

Food and Drug Administration (“FDA”) for OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which addresses unmet needs in plastic reconstruction surgery.

The Company’s principal corporate office and research facility is located in Malvern, Pennsylvania.

(2) Risks and Liquidity

The Company’s operations to date have focused on commercializing products, developing and acquiring technology and assets, business planning, raising capital and organization and staffing.

The Company has incurred recurring losses and negative cash flows from operations since inception and has an accumulated deficit of $196.7 million as of December 31, 2020.

The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its expenses and has limited resources available to fund current commercialization and research and development activities.

In November 2019, the Company closed its initial public offering (“IPO”) in which the Company issued and sold 4,398,700 shares of its common stock at a public offering price of $13.00 per share, including 398,700 shares of the Company’s common stock sold pursuant to the underwriters’

option to purchase additional shares.

The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its expenses.

The Company received net proceeds of $50.6 million after deducting underwriting discounts, commissions and other offering expenses.

The operations of the Company are subject to certain risks and uncertainties including, among others, uncertainty of product development, technological uncertainty, commercial acceptance of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.

In June 2020, the Company completed a follow-on public offering in which the Company issued and sold 3,000,000 shares of its common stock at a public offering price of $16.00 per share.

The Company received net proceeds of $44.7 million after deducting underwriting discounts, commissions and other offering expenses.

The operations of the Company are subject to certain risks and uncertainties including, among others, uncertainty of product development, the impact of COVID-19 on the business, ongoing economic uncertainty, technological uncertainty, commercial acceptance of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.

(3) Summary of Significant Accounting Policies

Basis of Presentation and Principals of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

The consolidated financial statements include the accounts of TELA Bio, Inc.

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All intercompany accounts and transactions have been eliminated in consolidation.

Reverse Stock Split

The Company effected a one‑for‑24.69 reverse stock split of its common stock on October 28, 2019.

The reverse stock split combined approximately 25 shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion price of its redeemable convertible preferred stock.

No fractional shares were issued in connection with the reverse stock split.

Any fractional share resulting from the reverse stock split was rounded down to the nearest whole share, and in lieu of any fractional shares, the Company will pay in cash to the holders of such fractional shares an amount equal to the fair value, as determined by the board of directors, of

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenue and

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

such fractional shares.

All common stock, per share and related information presented in the consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the reverse stock split.

Use of Estimates

The most significant judgments are employed in estimates used to determine the fair value of redeemable convertible preferred stock, preferred stock warrant liability and stock‑based awards issued, and recoverability of the carrying value of the Company’s inventory.

expenses during the reporting period.

The most significant judgments are employed in estimates used to determine the fair value of redeemable convertible preferred stock, preferred stock warrant liability and stock-based awards issued, and recoverability of the carrying value of the Company’s inventory.

As future events and their effects cannot be determined with precision, actual results may differ significantly from these estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to mitigate the spread of or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

Management has made estimates of the impact of COVID-19 within the Company’s consolidated financial statements and there may be changes to those estimates in future periods.

Actual results may differ from these estimates.

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

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As described in Note 11, the Company has licensed patents and other intellectual property from Aroa.

As part of this agreement, Aroa is also the sole manufacturer of the Company’s products.

The inability of Aroa to fulfill supply requirements of the Company could materially impact future operating results.

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Cash equivalents consist of investments in a money market fund.

The Company’s cash and cash equivalents are carried at the fair value of the investment based on quoted market prices.

Short-Term Investments

Short-term investments consist of investments in corporate debt securities with a maturity of greater than three months when acquired.

The Company classifies these investments as available-for-sale securities.

These investments are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders’

The Company evaluates its investments for other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of the market value.

There were no other-than-temporary impairments in 2019.

Short-term investments consisted of investments in corporate debt securities with a maturity of greater than three months when acquired.

The Company classified these investments as available-for-sale securities.

These investments were reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders’ equity.

The Company had no short-term investments as of December 31, 2020.

TELA BIO, INC.

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The Company periodically analyzes its inventory levels and writes down inventory that has become obsolete or that has a cost basis in excess of its expected net realizable value based on expected customer demand.

As of December 31, 2019 and 2018, the Company had $1.1 million and $0.8 million, respectively, in inventory consigned to others.

As of December 31, 2020 and 2019, the Company had $1.4 million and $1.1 million, respectively, in finished goods consigned to others.

Property and Equipment

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In 2018, the Company recorded $4.0 million in intangible assets as it became probable that the Company would make these payments.

In 2019 and 2018, the Company recorded $0.3 million and $0.8 million, respectively, of amortization expense related to intangible assets.

In 2020, 2019 and 2018, the Company recorded $0.3 million, $0.3 million and $0.8 million, respectively, of amortization expense related to intangible assets.

At December 31, 2020, the remaining life of intangible assets was 8.6 years.

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Fair value is determined using various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

No impairment losses were recognized during the year ended December 31, 2019, 2018 or 2017.

No impairment losses were recognized during the years ended December 31, 2020, 2019 or 2018.

Debt Issuance Costs

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The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , which was adopted on January 1, 2019, using the modified retrospective method.

The Company determined that the new guidance did not have a material impact on its revenue recognition practices as it does not provide customers with price concessions, rebates, volume discounts or other such reductions for which an estimated transaction price must be determined and then allocated to specific deliverables.

The adoption of this guidance had no cumulative adjustment to the Company’s consolidated financial statements as of the adoption date.

Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of the promised good, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods.

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The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

A significant portion of the Company’s revenue is generated from product shipped to a customer or from consigned inventory maintained at hospitals.

Revenue from the sale of consigned products is recognized when control is transferred to the customer, which occurs at the time the product is used in a surgical procedure.

For product that is not held on consignment, the Company recognizes revenue when control transfers to the customer which occurs at the time the product is shipped or delivered.

For all of the Company’s contracts, the only identified performance obligation is providing the product to the customer.

Revenue is recognized at the estimated net sales price which includes estimates of variable consideration.

The Company contracts with certain third-party payors for the payment of rebates with respect to the utilization of its products.

These rebates are based on contractual percentages.

The Company estimates these rebates and records in the same period the related revenue is recognized, resulting in a reduction of product revenue.

Payment terms with customers do not exceed one year and, therefore, the Company does not account for a financing component in its arrangements.

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Total revenue

Sales of OviTex accounted for all of the Company’s revenue for the years ended December 31, 2018 and 2017.

Prior to the adoption of ASC Topic 606, revenue was recognized when persuasive evidence of an arrangement existed, the price was fixed or determinable, delivery had occurred, and there was a reasonable assurance of collection of the sales proceeds.

Revenue for products sold to a customer was recognized when the product was shipped to the customer, at which time title passed to the customer.

In the case of consigned inventory, revenue was recognized when the product was utilized in a surgical procedure.

Sales of OviTex accounted for all of the Company’s revenue for the year ended December 31, 2018.

Sales outside of the U.S.

are immaterial for the years ended December 31, 2020, 2019 and 2018.

Research and Development

Research and development costs are charged to expense as incurred and consist primarily of salaries, benefits, and other related costs, including stock‑based compensation for personnel serving in the research and development functions as

Research and development costs are charged to expense as incurred and consist primarily of salaries, benefits, and other related costs, including stock-based compensation for personnel serving in the research and development functions as well as costs incurred with Aroa under development agreements related to technology transfer, laboratory materials and

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

well as payments to Aroa and related supply and manufacturing costs.

At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives.

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Stock-Based Compensation

The Company accounts for stock‑based awards in accordance with provisions of ASC Topic 718, Compensation—Stock Compensation , under which the Company recognizes the grant‑date fair value of stock‑based awards issued to employees and nonemployee board members as compensation expense on a straight‑line basis over the vesting period of the award while awards containing a performance condition are recognized as expense when the achievement of the performance criteria is considered probable.

The Company accounts for stock‑based compensation for awards granted to nonemployee consultants by revaluing the award over the vesting period of the awards.

The Company accounts for stock-based awards in accordance with provisions of ASC Topic 718, Compensation—Stock Compensation , under which the Company recognizes the grant-date fair value of stock-based awards issued to employees and nonemployee board members as compensation expense on a straight-line basis over the vesting period of the award while awards containing a performance condition are recognized as expense when the achievement of the performance criteria is considered probable.

The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options.

The Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur.

Income taxes are accounted for under the asset‑and‑liability method as required by ASC Topic 740 (“ASC 740”), Income Taxes .

Income taxes are accounted for under the asset-and- liability method as required by ASC Topic 740 (“ASC 740”), Income Taxes .

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

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Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income.

ASC Subtopic 740‑10 (“ASC 740‑10”), Accounting for Uncertainty of Income Taxes , defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in consolidated financial statements prepared in conformity with GAAP.

ASC Subtopic 740-10 (“ASC 740-10”), Accounting for Uncertainty of Income Taxes , defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in consolidated financial statements prepared in conformity with GAAP.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position.

The tax benefits recognized in the consolidated financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority.

In accordance with the disclosure requirements of ASC 740‑10, the Company’s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of total interest expense and other expense, respectively.

In accordance with the disclosure requirements of ASC 740-10, the Company’s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of income tax expense.

Fair value of financial instruments

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Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value.

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and other assets, and accounts payable are shown at cost, which approximates fair value due to the short‑term nature of these instruments.

Due to the related‑party relationship of our

Due to the related-party relationship of our OrbiMed Credit Facility (Note 6), it is impractical to determine the fair value of the debt.

Items measured at fair value on a recurring basis included the Company’s preferred stock warrants.

The warrants were carried at their estimated fair

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

OrbiMed Credit Facility (Note 6), it is impractical to determine the fair value of the debt.

Items measured at fair value on a recurring basis included the Company’s preferred stock warrants.

The warrants were carried at their estimated fair value.

All outstanding warrants to purchase shares of preferred stock were converted into warrants to purchase shares of common stock after our IPO.

The Company follows the provisions of ASC Topic 820, Fair Value Measurement , for financial assets and liabilities measured on a recurring basis.

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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):

Fair value measurement at reporting date using

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December 31, 2020:

Cash equivalents –

money market fund

Cash equivalents –

corporate debt securities

Cash equivalents –

government agency securities

Short-term investments –

corporate debt securities

Cash equivalents – money market fund

December 31, 2019:

Cash equivalents –

money market fund

Warrant liability

Cash equivalents – money market fund

Cash equivalents – corporate debt securities

Cash equivalents – government agency securities

Short-term investments – corporate debt securities

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

A rollforward of the warrant liability (Level 3 measurement) is as follows (in thousands):

A rollforward of the warrant liability (Level 3 measurement) was as follows (in thousands):

January 1, 2018

Fair value of warrants issued –

Convertible promissory notes

Fair value of warrants issued –

Notes payable

Change in fair value of warrants

December 31, 2017

Fair value of warrants issued –

MidCap Credit Facility

Fair value of warrants issued – MidCap Credit Facility

Change in fair value of warrants

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Expected volatility

Risk‑free interest rate

Remaining contractual term in years

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Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during the reporting period.

The Company’s outstanding redeemable convertible preferred stock contractually entitled the holders of such shares to participate in distributions but contractually did not require the holders of such shares to participate in losses of the Company.

In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive shares are not assumed to have been issued if their effect is antidilutive.

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The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding as of December 31, 2020, 2019 and 2018, as they would be antidilutive.

Years ended December 31,

Year ended December 31,

Series A redeemable convertible preferred stock

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Recently Issued Accounting Pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In February 2016, the FASB issued ASU No.

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The Company plans to adopt this standard on January 1, 2022 and is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU No.

2016‑18, Consolidated Statement of Cash Flows:

Restricted Cash .

The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash and require that a consolidated statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

The standard was effective for the Company beginning January 1, 2019.

The Company’s adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No.

2018‑07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share‑Based Payment Accounting .

2018-07, Improvements to Nonemployee Share-Based Payment Accounting .

The amendments in this update expand the scope of Topic 718 to include stock-based payment transactions for acquiring goods and services from nonemployees.

Under this ASU, an entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of costs (i.e., the period of time over which stock-based payment awards vest and the pattern of cost recognition over that period).

The guidance is effective for the Company beginning January 1, 2020, with early adoption permitted.

The adoption of this guidance is not expected to be material to the Company’s consolidated financial statements and related disclosures.

The guidance was effective for the Company beginning January 1, 2020, with early adoption permitted.

The adoption of this guidance did not have any impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

2018‑13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC Topic 820.

The goal of the ASU is to improve the effectiveness of ASC Topic 820’s disclosure requirements.

The standard is effective for the Company beginning January 1, 2020.

The adoption of this guidance is not expected to be material to the Company’s consolidated financial statements and related disclosures.

2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC Topic 820.

The goal of the ASU is to improve the effectiveness of ASC Topic 820’s disclosure requirements.

The standard was effective for the Company beginning January 1, 2020.

The adoption of this guidance did not have any impact on the Company’s consolidated financial statements and related disclosures.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes .

This guidance applies to all entities and aims to reduce the complexity of tax accounting standards while enhancing reporting disclosures.

This guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein.

Early adoption is permitted for any annual periods for which financial statements have not been issued and interim periods therein.

The adoption of this guidance is not expected to be material to the Company’s consolidated financial statements and related disclosures.

(4) Property and Equipment

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Depreciation expense was $0.2 million, $0.3 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

(5) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

(5) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

Compensation and related benefits

Professional fees

Accrued milestone payments

Research and development expenses

Third-party and professional fees

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

Long-term debt consisted of the following at December 31, 2020 and 2019 (in thousands):

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OrbiMed Term Loan (Related Party)

In November 2018, the Company entered into a senior secured term loan facility (“OrbiMed Credit Facility”) with OrbiMed Royalty Opportunities II, LP (“OrbiMed”), a related party as the lender is affiliated with a stockholder of the Company, which consists of up to $35.0 million in term loans (“OrbiMed Term Loans”).

The OrbiMed Term Loans consist of two tranches, a $30.0 million Tranche 1 (“Tranche 1”) and a $5.0 million Tranche 2 (“Tranche 2”).

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

November 2018, the Company borrowed $30.0 million of Tranche 1 and used a portion of the proceeds to repay the MidCap Credit Facility (described below) and will use the remaining proceeds to fund operations and capital expenditures.

The OrbiMed Term Loans consist of two tranches, a $30.0 million Tranche 1 (“Tranche 1”) and a $5.0 million Tranche 2 (“Tranche 2”).

In November 2018, the Company borrowed $30.0 million of Tranche 1 and used a portion of the proceeds to repay the MidCap Credit Facility (described below).

The Company elected not to borrow Tranche 2 prior to its expiration on December 31, 2019.

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In addition, the Company must maintain a minimum cash balance of $2.0 million.

In the event of default under the OrbiMed Credit Facility, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 3%.

If an event of default occurs under the OrbiMed Credit Facility, the Company may become obligated to immediately pay all outstanding principal and interest and all other due and unpaid obligations at the current rate in effect plus 3%.

The OrbiMed Term Loan matures on November 16, 2023 and bear interest at a rate equal to 7.75% plus the greater of one-month LIBOR or 2.0%.

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The OrbiMed Term Loans have a prepayment penalty equal to 10.0% of the prepaid principal amount prior to the second anniversary of the Term Loans, 5.0% of the prepaid principal amount after the second anniversary but prior to the third anniversary and 2.5% of the prepaid principal amount after the third anniversary.

The Company is also required to pay an exit fee at the time of maturity or prepayment event equal to 10.0% of all principal borrowings (the “End of Term Charge”) and an administration fee equal to $10,000 on the last day of each quarter until all obligations have been paid in full.

In conjunction with the closing of the OrbiMed Term Loans, the Company incurred $0.3 million of third party and lender fees, which along with the End of Term Charge of $3.0 million were recorded as debt issuance costs, and are being recognized as interest expense over the term of the loan using the effective-interest method.

Interest expense associated with the OrbiMed Credit Facility recorded during 2019 and 2018 was $3.6 million and $0.6 million, respectively.

Interest expense associated with the OrbiMed Credit Facility recorded during 2020, 2019 and 2018 was $3.6 million, $3.6 million and $0.6 million, respectively.

MidCap Credit Facility

In April 2018, the Company entered into a $14.0 million debt financing transaction (“MidCap Credit Facility”) with MidCap Financial (“MidCap”), which consisted of a $3.5 million revolving credit facility (“Revolver”) and $10.5 million in term loans (“MidCap Term Loans”).

The Term Loans consisted of two tranches, an $8.0 million Tranche 1 (“MidCap Tranche 1”) and a $2.5 million Tranche 2 (“MidCap Tranche 2”).

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

$10.5 million in term loans (“MidCap Term Loans”).

The Term Loans consisted of two tranches, an $8.0 million Tranche 1 (“MidCap Tranche 1”) and a $2.5 million Tranche 2 (“MidCap Tranche 2”).

In April 2018, the Company borrowed $8.0 million of MidCap Tranche 1 and used the majority of the proceeds to repay the note payable outstanding.

In conjunction with the closing of the MidCap Tranche 1 term loans, the Company issued MidCap warrants to purchase 206,897 shares of the Company’s Series B redeemable convertible preferred stock at an exercise price of $1.16 per share.

The warrants have a contractual term equal to the earlier of a change in control or 10 years.

The estimated fair value of the warrants of $0.2 million (determined using the Black‑Scholes option pricing model), along with $0.8 million of third‑party and lender fees (including $0.4 million of End of Term Charge) incurred with the issuance of the debt, were recorded as the End of Term Charge and debt issuance costs and were being recognized as interest expense over the life of the Tranche 1 term loan using the effective‑interest method.

The MidCap Term Loans and the Revolver bore interest at a rate equal to one-month LIBOR plus 7.0% and one-month LIBOR plus 3.75%, respectively, until the aggregate principal, interest, and End of Term Charge totaling $0.4 million were paid with part of the proceeds received from the OrbiMed Credit Facility.

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Interest expense associated with the Midcap Credit Facility recorded during 2018 was $0.6 million.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

In March 2017, the Company entered into a Loan and Security Agreement (“Loan Agreement”) and borrowed $5.0 million (“Note A”).

Note A bore interest at 9.45% until the aggregate principal, interest, and other termination fees were paid with part of the proceeds received from the MidCap Credit Facility.

As a result of these payments, a $0.6 million loss on extinguishment was recorded during the year ended December 31, 2018.

Interest expense associated with Note A recorded during both the years ended December 31, 2018 and 2017 was $0.4 million.

In connection with the Loan Agreement, the Company granted 387,932 Series B warrants with an original term of 10 years with an exercise price of $1.16 per share.

Convertible Promissory Note

In January 2017, the Company issued $7.4 million of secured, convertible promissory notes (the “Convertible Notes”), together with warrants, primarily to holders of the Company’s Series B redeemable convertible stock (“Series B”).

The Convertible Notes bore interest at the rate of 12%.

The Convertible Notes were secured by a lien on all assets of the Company, including intellectual property and cash, and were scheduled to mature in October 2017.

The principal amount of the Convertible Notes and accrued interest thereon of $0.7 million converted into 6,951,175 shares of the Company’s Series B in connection with the sale of Series B to a new investor in October 2017 (Note 7).

The purchasers of the Convertible Notes also received a 10‑year warrant to purchase shares of the Company’s Series B, with the number of shares issuable upon warrant exercise equal to 25% of the note principal divided by $1.16, or 1,591,864 warrants.

The exercise price of the warrants is $1.16 per share.

The estimated fair value of the warrants of $1.4 million (determined using the Black‑Scholes option pricing model) was recorded as a debt discount and was fully amortized to interest expense during 2017 over the term of the Convertible Notes.

In addition, in accordance with the applicable FASB accounting guidance, after considering the allocation of a portion of the proceeds to the warrants, the Company determined that the Convertible Notes contained a beneficial conversion feature (“BCF”).

The BCF existed at the date of the issuance of the Convertible Notes due to the fact that the original carrying value of the Convertible Notes, after allocation of the proceeds, would be less than the purchase price of the series of preferred stock paid by investors in the next qualified or nonqualified financing, as defined.

During the year ended December 31, 2017, the BCF of $1.4 million was fully recognized as additional interest expense.

Debt issuance costs of $0.1 million were incurred and were recorded as a discount on the carrying value of the debt, and amortized to interest expense in 2017 through the date of conversion of the Convertible Notes.

(7) Redeemable Convertible Preferred Stock and Stockholders’

Equity (Deficit)

Initial Public Offering

In November 2019, the Company closed its IPO in which the Company issued and sold 4,398,700 shares of its common stock at a public offering price of $13.00 per share, including 398,700 shares of the Company’s common stock sold pursuant to the underwriters’

option to purchase additional shares.

Interest expense associated with Note A recorded during the year ended December 31, 2018 was $0.4 million.

(7) Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Public Stock Offerings

The Company received net proceeds of $50.6 million after deducting underwriting discounts, commissions and other offering expenses.

In addition, immediately prior to the closing of the IPO, all of the Company’s outstanding shares of redeemable convertible preferred stock, including accrued dividends payable converted into an aggregate of 6,708,649 shares of common stock and the Company’s outstanding warrants to purchase shares of preferred stock were automatically converted into warrants to purchase an aggregate of 88,556 shares of common stock.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

In June 2020, the Company completed a follow-on public offering in which the Company issued and sold 3,000,000 shares of its common stock at a public offering price of $16.00 per share.

The Company received net proceeds of $44.7 million after deducting underwriting discounts, commissions and other offering expenses.

In December 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Piper Sandler & Co (the “Agent”) in connection with the establishment of an at-the-market offering program under which it may sell up to an aggregate of $50.0 million of shares of the Company’s common stock, from time to time through the Agent as sales agent.

No sales were made under the Equity Agreement during the year ended December 31, 2020.

Preferred Stock

Prior to the IPO, all of the Company’s redeemable convertible preferred stock was classified outside of stockholders’

deficit because the shares contain certain redemption features that were not solely within the control of the Company.

Prior to the IPO, all of the Company’s redeemable convertible preferred stock was classified outside of stockholders’ deficit because the shares contain certain redemption features that were not solely within the control of the Company.

At the time of issuance, the redeemable convertible preferred stock was recorded at its issuance price, less issuance costs.

Throughout 2019, the Company entered into various stock purchase agreements with new and existing investors pursuant to which the Company sold an aggregate 12,527,956 shares of the Company’s Series B at $1.16 per share for aggregate gross proceeds of $14.5 million.

Transaction fees of $0.2 million were recorded as a reduction of the carrying value of the Series B.

Throughout 2018, the Company entered into various stock purchase agreements with new and existing investors pursuant to which the Company sold an aggregate 3,607,069 shares of the Company’s Series B at $1.16 per share for aggregate gross proceeds of $4.2 million.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

aggregate gross proceeds of $14.5 million.

Transaction fees of $0.2 million were recorded as a reduction of the carrying value of the Series B.

In October 2017, the Company entered into a stock purchase agreement with a strategic corporate investor pursuant to which the Company sold 12,931,034 shares of the Company’s Series B at $1.16 per share for aggregate gross proceeds of $15.0 million.

Transaction fees of $0.2 million were recorded as a reduction of the carrying value of the Series B.

Concurrent with this financing, a total of 6,951,175 shares of Series B were issued upon conversion of the Convertible Notes plus accrued interest on such notes (Note 6).

The Company had the following warrants outstanding to purchase common stock at December 31, 2020:

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The Company has two equity incentive plans:

the 2012 Stock Incentive Plan and the 2019 Equity Incentive Plan.

New awards can only be granted under the 2019 Equity Incentive Plan (the “Plan”).

the 2012 Stock Incentive Plan and the Amended and Restated 2019 Equity Incentive Plan.

New awards can only be granted under the Amended and Restated 2019 Equity Incentive Plan (the “Plan”).

At December 31, 2020, 1,199,997 shares were available for future issuances.

The Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors.

The Company’s stock options vest based on the terms in each award agreements and generally vest over four years and have a term of 10 years.

The Plan is subject to an annual increase, subject to prior approval by the Company’s board of directors, equal to the lesser of (i) 432,442 shares, (ii) 4% of the shares outstanding on the last day of the immediately preceding fiscal year and (iii) such smaller number of shares as determined by the board of directors.

The Company’s stock options vest based on the terms in each award agreements and generally vest over four years and have a term of 10 years.

The Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur.

The Company measures employee and nonemployee stock‑based awards at grant‑date fair value and records compensation expense on a straight‑line basis over the vesting period of the award.

The Company recorded stock‑based

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

compensation expense in the following expense categories of its accompanying consolidated statements of operations (in thousands):

The Company measures employee and nonemployee stock-based awards at grant-date fair value and records compensation expense ratably over the vesting period of the award.

The Company recorded stock-based compensation expense in the following expense categories of its accompanying consolidated statements of operations (in thousands):

Year ended December 31,

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Research and development

Total stock‑based compensation

The following table summarizes stock option activity for the Plan:

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Outstanding at December 31, 2019

Early exercised

Canceled/forfeited

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Exercisable at December 31, 2020

The 2012 Stock Incentive Plan and the 2019 Equity Incentive Plan provide the holders of stock options an election to early exercise prior to vesting.

The 2012 Stock Incentive Plan and the Amended and Restated 2019 Equity Incentive Plan provide the holders of stock options an election to early exercise prior to vesting.

The Company had the right, but not the obligation, to repurchase early exercised options without transferring any appreciation to the employee if the employee terminates employment before the end of the original vesting period.

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Unvested balance at December 31, 2019

Early exercised

Unvested balance at December 31, 2020

The weighted average grant-date fair value per share of options granted was $8.13, $6.81 and $1.08 for the years ended December 31, 2020, 2019 and 2018, respectively.

The aggregate intrinsic value of options exercised was nominal for the year ended December 31, 2019.

The aggregate intrinsic value of options exercised was $0.2 million for the year ended December 31, 2020 and nominal for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2020, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards was $4.9 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.6 years.

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Certain of these inputs are subjective and generally require judgment to determine.

Expected term –

The expected term of stock options represents the weighted average period the stock options are expected to be outstanding.

Expected term – The expected term of stock options represents the weighted average period the stock options are expected to be outstanding.

The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission.

The simplified method calculates the expected term as the average time to vesting and the contractual life of the options.

Expected volatility –

Due to the Company’s limited operating history and lack of company‑specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.

Risk‑free interest rate –

The risk‑free rate assumption is based on the U.S.

Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected dividend –

The Company has not paid and does not intend to pay dividends.

Expected volatility – Due to the Company’s limited operating history and lack of adequate company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.

Risk-free interest rate – The risk-free rate assumption is based on the U.S.

Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected dividend – The Company has not paid and does not intend to pay dividends.

The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:

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Expected volatility

Risk‑free interest rate

Expected term

Risk‑free interest rate

Expected term (in years)

TELA BIO, INC.

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Discretionary profit-sharing contributions made by the Company, if any, are determined annually by the board of directors.

To date, the Company has not made discretionary profit‑sharing contributions under the 401(k) plan but effective January 1, 2020, the Company will match 50% of employees’

contributions up to 6%, subject to a maximum annual amount.

Effective January 1, 2020, the Company matched 50% of employees’ contributions up to 6%, subject to a maximum annual amount.

The match was suspended from April to August 2020 due to COVID-19.

The Company’s contributions were $0.2 million in 2020.

Participants are immediately vested in their own contributions to the plan and are fully vested in discretionary profit sharing made by the Company after three years of service.

2019 Employee Stock Purchase Plan

In November 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”) with a total of 107,887 shares reserved for future issuance under the ESPP.

In addition, subject to prior approval by the Company’s board of directors, the number of shares authorized and reserved for issuance under the ESPP will be increased annually equal to the least of (i) 107,887 shares of common stock, (ii) 1% of the shares outstanding on the final day of the immediately preceding calendar year, and (iii) such smaller number of shares as determined by the board of directors.

The ESPP provides the opportunity to purchase the Company’s common stock at a 5% discount to the market price through payroll deductions.

As of December 31, 2019, no shares have been issued under the ESPP.

In November 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”).

At December 31, 2020, 212,977 shares were available for future issuance.

The ESPP is subject to an annual increase, subject to prior approval by the Company’s board of directors, equal to the least of (i) 107,887 shares of common stock, (ii) 1% of the shares outstanding on the final day of the immediately preceding calendar year, and (iii) such smaller number of shares as determined by the board of directors.

The ESPP provides the opportunity to purchase the Company’s common stock at a 5% discount to the market price through payroll deductions.

As of December 31, 2020, 2,797 shares have been issued under the ESPP.

No shares were issued under the ESPP as of December 31, 2019.

(10) Income Taxes

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Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

Significant components of the Company’s deferred tax assets for federal income taxes as of December 31, 2019 and 2018 consisted of the following (in thousands):

Significant components of the Company’s deferred tax assets for federal income taxes as of December 31, 2020 and 2019 consisted of the following (in thousands):

Deferred tax assets

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Depreciation and amortization

Accrued LifeCell settlement

Accrued expenses and other

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Notes to Consolidated Financial Statements (continued)

The Company’s net operating loss (“NOL”) carryforwards for federal and state income tax purposes consisted of the following (in thousands):

NOL carryforwards

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The Company recorded a valuation allowance on the deferred tax assets as of December 31, 2020 and 2019 because of the uncertainty of their realization.

The valuation allowance increased by $5.4 million for the year ended December 31, 2019 mainly due to losses incurred and by $5.5 million for the years ended December 31, 2018, mainly due to losses incurred and the reduction in the tax rate.

In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted.

The Tax Act includes a number of changes to existing U.S.

tax laws that impact the Company, most notably a reduction of the U.S.

corporate income tax rate from 34% to 21% for tax years beginning after December 31, 2017.

The Tax Act also provided for a onetime transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation, and limitations on the deductibility of interest.

The valuation allowance increased by $6.9 million and $5.4 million for the years ended December 31, 2020 and 2019, respectively, mainly due to losses incurred.

Utilization of the net operating losses and general business tax credits carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if changes in ownership of the company have occurred previously or occur in the future.

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The Company has not performed an analysis under Section 382 and cannot predict or otherwise determine whether there would be any limitation to the amount of net operating losses and general business tax credits carryforwards that can be utilized.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

A reconciliation of income tax benefit at the statutory federal income tax rate and as reflected in the consolidated financial statements is as follows:

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Permanent differences

Change in federal rate

Research and development

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federal jurisdiction and various state jurisdictions.

Tax years 2016 and forward remain open for examination for federal tax purposes and tax years 2016 and forward remain open for examination for the Company’s more significant state tax jurisdictions.

To the extent utilized in future years’

tax returns net operating loss carryforwards at December 31, 2018 will remain subject to examination until the respective tax year is closed.

Many governments have enacted or are currently contemplating economic stimulus and financial aid measures.

Many of these measures include deferring the due dates for tax payments, including both income tax and other taxes.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States to address the economic impacts of the COVID-19 pandemic.

The CARES Act includes corporate income tax, payroll tax, and other provisions.

While the Company may receive financial, tax, or other benefits under the bill, this legislation did not impact the Company during the year ended December 31, 2020.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

(11) Contingencies and Commitments

Legal Proceedings

On November 18, 2016, the Company and LifeCell Corporation (“LifeCell”) agreed to settle litigation initiated by LifeCell in March 2015 related to LifeCell’s complaints alleging (i) that the Company misappropriated LifeCell’s trade secrets and proprietary information and hired various former LifeCell employees allegedly in violation of their noncompetition covenants and nonsolicitation agreements and (ii) that the Company infringed U.S.

6,143,293, (the 293 patent), which LifeCell had recently purchased from Carnegie Mellon University.

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Also, as part of this settlement agreement, among other provisions, the Company agreed to pay LifeCell $1.0 million within 30 days of the execution of the settlement agreement and up to an additional $3.0 million based upon the Company achieving set revenue milestones for its OviTex product family.

As of December 31, 2019, all amounts have been paid.

The estimated present value of the future revenue milestone payments was $1.0 million at December 31, 2018 was recorded in other current liabilities in the accompanying consolidated balance sheets, based on when the payments were expected to be made at each respective balance sheet date.

Noncash interest expense of $20,000, $0.2 million and $0.3 million was recorded during 2019, 2018 and 2017 respectively, for the change in estimated present value of the future revenue milestone payments.

Legal and other costs incurred in defense of the Company was charged to expense as incurred and totaled $0.4 million for the year ended December 31, 2017 and were recorded in general and administrative expenses in the accompanying consolidated statement of operations.

No legal defense costs were incurred subsequent to December 31, 2017.

On February 12, 2016, the Company filed suit against National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), the former carrier for the Company’s Directors & Officers and Employment Practices Liability Insurance.

The complaint charged National Union with breach of contract and failure to reimburse the

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

Company for defense costs it incurred in the LifeCell litigation discussed above that the Company believes are covered under the insurance policy sold by National Union.

The complaint sought reimbursement of $5.0 million, the full limit of the policy, as well as reimbursement of the Company’s costs pursuing the action against National Union.

In 2018, the Company settled the suit and received $2.4 million and paid its broker $0.2 million and recognized the net amount of $2.2 million as a gain on litigation settlement in the Company’s consolidated statement of operations during the year ended December 31, 2018.

As of December 31, 2019, all amounts were paid.

Noncash interest expense of $20,000 and $0.2 million was recorded during 2019 and 2018, respectively, for the change in estimated present value of the future revenue milestone payments.

The complaint charged National Union with breach of contract and failure to reimburse the Company for defense costs it incurred in the LifeCell litigation discussed above that the Company believes are covered under the insurance policy sold by National Union.

The complaint sought reimbursement of $5.0 million, the full limit of the policy, as well as reimbursement of the Company’s costs pursuing the action against National Union.

From time to time, the Company may be a party to various other lawsuits, claims, and other legal proceedings that arise in the ordinary course of its business.

While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Agreements with Aroa

In August 2012, the Company entered into a License, Product Development, and Supply Umbrella Agreement (“Aroa Agreement”) with Aroa.

The Aroa Agreement provides the Company a license to patent rights and other intellectual property related to Aroa’s products and technologies for use in certain indications and expires on the later of August 3, 2022 or expiration of the last patent covering the products (currently July 30, 2029).

In August 2012, the Company entered into a License, Product Development, and Supply Umbrella Agreement (“Aroa Agreement”) with Aroa.

The Company has the right to extend the term of the agreement by an additional 10 years following the expiration of the last patent covering the products on commercially reasonable terms to be negotiated by the parties.

This agreement initially limited the Company’s license rights to the U.S.

but was subsequently amended in March 2013 to include the European Union and certain former Union of Soviet Socialist Republic satellite nations.

The financial terms of this Aroa Agreement, as amended, include (i) the payment of $1.0 million and the issuance of 74,316 shares of the Company’s common stock valued at $0.3 million concurrent with the closing of the December 2012 financing, (ii) the payment of $1.0 million upon the amendment of the Aroa Agreement in March 2013, and (iii) the payment of $1.0 million upon the approval by the U.S.

Food and Drug Administration (“FDA”) of the use of Aroa’s product for certain indications (paid in June 2013).

All amounts paid were recorded at the time within in‑process research and development expense in the consolidated statements of operations as the Company believes that the technology licensed from Aroa required substantial additional development efforts and had no alternative future uses to the Company.

In April 2014, the Company submitted a new 510(k) application to the FDA incorporating the licensed technologies, as well as technology licensed from a second strategic partner.

The Aroa Agreement also requires future payments aggregating up to $4.0 million upon the achievement of U.S.

The Aroa Agreement required payments aggregating up to $4.0 million upon the achievement of U.S.

and European cumulative product sales targets.

1 unchanged sentence

Of this amount, $0.5 million was paid in 2018 and the remaining $0.5 million was paid in 2019.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

With respect to the sales milestone payments in the North American territory, a payment of $1.0 million and $2.0 million are due when cumulative product sales in the North American territory reach certain amounts.

2 unchanged sentences

With respect to the sales milestone payments in the European territory, a payment of $1.0 million is due when cumulative product net sales in the European territory reach certain amounts.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

Other key terms of the amended Aroa agreement in addition to those disclosed above are as follows:

The transfer price for product produced by Aroa was increased from 150% of Aroa’s cost of goods sold to 200% of the cost of goods sold, with the quarterly true‑up amount continuing to equal 27% of the Company’s net sales of the licensed product reduced by transfer price payments previously made for the respective quarter.

● The transfer price for product produced by Aroa was increased from 150% of Aroa’s cost of goods sold to 200% of the cost of goods sold.

The transfer price and the quarterly true-up amount continued to equal 27% of Company’s net sales of licensed products.

The purchase commitments aggregate to $11.0 million for the North American territory over a five-year period, consisting of $2.0 million in total in years one and two, $2.0 million in year three, $3.0 million in year four, and $4.0 million in year five.

1 unchanged sentence

In addition, the Company continues to be required to pay a make whole payment if the required minimum purchase commitments for each territory for the corresponding contract years are not made.

As of December 31, 2019, the Company has met its purchase commitments and no make whole payments are required for those periods.

The period for the purchase commitments for the North American territory for years four and five end in June 2020 and June 2021, respectively.

As of December 31, 2020, the Company met its purchase commitments and no make whole payments are required for those periods.

The period for the purchase commitments for the North American territory for year five end in June 2021.

Upon a change in control of the Company (as defined in the amended agreement), the annual minimum amounts will be extended for a sixth year with a $5.0 million minimum amount for the North American territory and $1.0 million minimum amount for the European territory.

6 unchanged sentences

Concurrent with the extension payment, the Company agreed to assume responsibility in obtaining regulatory approval in Europe with a new regulatory filing deadline of June 30, 2020.

The Company expects to meet the filing deadline and that no further extension payments will be required.

Provisions exist for the Company to step in and operate Aroa’s plant if a supply failure occurs and is not cured within a set timeframe.

The Company met the filing deadline and no further extension payments are required.

● Provisions exist for the Company to step in and operate Aroa’s plant if a supply failure occurs and is not cured within a set timeframe.

Under the amended agreement, the criteria for a supply failure was modified to mean a failure by Aroa to timely supply, during any consecutive 60-day period, at least 75% of the products ordered by the Company under binding purchase orders.

During the period that the Company steps in and assumes manufacturing responsibility, it shall not be required to purchase product from or pay transfer prices to Aroa, the annual minimums shall be proportionately reduced to reflect the lack of supply responsibility by Aroa and the Company shall pay a royalty of 6% of net sales in lieu of 27% of net sales of the licensed products.

The Company is responsible for the payment of 50% of the capital costs of any manufacturing expansion plan agreed upon by the parties, provided that any such payments made by the Company will be offset against future revenue sharing amounts payable (revenue share of 27% of the Company’s net sales of the licensed product).

The Company expects to enter into similar milestone‑based agreements with its strategic partner for both product territories and new products in order to expand and extend its product portfolio.

As of December 31, 2019, the Company had $8.3 million in purchase commitments with Aroa.

● The Company is responsible for the payment of 50% of the capital costs of any manufacturing expansion plan agreed upon by the parties, provided that any such payments made by the Company will be offset

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

against future revenue sharing amounts payable (revenue share of 27% of the Company’s net sales of the licensed product).

The Company expects to enter into similar milestone-based agreements with its strategic partner for both product territories and new products in order to expand and extend its product portfolio.

As of December 31, 2020, the Company had $4.3 million in purchase commitments with Aroa.

Employment Agreements

1 unchanged sentence

Operating Leases

The Company leases office and laboratory space in Malvern, Pennsylvania under a noncancelable lease, which expires in May 2021.

The Company leases office and laboratory space in Malvern, Pennsylvania under a noncancelable lease, which was amended in December 2020 to extend the term of the lease from May 2021 to May 2028.

The facility lease agreement has annual scheduled payment increases.

3 unchanged sentences

(12) Related-Party Transactions

On November 16, 2018, the Company entered into a senior secured term loan facility with OrbiMed, an entity affiliated with an owner of a material amount of the Company’s outstanding voting securities.

The terms of the debt and related components are further described in more detail in Note 6.

1 unchanged sentence

EXHIBIT INDEX

Fourth Amended and Restated Certificate of Incorporation (incorporated by reference to exhibit 3.1 of the Company’s Current Report on Form 8-K filed on November 19, 2019).

Second Amended and Restated Bylaws (incorporated by reference to exhibit 3.2 of the Company’s Current Report on Form 8-K filed on November 19, 2019).

Specimen Common Stock Certificate of the Company (incorporated by reference to exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No.

Fourth Amended and Restated Certificate of Incorporation (incorporated by reference to exhibit 3.1 of the Company’s Current Report on Form 8-K filed on November 19, 2019).

Second Amended and Restated Bylaws (incorporated by reference to exhibit 3.2 of the Company’s Current Report on Form 8-K filed on November 19, 2019).

Specimen Common Stock Certificate of the Company (incorporated by reference to exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).

Form of Indemnification Agreement by and between the Company and its individual directors and officers (incorporated by reference to exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No.

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to exhibit 4.2 to the Company’s Report on Form 10-K, filed on March 30, 2020) .

333-234217), dated November 7, 2019).

TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Amendment to the TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Second Amendment to the TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Third Amendment to the TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.5 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Fourth Amendment to the TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Fifth Amendment to the TELA Bio, Inc.

2012 Stock Incentive Plan (incorporated by reference to exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Form of Incentive Stock Option Agreement pursuant to the 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.8 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

Form of Nonstatutory Stock Option Agreement pursuant to 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019)

TELA Bio, Inc.

2019 Equity Incentive Plan (incorporated by reference to exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated 2019 Equity Incentive Plan (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 8, 2020).

Form of TELA Bio, Inc.

2019 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement (incorporated by reference to exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated 2019 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed herewith).

Form of TELA Bio, Inc.

Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (filed herewith).

TELA Bio, Inc.

2019 Employee Stock Purchase Plan (incorporated by reference to exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

TELA Bio, Inc.

Non-Employee Director Compensation Policy (incorporated by reference to exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated Employment Agreement, dated October 25, 2019, by and between the Company and Antony Koblish (incorporated by reference to exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated Employment Agreement, dated October 25, 2019, by and between the Company and Maarten Persenaire, M.D.

(incorporated by reference to exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated Employment Agreement, dated October 25, 2019, by and between the Company and Skott Greenhalgh (incorporated by reference to exhibit 10.21 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Amended and Restated Employment Agreement, dated October 25, 2019, by and between the Company and Nora Brennan (incorporated by reference to exhibit 10.31 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Credit Agreement, dated November 16, 2018, by and between the Company and OrbiMed Royalty Opportunities II, LP (incorporated by reference to exhibit 10.22 to the Company’s Registration Statement on Form S-1 (File No.

Employment Agreement, dated January 17, 2020, by and between the Company and Peter Murphy (incorporated by reference to exhibit 10.26 to the Company’s Report on Form 10-K, filed on March 30, 2020).

333-234217), dated November 7, 2019) .

Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated July 16, 2015, by and between the Company and Aroa Biosurgery Ltd.

(incorporated by reference to exhibit 10.23 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019) .

Amendment to Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated November 26, 2015, by and between the Company and Aroa Biosurgery Ltd.

(incorporated by reference to exhibit 10.24 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019) .

Amendment to Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated January 3, 2019, by and between the Company and Aroa Biosurgery Ltd.

(incorporated by reference to exhibit 10.25 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019) .

Addendum to the Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated August 27, 2019, by and between the Company and Aroa Biosurgery Ltd.

(filed herewith).

Lease between the Company and Liberty Property Limited Partnership, dated January 31, 2013 (incorporated by reference to exhibit 10.26 to the Company’s Registration Statement on Form S-1 (File No.

(incorporated by reference to exhibit 10.22 on the Company’s Report on Form 10-K filed on March 30, 2020).

Addendum to the Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated February 15, 2020, by and between the Company and Aroa Biosurgery Ltd.

(incorporated by reference to exhibit 10.2 on the Company’s Report on Form 10-Q filed on May 15, 2020).

Lease between the Company and Liberty Property Limited Partnership, dated January 31, 2013 (incorporated by reference to exhibit 10.26 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019) .

First Amendment to Lease between the Company and Liberty Property Partnership, dated June 19, 2014 (incorporated by reference to exhibit 10.27 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019) .

Second Amendment to Lease between the Company and WPT Land 2 LP (as successor in interest to Liberty Property Limited Partnership), dated January 17, 2018 (incorporated by reference to exhibit 10.28 to the Company’s Registration Statement on Form S-1 (File No.

333-234217), dated November 7, 2019).

Employment Agreement, dated January 17, 2020, by and between the Company and Peter Murphy (filed herewith).

Third Amendment to Lease between the Company and WPT Land 2 LP (as successor in interest to Liberty Property Limited Partnership), dated December 22, 2020 (filed herewith).

Equity Distribution Agreement, dated December 18, 2020 (incorporated by reference to Exhibit 1.2 of the Company’s Registration Statement on Form S-3 (File No.

333-251505) filed on December 18, 2020).

Subsidiaries of the Registrant (filed herewith).

Consent of KPMG LLP (filed herewith) .

26 unchanged sentences

March 25, 2021

/s/ KURT AZARBARZAN

/s/ DOUG EVANS

Chairman, Board of Directors

March 25, 2021

/s/ KURT AZARBARZIN

March 25, 2021

Kurt Azarbarzin

2 unchanged sentences

Vince Burgess

/s/ RONALD ELLIS

March 30, 2020

/s/ ASHLEY FRIEDMAN

/s/ LISA COLLERAN

March 25, 2021

Ashley Friedman

/s/ FEDERICA O’BRIEN

Lisa Colleran

/s/ FEDERICA O’BRIEN

March 25, 2021

Federica O’Brien

/s/ ADELE OLIVA

March 25, 2021

/s/ MATT ZUGA

March 30, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures