TELA Bio, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES 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 93 Table of Contents 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. ITEM 9B. OTHER INFORMATION None. ​ 94 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information concerning directors and compliance with Section 16(a) of the Exchange Act and our Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller called for by Item 10 of Form 10-K will be set forth in our definitive proxy statement for the 2021 annual meeting of stockholders, to be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION 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. ITEM 12. 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 of Form 10-K is incorporated by reference to the information contained in our definitive proxy statement for the 2021 annual meeting of stockholders. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 of Form 10-K is incorporated by reference to the information contained in our definitive proxy statement for the 2021 annual meeting of stockholders. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) 1. Financial Statements See Index to the Consolidated Financial Statements on page F-1 of this Annual Report. 2. Financial Statement Schedules None, as all information required in these schedules is included in the Notes to the Consolidated Financial Statements. 3. Exhibits 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. ITEM 16 . FORM 10-K SUMMARY None. ​ ​ 95 Table of Contents TELA BIO, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ Page ​ ​ Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 ​ ​ ​ F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors TELA Bio, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of TELA Bio, Inc. 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. generally accepted accounting principles. 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 (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. We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2013. Philadelphia, Pennsylvania March 25, 2021 ​ F-2 Table of Contents TELA Bio, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Assets ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 74,394 ​ $ 45,302 Short-term investments ​ ​ — ​ ​ 9,285 Accounts receivable, net ​ 2,683 ​ 2,836 Inventory ​ 3,907 ​ 4,603 Prepaid expenses and other assets ​ 2,241 ​ 2,308 Total current assets ​ 83,225 ​ 64,334 Property and equipment, net ​ 626 ​ 677 Intangible assets, net ​ 2,607 ​ 2,911 Total assets ​ $ 86,458 ​ $ 67,922 ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 652 ​ $ 3,171 Accrued expenses and other current liabilities ​ 5,953 ​ 3,542 Total current liabilities ​ 6,605 ​ 6,713 Long‑term debt with related party ​ 30,827 ​ 30,243 Other long‑term liabilities ​ — ​ 4 Total liabilities ​ 37,432 ​ 36,960 ​ ​ ​ ​ ​ ​ ​ Contingencies and commitments (Note 11) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ Preferred stock; $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding ​ ​ — ​ ​ — Common stock; $0.001 par value: 200,000,000 shares authorized; 14,437,289 and 11,406,976 shares issued and 14,437,107 and 11,406,221 shares outstanding at December 31, 2020 and 2019, respectively ​ 14 ​ 11 Additional paid-in capital ​ ​ 245,736 ​ ​ 198,829 Accumulated other comprehensive loss ​ (71) ​ (19) Accumulated deficit ​ (196,653) ​ (167,859) Total stockholders’ equity ​ 49,026 ​ 30,962 Total liabilities and stockholders’ equity ​ $ 86,458 ​ $ 67,922 ​ See accompanying notes to consolidated financial statements. ​ ​ ​ F-3 Table of Contents TELA Bio, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 ​ 2019 2018 Revenue ​ $ 18,213 ​ $ 15,446 ​ $ 8,274 Cost of revenue (excluding amortization of intangible assets) ​ 6,675 ​ 5,870 ​ 4,547 Amortization of intangible assets ​ 304 ​ 304 ​ 785 Gross profit ​ 11,234 ​ 9,272 ​ 2,942 Operating expenses: ​ ​ ​ Sales and marketing ​ 22,111 ​ 18,060 ​ 13,646 General and administrative ​ 10,143 ​ 6,223 ​ 4,899 Research and development ​ 4,255 ​ 4,151 ​ 4,339 Gain on litigation settlement ​ ​ — ​ ​ — ​ ​ (2,160) Total operating expenses ​ 36,509 ​ 28,434 ​ 20,724 Loss from operations ​ (25,275) ​ (19,162) ​ (17,782) Other (expense) income: ​ ​ ​ Interest expense ​ (3,564) ​ (3,609) ​ (1,802) Loss on extinguishment of debt ​ ​ — ​ ​ — ​ ​ (1,822) Change in fair value of preferred stock warrant liability ​ — ​ (5) ​ 244 Other income ​ 45 ​ 351 ​ 70 Total other expense ​ (3,519) ​ (3,263) ​ (3,310) Net loss ​ (28,794) ​ (22,425) ​ (21,092) Accretion of redeemable convertible preferred stock to redemption value ​ — ​ (7,783) ​ (8,823) Net loss attributable to common stockholders ​ $ (28,794) ​ $ (30,208) ​ $ (29,915) Net loss per common share, basic and diluted ​ $ (2.23) ​ $ (17.10) ​ $ (101.41) Weighted average common shares outstanding, basic and diluted ​ 12,934,421 ​ 1,766,412 ​ 294,988 Comprehensive loss: ​ ​ ​ ​ ​ ​ Net loss ​ $ (28,794) ​ $ (22,425) ​ $ (21,092) Foreign currency translation adjustment ​ (52) ​ ​ (15) ​ — Unrealized loss on short-term investments ​ ​ — ​ ​ (4) ​ ​ — Comprehensive loss ​ $ (28,846) ​ $ (22,444) ​ $ (21,092) ​ See accompanying notes to consolidated financial statements. ​ ​ F-4 Table of Contents TELA Bio, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit ) (In thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Redeemable Convertible Preferred Stock ​ ​ Stockholders’ Equity (Deficit) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ other ​ ​ ​ ​ ​ ​ ​ ​ Series A ​ Series B ​ ​ Common stock ​ paid ‑ in ​ comprehensive ​ Accumulated ​ ​ ​ ​ Shares Amount Shares Amount Shares Amount capital loss deficit Total Balance at January 1, 2018 ​ 22,501,174 ​ $ 30,940 59,425,431 ​ $ 80,409 ​ 293,791 ​ $ — ​ $ — ​ $ — ​ $ (108,171) ​ $ (108,171) Vesting of common stock previously subject to repurchase ​ — ​ — — ​ — ​ 549 ​ — ​ 5 ​ — ​ — ​ 5 Exercise of stock options ​ — ​ — — ​ — ​ 1,377 ​ — ​ 5 ​ — ​ — ​ 5 Sale of Series B redeemable convertible preferred stock, net of stock issue costs of $206 ​ — ​ — 3,607,069 ​ 3,978 ​ — ​ — ​ — ​ — ​ — ​ — Stock ‑ based compensation expense ​ — ​ — — ​ — ​ — ​ — ​ 216 ​ — ​ — ​ 216 Accretion of redeemable convertible preferred stock to redemption value ​ — ​ 2,172 — ​ 6,651 ​ — ​ — ​ (226) ​ — ​ (8,597) ​ (8,823) Net loss ​ — ​ — — ​ — ​ — ​ — ​ — ​ — ​ (21,092) ​ (21,092) Balance at December 31, 2018 22,501,174 ​ ​ 33,112 63,032,500 ​ ​ 91,038 ​ 295,717 ​ ​ — ​ ​ — ​ ​ — ​ ​ (137,860) ​ ​ (137,860) Vesting of common stock previously subject to repurchase — ​ — — ​ — ​ 628 ​ — ​ 4 ​ — ​ — ​ 4 Exercise of stock options — ​ — — ​ — ​ 2,527 ​ — ​ 14 ​ — ​ — ​ 14 Sale of Series B redeemable convertible preferred stock, net of stock issue costs of $165 ​ — ​ — 12,527,956 ​ 14,367 ​ — ​ — ​ — ​ — ​ — ​ — Unrealized loss on short-term investments — ​ — — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (4) ​ ​ — ​ (4) Foreign currency translation adjustment — ​ — — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (15) ​ ​ — ​ (15) Stock ‑ based compensation expense — ​ — — ​ — ​ — ​ — ​ 457 ​ — ​ — ​ 457 Accretion of redeemable convertible preferred stock to redemption value — ​ 1,563 — ​ 6,220 ​ — ​ — ​ (209) ​ — ​ (7,574) ​ (7,783) Conversion of convertible preferred stock to common stock in connection with the initial public offering ​ (22,501,174) ​ ​ (34,675) ​ (75,560,456) ​ ​ (111,625) ​ ​ 6,708,649 ​ ​ 7 ​ ​ 146,293 ​ ​ — ​ ​ — ​ ​ 146,300 Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs ​ — ​ ​ — ​ — ​ ​ — ​ ​ 4,398,700 ​ ​ 4 ​ ​ 50,625 ​ ​ — ​ ​ — ​ ​ 50,629 Conversion of preferred stock warrants to common stock warrants ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,645 ​ ​ — ​ ​ — ​ ​ 1,645 Net loss — ​ — — ​ — ​ — ​ — ​ — ​ — ​ (22,425) ​ (22,425) Balance at December 31, 2019 — ​ ​ — — ​ ​ — ​ 11,406,221 ​ ​ 11 ​ ​ 198,829 ​ ​ (19) ​ ​ (167,859) ​ ​ 30,962 Vesting of common stock previously subject to repurchase — ​ — — ​ — ​ 306 ​ — ​ 3 ​ — ​ — ​ 3 Exercise of stock options — ​ — — ​ — ​ 27,783 ​ — ​ 175 ​ — ​ — ​ 175 Issuance of common stock under the employee stock purchase plan ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,797 ​ ​ — ​ ​ 34 ​ ​ — ​ ​ — ​ ​ 34 Foreign currency translation adjustment — ​ — — ​ — ​ — ​ — ​ — ​ (52) ​ — ​ (52) Stock ‑ based compensation expense — ​ — — ​ — ​ — ​ — ​ 1,976 ​ — ​ — ​ 1,976 Issuance of common stock upon follow-on offering, net of underwriting discounts, commissions and offering costs ​ — ​ ​ — ​ — ​ ​ — ​ ​ 3,000,000 ​ ​ 3 ​ ​ 44,719 ​ ​ — ​ ​ — ​ ​ 44,722 Net loss — ​ — — ​ — ​ — ​ — ​ — ​ — ​ (28,794) ​ (28,794) Balance at December 31, 2020 — ​ $ — — ​ $ — ​ 14,437,107 ​ $ 14 ​ $ 245,736 ​ $ (71) ​ $ (196,653) ​ $ 49,026 ​ See accompanying notes to consolidated financial statements. ​ F-5 Table of Contents TELA Bio, Inc. Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 ​ 2019 2018 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ (28,794) ​ $ (22,425) ​ $ (21,092) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation expense ​ 221 ​ 278 ​ 463 Noncash interest expense ​ 584 ​ 523 ​ 712 Noncash loss on extinguishment of debt ​ — ​ — ​ 1,469 Amortization of intangible assets ​ 304 ​ 304 ​ 785 Inventory excess and obsolescence charge ​ 1,327 ​ 1,591 ​ 2,224 Change in fair value of warrants ​ — ​ 5 ​ (244) Stock ‑ based compensation expense ​ 2,058 ​ 457 ​ 216 Gain on sale of equipment ​ ​ — ​ ​ — ​ ​ (2) Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable, net ​ 149 ​ (1,528) ​ (541) Inventory ​ (620) ​ (1,839) ​ (4,757) Prepaid expenses and other assets ​ 66 ​ (1,977) ​ 99 Restricted cash ​ ​ — ​ ​ — ​ ​ 24 Accounts payable ​ (2,002) ​ (773) ​ 1,914 Accrued expenses and other current liabilities ​ 2,321 ​ (118) ​ (1,194) Foreign currency remeasurement gain ​ ​ (70) ​ ​ (21) ​ ​ — Net cash used in operating activities ​ (24,456) ​ (25,523) ​ (19,924) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of short-term investments ​ ​ — ​ ​ (9,284) ​ ​ — Proceeds from the sale and maturity of short-term investments ​ ​ 9,289 ​ ​ — ​ ​ — Payment for intangible asset ​ — ​ (2,500) ​ (1,500) Purchase of property and equipment ​ (167) ​ (197) ​ (62) Proceeds from the sale of property and equipment ​ ​ — ​ ​ — ​ ​ 4 Net cash provided by (used in) investing activities ​ 9,122 ​ (11,981) ​ (1,558) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from follow-on offering, net of underwriting discounts, commissions and offering costs ​ ​ 44,722 ​ ​ — ​ ​ — Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs ​ ​ — ​ ​ 51,151 ​ ​ — Proceeds from issuance of long ‑ term debt with related party ​ ​ — ​ ​ — ​ ​ 30,000 Proceeds from issuance of long ‑ term debt and preferred stock warrants ​ — ​ — ​ 8,000 Repayment of long ‑ term debt ​ — ​ — ​ (13,000) Borrowings under revolving credit facility ​ — ​ — ​ 5,732 Repayments of revolving credit facility ​ — ​ — ​ (5,732) Proceeds from issuance of Series B redeemable convertible preferred stock, net of offering costs ​ — ​ 14,367 ​ 3,978 Payment of initial public offering costs ​ ​ (522) ​ ​ — ​ ​ — Payment of deferred financing costs ​ — ​ — ​ (1,569) Proceeds from exercise of stock options ​ 175 ​ 14 ​ 5 Proceeds from issuance of common stock under the employee stock purchase plan ​ ​ 34 ​ ​ — ​ ​ — Net cash provided by financing activities ​ 44,409 ​ 65,532 ​ 27,414 Effect of exchange rate on cash ​ 17 ​ (4) ​ — Net increase in cash and cash equivalents ​ 29,092 ​ 28,024 ​ 5,932 Cash and cash equivalents, beginning of year ​ 45,302 ​ 17,278 ​ 11,346 Cash and cash equivalents, end of year ​ $ 74,394 ​ $ 45,302 ​ $ 17,278 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid during the period for interest ​ $ 2,980 ​ $ 3,086 ​ $ 1,090 Cash paid on loss on extinguishment of debt ​ $ — ​ $ — ​ $ 353 Supplemental disclosures of noncash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of warrants issued in connection with equity and debt financing ​ $ — ​ $ — ​ $ 187 Accretion of redeemable convertible preferred stock ​ $ — ​ $ 7,783 ​ $ 8,823 Conversion of convertible preferred stock to common stock in connection with the initial public offering ​ $ — ​ $ 146,300 ​ $ — Conversion of outstanding preferred stock warrants ​ $ — ​ $ 1,645 ​ $ — Offering costs in accounts payable and accrued expenses and other current liabilities ​ $ — ​ $ 522 ​ $ — Property and equipment in accounts payable ​ $ 3 ​ $ — ​ $ — Intangible assets in accrued expenses and other current liabilities ​ $ — ​ $ — ​ $ 2,500 Recognition of exit fee for debt discount ​ $ — ​ $ — ​ $ 3,400 Issuance of common stock for early exercised stock options ​ $ 3 ​ $ 4 ​ $ 5 Unrealized loss on short-term investments ​ $ — ​ $ 4 ​ $ — Liability-classified stock-based compensation in accrued expenses and other current liabilities ​ $ 82 ​ $ — ​ $ — ​ See accompanying notes to consolidated financial statements. ​ ​ F-6 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (1) Background 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 Ltd. (“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. (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. 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 received net proceeds of $50.6 million after deducting underwriting discounts, commissions and other offering expenses. 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 consolidated financial statements include the accounts of TELA Bio, Inc. and its wholly owned subsidiary TELA Bio Limited. All intercompany accounts and transactions have been eliminated in consolidation. 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 F-7 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) 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. Segments 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. The Company views its operations and manages its business in one segment. Concentration of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company places its cash with high-credit-quality financial institutions and invests in money market funds, government agency securities and corporate debt securities. The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity. 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. A change in the relationship with Aroa, or an adverse change in their business, could materially impact future operating results. Cash and Cash Equivalents The Company considers cash equivalents to be highly liquid investments with maturities of three months or less from the date of purchase. 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 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. F-8 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) Short-term investments consisted of the following at December 31, 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ ​ Amortization/ ​ Unrealized ​ Fair ​ Cost Accretion ​ Gains/(Losses) Value Corporate debt securities $ 9,284 $ 5 ​ $ (4) $ 9,285 Inventory Inventory consists of finished goods and is identified and tracked by lot and stated at the lower of cost or net realizable value, with cost being determined on a first-in, first-out basis. 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, 2020 and 2019, the Company had $1.4 million and $1.1 million, respectively, in finished goods consigned to others. Property and Equipment Property and equipment are stated at the aggregate cost incurred to acquire and place the asset in service. Expenditures for routine maintenance and repairs are charged to expense as incurred and costs of improvements and renewals are capitalized. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Intangible Assets Upfront payments and milestone payments due related to licenses or commercialization rights prior to future economic benefit being established are recorded as research and development expenses. Milestone payments due related to licenses or commercialization rights after future economic benefit is established are recorded as intangible assets. In 2018, the Company recorded $4.0 million in intangible assets as it became probable that the Company would make these payments. 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. The Company anticipates recognizing amortization expense of $0.3 million for the next five years and $1.1 million thereafter. Long-Lived Assets Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by such asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent the carrying value exceeds its fair value. 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 years ended December 31, 2020, 2019 or 2018. Debt Issuance Costs Debt issuance costs incurred in connection with debt (Note 6) are amortized to interest expense over the term of the respective financing arrangement using the effective-interest method, and debt issuance costs incurred under the revolver are amortized to interest expense over the term of the respective financing arrangement using the straight-line method. Debt issuance costs, net of related amortization are deducted from the carrying value of the related debt. F-9 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) Revenue Recognition 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 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. The Company performs the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 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. There are no incremental costs of obtaining a contract that would rise to or enhance an asset other than product costs, which are a component of inventory. The Company expenses incremental costs of obtaining a contract with a customer (e.g., sales commissions) when incurred as the period of benefit is less than one year. Fees charged to customers for shipping are recognized as revenue. The following table presents revenue disaggregated (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2020 ​ 2019 OviTex ​ $ 15,093 ​ $ 14,041 OviTex PRS ​ ​ 3,120 ​ ​ 1,405 Total revenue ​ $ 18,213 ​ $ 15,446 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 well as costs incurred with Aroa under development agreements related to technology transfer, laboratory materials and F-10 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) supplies. 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. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs. Costs incurred in obtaining patent and other intellectual property licenses for which there are no alternative future uses are charged to expense as incurred. 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 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 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the enactment date. 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. 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 income tax expense. Fair value of financial instruments Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction among market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments are made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. 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 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 F-11 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) 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. The guidance requires fair value measurements be classified and disclosed in one of the following three categories: ● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. ● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. ● Level 3: 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, 2020 and 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value measurement at reporting date using ​ ​ Quoted prices in ​ ​ ​ ​ ​ ​ ​ ​ active markets ​ Significant other ​ Significant ​ ​ for identical ​ observable ​ unobservable ​ ​ assets ​ inputs ​ inputs ​ (Level 1) (Level 2) (Level 3) December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents – money market fund ​ $ 72,889 ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents – money market fund ​ $ 34,918 ​ $ — ​ $ — Cash equivalents – corporate debt securities ​ $ — ​ $ 8,850 ​ $ — Cash equivalents – government agency securities ​ $ — ​ $ 1,000 ​ $ — Short-term investments – corporate debt securities ​ $ — ​ $ 9,285 ​ $ — F-12 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) A rollforward of the warrant liability (Level 3 measurement) was as follows (in thousands): ​ ​ ​ ​ January 1, 2018 ​ $ 1,697 Fair value of warrants issued – MidCap Credit Facility ​ ​ 187 Change in fair value of warrants ​ ​ (244) December 31, 2018 ​ 1,640 Change in fair value of warrants ​ ​ 5 Conversion into common stock warrants ​ ​ (1,645) December 31, 2019 ​ $ — The fair value of the warrants at November 13, 2019 was determined using the Black-Scholes option pricing model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible ​ ​ ​ ​ ​ MidCap Credit ​ promissory ​ ​ ​ ​ Facility notes Notes payable Expected dividend yield — — — ​ Expected volatility 57.5 % 57.4 % 57.5 % Risk-free interest rate 2.04 % 1.79 % 1.79 % Remaining contractual term in years 8.4 7.2 7.4 ​ The fair value of the warrants at December 31, 2018 was determined using the Black-Scholes option pricing model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible ​ ​ ​ ​ ​ MidCap Credit ​ promissory ​ ​ ​ ​ Facility notes Notes payable Expected dividend yield — — — ​ Expected volatility 58.1 % 57.0 % 57.4 % Risk‑free interest rate 2.69 % 2.64 % 2.64 % Remaining contractual term in years 9.3 8.1 8.3 ​ Net loss per share 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. Therefore, the weighted-average shares used to calculate both basic and diluted loss per share are the same. F-13 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 Series A redeemable convertible preferred stock — — ​ 911,336 Series B redeemable convertible preferred stock — — ​ 2,552,919 Stock options (including shares subject to repurchase) ​ 1,498,390 1,421,697 ​ 490,134 Series B redeemable convertible preferred stock warrants — — ​ 88,556 Common stock warrants ​ 88,556 ​ 88,556 ​ — Total 1,586,946 1,510,253 ​ 4,042,945 Amounts in the above table reflect the common stock equivalents of the noted instrument. 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. 2016-02, Leases , which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the consolidated financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The standard is effective for the Company beginning January 1, 2022, with early adoption permitted. 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 June 2018, the FASB issued ASU No. 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 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 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. F-14 Table of Contents 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 Property and equipment consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, Asset description Estimated useful lives 2020 2019 Lab equipment 5 Years ​ $ 2,304 ​ $ 2,250 Furniture and fixtures 5 Years ​ 118 ​ 112 Computer equipment and software 3 Years ​ 577 ​ 508 Leasehold improvements Lesser of useful life or lease term ​ 1,360 ​ 1,328 Total ​ 4,359 ​ 4,198 Less accumulated depreciation and amortization ​ (3,733) ​ (3,521) Property and equipment, net ​ $ 626 ​ $ 677 The cost of property and equipment at both December 31, 2020 and 2019 includes $0.2 million of equipment located at Aroa. 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 and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Compensation and related benefits ​ $ 3,666 ​ $ 2,314 Interest ​ 40 ​ 41 Third-party and professional fees ​ 1,626 ​ 641 Other ​ 621 ​ 546 ​ ​ $ 5,953 ​ $ 3,542 ​ ​ F-15 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) (6) Debt Long-term debt consisted of the following at December 31, 2020 and 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 OrbiMed Term Loan (related party) ​ $ 30,000 ​ $ 30,000 End of term charge ​ 3,000 ​ 3,000 Unamortized end of term charge and issuance costs ​ (2,173) ​ (2,757) Long-term debt with related party ​ $ 30,827 ​ $ 30,243 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”). 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. Pursuant to the OrbiMed Credit Facility, the Company provided a first priority security interest in all existing and future acquired assets, excluding intellectual property and certain other assets, owned by the Company. The OrbiMed Credit Facility contains a negative pledge on intellectual property owned by the Company. The OrbiMed Credit Facility also contains customary indemnification obligations and customary events of default, including, among other things, (i) nonpayment, (ii) breach of warranty, (iii) nonperformance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (iv) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) key person event, (xi) regulatory matters, (xii) and key contracts. In addition, the Company must maintain a minimum cash balance of $2.0 million. 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%. At December 31, 2020, the interest rate was 9.75%. The Company is required to make 60 monthly interest payments beginning on November 30, 2018, with the entire principal payment due at maturity. 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 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 F-16 Table of Contents 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. 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. As a result of these payments, a $1.2 million loss on extinguishment was recorded during the year ended December 31, 2018. Interest expense associated with the Midcap Credit Facility recorded during 2018 was $0.6 million. Note Payable 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 the year ended December 31, 2018 was $0.4 million. (7) Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Public Stock Offerings 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. 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. 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. 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 F-17 Table of Contents 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. 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. Transaction fees of $0.2 million were recorded as a reduction of the carrying value of the Series B. Warrants ​ The Company had the following warrants outstanding to purchase common stock at December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercise ​ Expiration ​ Outstanding ​ price dates Common stock warrants issued to MidCap 8,379 ​ $ 28.65 2028 Common stock warrants issued to note payable holders 15,712 ​ 28.65 2027 Common stock warrants issued to convertible promissory note holders 64,465 ​ $ 28.65 2027 ​ 88,556 ​ ​ ​ ​ ​ ​ (8) Stock-Based Compensation The Company has two equity incentive plans: 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 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 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 Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur. F-18 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) 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, ​ 2020 ​ 2019 ​ 2018 Sales and marketing ​ $ 696 ​ $ 164 ​ $ 68 General and administrative ​ 1,030 ​ 225 ​ 115 Research and development ​ 332 ​ 68 ​ 33 Total stock‑based compensation ​ $ 2,058 ​ $ 457 ​ $ 216 The following table summarizes stock option activity for the Plan: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ average ​ ​ ​ ​ Weighted ​ remaining ​ ​ Number of ​ average exercise ​ contractual term ​ shares price per share (years) Outstanding at January 1, 2018 350,914 ​ $ 5.81 Granted 152,016 ​ 5.93 Exercised (1,377) ​ 5.57 Early exercised (427) ​ 5.93 Canceled/forfeited (11,904) ​ 5.93 Outstanding at December 31, 2018 489,222 ​ 5.84 ​ Granted 978,415 ​ 12.51 Exercised (2,527) ​ 5.93 Early exercised (471) ​ 5.93 Canceled/forfeited (43,697) ​ 8.58 Outstanding at December 31, 2019 ​ 1,420,942 ​ ​ 10.35 ​ ​ Granted ​ 175,086 ​ ​ 15.03 ​ ​ Exercised ​ (27,783) ​ ​ 6.29 ​ ​ Canceled/forfeited ​ (70,037) ​ ​ 12.41 ​ ​ Outstanding at December 31, 2020 ​ 1,498,208 ​ $ 10.87 ​ 7.95 Vested and expected to vest at December 31, 2020 1,439,422 ​ $ 10.80 7.91 Exercisable at December 31, 2020 647,987 ​ $ 8.40 6.80 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. The repurchase price is the lesser of the original exercise price or the then fair value of the common stock. At December 31, 2020, $1,000 of proceeds from early exercised options are recognized as a current liability in other current liabilities in the accompanying consolidated balance sheet. F-19 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) The following table summarizes activity relating to early exercise of stock options: ​ ​ ​ ​ ​ Number of ​ shares Unvested balance at January 1, 2018 1,034 Early exercised 427 Vested ​ (549) Unvested balance at December 31, 2018 912 Early exercised 471 Vested (628) Unvested balance at December 31, 2019 ​ 755 Vested ​ (306) Forfeited ​ (267) Unvested balance at December 31, 2020 182 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 $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. Estimating Fair Value of Stock Options The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. 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. 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2020 2019 2018 ​ Expected dividend yield — ​ — ​ — ​ Expected volatility 59.1 % 55.9 % 56.5 % Risk‑free interest rate 0.87 % 1.82 % 2.77 % Expected term (in years) 5.98 ​ 6.24 ​ 6.25 ​ ​ ​ F-20 Table of Contents TELA BIO, INC. Notes to Consolidated Financial Statements (continued) (9) Employee Benefit Plans 401(k) Defined Contribution Plan The Company sponsors a 401(k) defined-contribution plan covering all employees. Participants are permitted to contribute up to 100% of their eligible annual pretax compensation up to an established federal limit on aggregate participant contributions. Discretionary profit-sharing contributions made by the Company, if any, are determined annually by the board of directors. 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”). 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 The Company has incurred losses since inception. 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, 2020 and 2019 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Deferred tax assets ​ ​ ​ ​ ​ Net operating loss carryforwards ​ $ 39,937 ​ $ 32,704 Research and development credits ​ 747 ​ 853 Depreciation and amortization ​ 239 ​ 578 Accrued expenses and other ​ 611 ​ 259 Inventory reserve ​ 205 ​ 417 Gross deferred tax asset ​ 41,739 ​ 34,811 Valuation allowance ​ (41,739) ​ (34,811) Net deferred tax asset ​ $ — ​ $ — The Company does not have unrecognized tax benefits as of December 31, 2020 and 2019. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. F-21 Table of Contents TELA BIO, INC. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 NOL carryforwards ​ ​ ​ ​ ​ ​ Federal ​ $ 150,642 ​ $ 122,925 State ​ 128,912 ​ 106,062 The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes. 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 $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. Ownership changes may limit the amount of net operating losses and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of 5% shareholders in the stock of a corporation by more than 50 percentage points over a three-year period. If the Company experiences a Section 382 ownership change, the tax benefits related to the NOL carryforwards may be further limited or lost. 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. A reconciliation of income tax benefit at the statutory federal income tax rate and as reflected in the consolidated financial statements is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 2019 2018 ​ Rate reconciliation ​ ​ ​ ​ ​ Federal tax benefit at statutory rate (21.0) % (21.0) % (21.0) % State rate, net of federal benefit (4.2) (2.9) ​ (4.7) ​ Permanent differences 0.6 0.4 ​ 0.5 ​ Research and development 0.7 (0.7) ​ (0.8) ​ Change in valuation allowance 24.0 24.2 ​ 26.3 ​ Other (0.1) — ​ (0.3) ​ Total tax provision — % — % — % The Company files income tax returns in the U.S. 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. 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. F-22 Table of Contents 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. Patent No. 6,143,293, (the 293 patent), which LifeCell had recently purchased from Carnegie Mellon University. Both cases have been dismissed with prejudice. As part of this settlement, LifeCell agreed not to sue the Company, either directly or through a person acting at its request or with its involvement for patent infringement, trade secret misappropriation, breach of an assignment obligation, unfair competition, unjust enrichment, tortious interference with contract and prospective economic advantage, civil conspiracy, or like causes of action with respect to OviTex. 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 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. 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 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. 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 April 19, 2031). 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 Aroa Agreement required payments aggregating up to $4.0 million upon the achievement of U.S. and European cumulative product sales targets. In 2018, it became probable that the Company would be issued CE Mark approval to sell OviTex in Europe by the European Medical Agency, and the Company recognized a $1.0 million liability and a corresponding developed right intangible asset related to this milestone payment owed to Aroa. Of this amount, $0.5 million was paid in 2018 and the remaining $0.5 million was paid in 2019. F-23 Table of Contents 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. In 2018, it became probable that the Company would achieve the sales milestones in the North American territory, and, as such, the Company recorded a liability of $3.0 million and a corresponding developed technology right intangible asset. The Company paid $1.0 million to Aroa in 2018 related to one of the cumulative product sales targets and the remaining $2.0 million in 2019. 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. 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. 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. The purchase commitments aggregate to $2.8 million for the European territory over a five-year period, consisting of $0.5 million in total in years one and two, $0.5 million in year three, $0.8 million in year four, and $1.0 million in year five. 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, 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. If a change in control of the Company occurs prior to the first product launch in the applicable territory, then the annual minimum requirements shall commence upon such change in control. If the make whole payments, if any, are not made by the Company after a notice and cure period, then the license will convert to a nonexclusive basis in the territory for which the payment was required but not made. ● Separate product development/launch goals and extension rights exist for a breast reconstruction product, as well as other products in specified indications for use. With respect to the breast reconstruction product, the goal was to file an investigational device exemption with the FDA for the North American territory by December 28, 2017, 18 months after the commercial launch of OviTex in the North American territory. The Company met this deadline with the filing of an investigational device exemption (IDE) application with the FDA on November 22, 2017. The Company extended the European deadline and paid $0.5 million. 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 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 F-24 Table of Contents 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 The Company entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as defined in the respective employment agreements. Operating Leases 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. The Company is recognizing the rent expense on a straight-line basis over the lease term. The Company recognized rent expense of $0.3 million for each of the years ended December 31, 2020, 2019 and 2018. The future minimum lease payments under the facility operating lease agreement as of December 31, 2020 are as follows (in thousands): ​ ​ ​ ​ 2021 $ 222 2022 ​ 227 2023 ​ ​ 306 2024 ​ ​ 366 2025 ​ ​ 375 Thereafter ​ ​ 940 ​ ​ $ 2,436 ​ ​ (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. ​ ​ ​ ​ ​ F-25 Table of Contents Item 6. Exhibits. ​ The following exhibits are being filed herewith: ​ EXHIBIT INDEX ​ Exhibit No. Exhibit ​ ​ ​ 3.1 ​ 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). 3.2 ​ 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). 4.1 ​ 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). 4.2 ​ 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) . 10.1 ​ 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. 333-234217), dated November 7, 2019). 10.2 ​ 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) 10.3 ​ 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) 10.4 ​ 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) 10.5 ​ 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) 10.6 ​ 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) 10.7 ​ 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) 10.8 ​ 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) 10.9 ​ 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) 10.10 ​ TELA Bio, Inc. 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). 10.11 ​ Form of TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed herewith). 10.12 ​ Form of TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (filed herewith). 10.13 ​ 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). 10.14 ​ 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). 10.15 ​ 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). 10.16 ​ 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). 10.17 ​ 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). 96 Table of Contents 10.18 ​ 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). 10.19 ​ 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). 10.20 ​ 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. 333-234217), dated November 7, 2019) . 10.21* ​ 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) . 10.22* ​ 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) . 10.23* ​ 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) . 10.24* ​ 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. (incorporated by reference to exhibit 10.22 on the Company’s Report on Form 10-K filed on March 30, 2020). 10.25* ​ 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). 10.26 ​ 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) . 10.27 ​ 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) . 10.28 ​ 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). 10.29 ​ 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). 10.30 ​ 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). 21.1 ​ Subsidiaries of the Registrant (filed herewith). 23.1 ​ Consent of KPMG LLP (filed herewith) . 31.1 ​ ​ Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 ​ ​ Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 ​ ​ Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 ​ ​ Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 101 INS ​ XBRL Instance Document (filed herewith). 101 SCH ​ XBRL Taxonomy Extension Schema Document (filed herewith). 101 CAL ​ XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). 101 DEF ​ XBRL Taxonomy Extension Definition Linkbase Document (filed herewith). 97 Table of Contents 101 LAB ​ XBRL Taxonomy Extension Label Linkbase Document (filed herewith). 101 PRE ​ XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith). ​ ​ ​ * ​ Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit. ​ ​ ​ 98 Table of Contents ​ SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the Borough of Malvern, Commonwealth of Pennsylvania, on the 25th day of March, 2021. ​ ​ ​ ​ TELA BIO, INC. ​ ​ ​ ​ By: /s/ ANTONY KOBLISH ​ ​ Name: Antony Koblish ​ ​ Title: President, Chief Executive Officer and Director ​ Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date ​ ​ ​ ​ ​ /s/ ANTONY KOBLISH ​ President, Chief Executive Officer and Director (Principal Executive Officer) ​ March 25, 2021 Antony Koblish ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ NORA BRENNAN ​ Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) ​ March 25, 2021 Nora Brennan ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ DOUG EVANS ​ Chairman, Board of Directors ​ March 25, 2021 Doug Evans ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ KURT AZARBARZIN ​ Director ​ March 25, 2021 Kurt Azarbarzin ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ VINCE BURGESS ​ Director ​ March 25, 2021 Vince Burgess ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ LISA COLLERAN ​ Director ​ March 25, 2021 Lisa Colleran ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ FEDERICA O’BRIEN ​ Director ​ March 25, 2021 Federica O’Brien ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ ADELE OLIVA ​ Director ​ March 25, 2021 Adele Oliva ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 99