What changed in this filing

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Item 9A. Controls and Procedures

2023-03-23 compared with 2022-03-23 · 227 added, 195 removed, 597 unchanged (41% of the section changed)

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Evaluation of Disclosure Controls and Procedures

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.

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, 2021.

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 Operating 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 Operating Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.

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:

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Operating 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;

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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.

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

control over financial reporting.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2022.

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OTHER INFORMATION

The disclosure set forth below is provided in lieu of a separate Form 8-K filing pursuant to Item 5.02 of Form 8-K.

On March 22, 2022, the Board approved a reduced work schedule for E.

Skott Greenhalgh, Ph.D., the Chief Technology Officer of the Company, effective immediately.

Greenhalgh’s annual base salary was reduced from $360,500 to $90,125.

Subject to the conditions and provisions of the Company’s equity incentive plans, equity awards held by Dr.

Greenhalgh will continue to vest and become exercisable according to their respective terms.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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FORM 10-K SUMMARY

Not applicable.

TELA Bio, Inc.

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Consolidated Statements of Operations and Comprehensive Loss

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

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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

and subsidiary (the Company) as of December 31, 2021 and 2020, 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, 2021, and the related notes (collectively, the consolidated financial statements).

and subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2022 due to the adoption of Accounting Standards Update 2016-02, Leases .

Basis for Opinion

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Intangible assets, net

Right-of-use assets

Liabilities and stockholders’ equity

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Total current liabilities

Long‑term debt

Long‑term debt with related party

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Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

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Loss from operations

Other (expense) income:

Other expense:

Interest expense

Change in fair value of preferred stock warrant liability

Loss on extinguishment of debt

Other (expense) income

Total other expense

Accretion of redeemable convertible preferred stock to redemption value

Net loss attributable to common stockholders

Net loss per common share, basic and diluted

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Foreign currency translation adjustment

Unrealized loss on short-term investments

Comprehensive loss

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TELA Bio, Inc.

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

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

Redeemable Convertible Preferred Stock

Stockholders’ Equity (Deficit)

comprehensive

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Exercise of stock options

Sale of Series B redeemable convertible preferred stock, net of stock issue costs of $ 165

Unrealized loss on short-term investments

Issuance of common stock under the employee stock purchase plan

Foreign currency translation adjustment

Stock‑based compensation expense

Accretion of redeemable convertible preferred stock to redemption value

Conversion of convertible preferred stock to common stock in connection with the initial public offering

( 22,501,174 )

( 75,560,456 )

Issuance of common stock upon initial public offering, net of underwriting discounts, commissions and offering costs

Conversion of preferred stock warrants to common stock warrants

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

Balance at December 31, 2020

Vesting of common stock previously subject to repurchase

Exercise of stock options

Vesting of share-based awards and exercise of stock options

Issuance of common stock under the employee stock purchase plan

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Stock‑based compensation expense

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

Reclassification of liability-classified stock-based compensation awards

Balance at December 31, 2021

Vesting of common stock previously subject to repurchase

Exercise of stock options

Vesting of share-based awards and exercise of stock options

Issuance of common stock under the employee stock purchase plan

Shares withheld for employee taxes

Foreign currency translation adjustment

Stock‑based compensation expense

Reclassification of liability-classified stock-based compensation awards

Sale of common stock, net of underwriting discounts, commissions and offering costs

Balance at December 31, 2022

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Noncash interest expense

Noncash loss on extinguishment of debt

Amortization of intangible assets

Net changes in operating lease ROU assets and liabilities

Inventory excess and obsolescence charge

Change in fair value of warrants

Stock ‑ based compensation expense

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Accounts receivable, net

Prepaid expenses and other assets

Prepaid expenses and other current assets

Accounts payable

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Cash flows from investing activities:

Purchases of short-term investments

Proceeds from the sale and maturity of short-term investments

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Cash flows from financing activities:

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

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

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

Proceeds from sale of common stock, net of underwriting discounts, commissions and offering costs

Proceeds from issuance of long ‑ term debt

Repayment of long ‑ term debt

Payment of debt financing costs

Payment of initial public offering costs

Proceeds from exercise of stock options

Payment of withholding taxes related to stock-based compensation to employees

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

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Supplemental disclosures of noncash investing and financing activities:

Accretion of redeemable convertible preferred stock

Conversion of convertible preferred stock to common stock in connection with the initial public offering

Conversion of outstanding preferred stock warrants

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

Property and equipment in accounts payable

Property and equipment in accounts payable and accrued expenses and other current liabilities

Issuance of common stock for early exercised stock options

Unrealized loss on short-term investments

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

Reclassification of liability-classified stock-based compensation awards to equity-classified

Operating lease ROU asset exchanged for operating lease liabilities

Tenant improvement and deferred rent reclassified to operating lease liabilities

Operating lease liabilities assumed for operating lease ROU assets

See accompanying notes to consolidated financial statements.

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(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 commercial-stage medical technology company focused on providing innovation soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy.

The Company is commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy.

OviTex Reinforced Tissue Matrix (“OviTex”), the Company’s first portfolio of products, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.

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

The Company has been impacted by the pandemic resulting from the novel coronavirus and the disease it causes, including variants thereof (“COVID-19”).

To date, among other impacts on its business related to the pandemic, physicians and their patients are required by state mandates, or are choosing to defer elective surgery procedures in which its products otherwise would be used.

There remains uncertainty and lack of visibility regarding the Company’s near-term revenue growth prospects and product development plans due to the rapidly evolving environment and continued uncertainties resulting from the ongoing COVID-19 pandemic.

While certain regions are experiencing a reduction in COVID-19 cases and a relaxing of governmental restrictions, at this time, the full extent of the impact of the ongoing COVID-19 pandemic on its business, results of operations and financial condition, including revenue, expenses, manufacturing capability, supply chain integrity, 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, the emergence of new variants of COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

The Company has been directly impacted by the COVID-19 pandemic since the onset of the pandemic in 2020.

To date, among other impacts on the Company’s business related to the pandemic, physicians and their patients have been required by state mandates, or have chosen to, defer elective surgery procedures in which the Company’s products otherwise would be used.

There remains uncertainty and lack of visibility regarding the Company’s near-term revenue growth prospects and product development plans due to the volatility in the frequency of surgical procedures using the Company’s products, including through labor and hospital staffing shortages and the allocation of hospital resources due to financial strain experienced during the COVID-19 pandemic.

Although the Company continues to monitor developments related to hospital capacity and the volume of elective procedures, there is uncertainty regarding the pace to which surgical volumes will normalize to their pre-pandemic levels and the timing to address the backlog of deferred procedures.

The full extent of the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing capability, supply chain integrity, staffing availability, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain.

(2) Risks and Liquidity

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The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its 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 and the development of any variants, on the business, ongoing economic uncertainty, including as a result of geopolitical factors such as hostilities and the conflict between Russia and Ukraine, technological uncertainty, commercial acceptance of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.

In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000 shares of its common stock at a public offering price of $ 8.00 per share.

The Company received net proceeds of $ 34.4 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, the uncertainty of product development, the impact of macroeconomic conditions, including the COVID-19 pandemic, general economic uncertainty, including as a result of inflationary pressures and the measures undertaken by various governments to address them, banking instability, geopolitical factors such as the war in Ukraine, 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.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

(3) Summary of Significant Accounting Policies

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All intercompany accounts and transactions have been eliminated in consolidation.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

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 expenses during the reporting period.

The most significant judgments are employed in estimates used to determine stock-based awards issued and recoverability of the carrying value of the Company’s inventory.

The most significant judgments are employed in estimates used to determine the 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.

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The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.

On March 10, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (“SVB”) and appointed the FDIC as receiver.

On March 12, 2023, the U.S.

Department of the Treasury, the Federal Reserve and the FDIC released a joint statement confirming that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.

In addition, on March 10, 2023, the Bank of England (the “BOE”) announced that it intended to seek the placement of Silicon Valley Bank UK Limited (“SVBUK”), an affiliate of SVB, into a Bank Insolvency Procedure, which ultimately results in the acquisition of SVBUK by HSBC UK Bank Plc (“HSBC") on March 13, 2023.

The BOE confirmed that all depositors’ money with SVBUK is safe and secure as a result of the transaction, and that operations at SVBUK would continue as normal.

During the course of these events, a portion of the Company’s cash was held in accounts at SVB and SVBUK, with the remainder held at another high-credit-quality financial institution.

We have recently established additional redundant accounts with another high-credit-quality financial institution to mitigate liquidity risk to our cash and cash equivalents from any further instability in the financial industry.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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

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

As part of this agreement, Aroa is also the exclusive contract manufacturer of the Company’s OviTex portfolio of products.

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

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Cash equivalents consist of investments in a money market fund.

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

The Company’s cash and cash equivalents are carried at fair value.

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.

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Depreciation is provided over the estimated useful lives of the assets using the straight-line method.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

Intangible Assets

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Milestone payments due related to licenses or commercialization rights after future economic benefit is established are recorded as intangible assets.

In 2021, 2020 and 2019, the Company recorded $ 0.3 million of amortization expense in each year related to intangible assets.

In 2022, 2021 and 2020, the Company recorded $ 0.8 million, $ 0.3 million and $ 0.3 million of amortization expense, respectively, related to intangible assets.

At December 31, 2022, the remaining life of intangible assets was 6.6 years.

The Company anticipates recognizing amortization expense of $ 0.3 million for the next five years and $ 0.8 million thereafter.

The Company anticipates recognizing amortization expense of $ 0.4 million in each of the next five years and $ 0.5 million thereafter.

Long-Lived Assets

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No impairment losses were recognized during the years ended December 31, 2022, 2021 or 2020.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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 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.

Debt issuance costs, net of related amortization are deducted from the carrying value of the related debt.

Revenue Recognition

Under ASC Topic 606, Revenue from Contracts with Customers , 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:

Under ASC Topic 606, Revenue from Contracts with Customers (“ASC 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 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.

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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.

For all of the Company’s customer 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.

The Company enters into 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.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

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

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

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Sales outside of the U.S.

were immaterial for the years ended December 31, 2021, 2020 and 2019.

were $ 3.2 million or 8 % of total revenue for the year ended December 31, 2022 and immaterial for the years ended December 31, 2021 and 2020.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

Research and Development

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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.

Costs incurred in obtaining patent and other intellectual property licenses or milestone payments from license agreements for which there are no alternative future uses are charged to expense as incurred.

Stock-Based Compensation

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

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

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

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

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

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

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

ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes (“ASC 740-10”), 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.

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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.

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

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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 value.

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

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, 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 the OrbiMed Credit Facility (Note 6), it was impractical to determine the fair value of the debt.

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

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

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

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, 2021 and 2020 (in thousands):

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 (in thousands):

Fair value measurement at reporting date using

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Cash equivalents – money market fund

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

January 1, 2019

Change in fair value of warrants

Conversion into common stock warrants

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:

MidCap Credit

Notes payable

Expected dividend yield

Expected volatility

Risk-free interest rate

Remaining contractual term in years

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.

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

In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share 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.

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

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, 2021, 2020 and 2019, as they would be antidilutive.

Year ended December 31,

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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.

2016-02, Leases , (“ASU 2016-02”) which requires a lessee to record a right-of-use (“ROU”) 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 anticipates the recognition of a right-of-use asset of approximately $ 1.2 million to $ 1.6 million and a lease liability of approximately $ 1.5 million to $ 1.9 million.

The Company is continuing its assessment of potential changes to its disclosures under the standard.

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.

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

The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective transition method and elected the transition practical expedients to not reassess lease identification, lease classification and initial indirect costs related to those leases entered into prior to the date of application.

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments , which provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model.

The standard is effective for the Company beginning January 1, 2023, and the adoption of this guidance is not expected to have a significant impact on the consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity (“ ASU 2020-06”) .

ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.

It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.

The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those annual periods.

The adoption of this guidance is not expected to have a significant impact on the consolidated financial statements and related disclosures.

TELA Bio, Inc.

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Third-party and professional fees

Amounts due to Aroa

Amounts due to contract manufacturer

Current portion of operating lease liabilities

Research and development expenses

Total accrued expenses and other current liabilities

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

Long-term debt consisted of the following (in thousands):

MidCap Term Loan

OrbiMed Term Loan (related party)

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Unamortized end of term charge and issuance costs

Long-term debt with related party

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

Long-term debt

MidCap Term Loan

On May 26, 2022, the Company entered into the Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent (the “Agent”), and certain lender parties thereto.

The MidCap Credit Agreement provides for up to $ 50.0 million in term loans (the “MidCap Term Loans”), consisting of a $ 40.0 million Tranche 1 (“Tranche 1”) and a $ 10.0 million Tranche 2 (“Tranche 2”).

Upon closing, the Company borrowed $ 40.0 million of Tranche 1 and used a portion of the proceeds to repay borrowings under the OrbiMed Credit Facility (described below) and intends to use the remaining proceeds to fund operations and other general corporate purposes.

The Company will be eligible to borrow Tranche 2 at the Company’s option upon meeting certain conditions, including, but not limited to, reaching $ 65.0 million of net product revenue over the preceding four quarters by fiscal year end 2023.

Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by the Company.

The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions that may be in the Company’s long-term best interests, including the incurrence of additional indebtedness, effecting certain corporate changes, making certain investments, acquisitions or dispositions and paying dividends.

The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material adverse effect and (xiii) breach of material contracts.

In addition, the Company must maintain minimum net revenue levels tested quarterly.

In the event of default under the MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2 %.

The MidCap Term Loans mature on May 1, 2027 and bear interest at a rate equal to 6.25 % plus the greater of one-month Term SOFR (as defined in the MidCap Credit Agreement) or 1.0 %.

The Company is required to make 36 monthly interest payments beginning on June 1, 2022 (the “Interest-Only Period”).

If the Company is in covenant compliance at the end of the Interest-Only Period, the Company will have the option to extend the Interest-Only Period by 12 months to 48 monthly interest payments, followed by 12 months of straight-line amortization, with the entire principal payment due at maturity.

If the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 24 months of straight-line amortization payments, with the entire principal amount due at maturity.

Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 3.0 % of the prepaid principal amount for the first year following the closing date of the MidCap Term Loans, 2.0 % of the prepaid principal amount for

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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.

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 events, (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 bears interest at a rate equal to 7.75 % plus the greater of one-month LIBOR or 2.0 %.

At December 31, 2021, 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 each of 2021, 2020 and 2019 was $ 3.6 million.

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

the second year following the closing date and 1.0 % of the prepaid principal amount for the third year following the closing date and thereafter.

The Company is also required to pay an exit fee at the time of maturity or prepayment event equal to 5 % of all principal borrowings (the “End of Term Charge”) (or in the event of a prepayment event, the amount of principal being prepaid).

Interest expense associated with the MidCap Credit Facility recorded for the year ended December 31, 2022 was $ 2.6 million, of which $ 0.4 million was related to the amortization of debt issuance costs.

OrbiMed Term Loan (Related Party)

In November 2018, the Company entered into the OrbiMed Credit Facility with OrbiMed, a related party as the lender is affiliated with a stockholder of the Company, which consisted of up to $ 35.0 million in term loans (the “OrbiMed Term Loans”).

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

In November 2018, the Company borrowed $ 30.0 million of the First Tranche.

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

On May 26, 2022, the Company entered into the MidCap Credit Agreement and upon closing used a portion of the proceeds to repay all borrowings under the OrbiMed Credit Facility.

The OrbiMed Term Loan bore interest at a rate equal to 7.75 % plus the greater of one-month LIBOR or 2.0 % until the aggregate principal, interest and End of Term Charge of $ 3.0 million were paid with part of the proceeds received from the MidCap Credit Agreement.

As a result of these payments, a $ 1.2 million loss on extinguishment was recorded during the year ended December 31, 2022.

Interest expense associated with the OrbiMed Credit Facility recorded for the year ended December 31, 2022, was $ 1.5 million, of which $ 0.3 million was related to the amortization of debt issuance costs.

Interest expense associated with the OrbiMed Credit Facility recorded for the year ended December 31, 2021, was $ 3.6 million, of which $ 0.7 million was related to the amortization of debt issuance costs.

Interest expense associated with the OrbiMed Credit Facility recorded for the year ended December 31, 2020, was $ 3.6 million, of which $ 0.6 million was related to the amortization of debt issuance costs.

(7) Stockholders’ Equity

Public Stock Offerings

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 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.

In June 2020, the Company 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.

In December 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Piper Sandler & Co (“Piper”) 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 Piper as sales agent.

No sales were made under the Equity Agreement during the years ended December 31, 2022, 2021 or 2020.

In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000 shares of its common stock at a public offering price of $ 8.00 per share.

The Company received net proceeds of $ 34.4 million after deducting underwriting discounts, commissions and other offering expenses.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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 preferred stock at $ 1.16 per share for aggregate gross proceeds of $ 14.5 million.

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

The Company had the following warrants outstanding at December 31, 2022:

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

At December 31, 2021, 1,299,218 shares were available for future issuances under the Plan.

At December 31, 2022, 1,427,772 shares of common stock were available for future issuances under the Plan.

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.

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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):

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

Year ended December 31,

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Outstanding at January 1, 2020

Early exercised

Canceled/forfeited

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Exercisable at December 31, 2022

Included in outstanding options at December 31, 2022, were 381,125 stock options granted outside of the Plan.

These grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4).

At December 31, 2022, the aggregate intrinsic value of outstanding options and exercisable options was $ 3.0 million and $ 2.3 million, respectively.

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The repurchase price is the lesser of the original exercise price or the then fair value of the common stock.

At December 31, 2021, an immaterial amount of proceeds from early exercised options are recognized as a current liability in accrued expenses and other current liabilities in the accompanying consolidated balance sheet.

At December 31, 2022, all early exercised options had vested.

The following table summarizes activity relating to early exercise of stock options:

Unvested balance at January 1, 2020

Early exercised

Unvested balance at December 31, 2020

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Unvested balance at December 31, 2022

The weighted average grant-date fair value per share of options granted was $ 6.55 , $ 8.66 and $ 8.13 for the years ended December 31, 2022, 2021 and 2020, respectively.

The aggregate intrinsic value of options exercised was $ 16,000 , $ 0.4 million and $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31,

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

The weighted average grant-date fair value per share of options granted was $ 8.66 , $ 8.13 and $ 6.81 for the years ended December 31, 2021, 2020 and 2019, respectively.

The aggregate intrinsic value of options exercised was $ 0.4 million and $ 0.2 million for the years ended December 31, 2021 and 2020, respectively, and nominal for the year ended December 31, 2019.

As of December 31, 2021, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards was $ 5.1 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.5 years.

2022, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards was $ 5.1 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.5 years.

Estimating Fair Value of Stock Options

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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.

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

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

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Outstanding at December 31, 2021

The weighted average grant-date fair value per RSU granted was $ 16.57 during the year ended December 31, 2021.

The aggregate intrinsic value of RSUs outstanding was $ 2.1 million at December 31, 2021.

The total unrecognized

Canceled/forfeited

Outstanding at December 31, 2022

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

compensation expense at December 31, 2021 related to RSUs was $ 1.6 million, which is expected to be recognized in expense over a weighted-average period of approximately 3.2 years.

Included in outstanding RSUs at December 31, 2022, were 7,500 RSUs granted outside of the Plan.

These grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4).

The weighted average grant-date fair value per RSU granted was $ 11.21 and $ 16.57 during the year ended December 31, 2022 and 2021, respectively.

The aggregate intrinsic value of RSUs outstanding was $ 3.6 million and $ 2.1 million at December 31, 2022 and 2021, respectively.

The total unrecognized compensation expense at December 31, 2022 related to RSUs was $ 2.6 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.6 years.

(9) Employee Benefit Plans

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

The Company’s contributions were $ 0.3 million and $ 0.2 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s contributions were $ 0.4 million, $ 0.3 million and $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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As of December 31, 2022, 2021 and 2020, 4,523 , 3,163 and 2,797 shares, respectively, have been issued under the ESPP.

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

(10) Income Taxes

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

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

Significant components of the Company’s deferred tax assets for federal income taxes consisted of the following (in thousands):

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Research and development credits

Depreciation and amortization

Lease liability

Accrued expenses and other

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Gross deferred tax asset

Deferred tax liabilities

Depreciation and amortization

Right of use asset

Gross deferred tax liability

Net deferred tax asset before valuation allowance

Valuation allowance

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The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

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):

NOL carryforwards

The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes.

The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes yet $ 100.7 million of the federal NOL carryforwards have no expiration.

The Company recorded a valuation allowance on the deferred tax assets as of December 31, 2022 and 2021 because of the uncertainty of their realization.

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

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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

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federal jurisdiction, various state jurisdictions and the United Kingdom.

Tax years 2017 and forward remain open for examination for federal tax purposes and tax years 2017 and forward remain open for examination for the Company’s more significant state tax jurisdictions.

Tax years 2019 and forward remain open for examination for federal and the Company’s more significant state tax jurisdictions.

Carryforward attributes from prior years may be adjusted upon examination by taxing authorities if used in an open period.

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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

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

legislation did not impact the Company during the year ended December 31, 2020.

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.

During the year ended December 31, 2021, the Company claimed an employee retention payroll tax credit of $ 0.5 million for certain employment taxes.

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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 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.

but was subsequently amended in March 2013 to include certain countries in Europe including the United Kingdom and members of 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.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

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.

The Company paid $ 1.0 million in 2022 related to the sales milestone payments in the European territory.

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

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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.

TELA BIO, INC.

Notes to Consolidated Financial Statements (continued)

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, 2021, the Company had $ 1.8 million in purchase commitments with Aroa and certain other suppliers to maintain exclusivity rights.

As of December 31, 2022, the Company had $ 1.0 million in purchase commitments with Aroa, $ 20.7 million in commitments with certain other suppliers to maintain exclusivity rights over time and $ 2.2 million milestone payments related to certain research and development arrangements which are currently deemed not probable as the timing and likelihood of such payments are not known with certainty.

Other Commitments

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plastic reconstructive surgery market.

To maintain exclusivity, the Company has $ 10.8 million in purchase commitments and annual license fees over a ten-year period.

To maintain exclusivity, the Company had purchase commitments and annual license fees over a ten-year period.

In April 2022, the Company entered into an exclusive development and distribution partnership for Collagen Matrix, Inc.’s proprietary fibrillar collagen pack in the U.S.

To maintain exclusivity, the Company has purchase commitments of $ 20.7 million over the remaining nine-year period.

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 $ 0.4 million, $ 0.3 million and $ 0.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The future minimum lease payments under the facility operating lease agreement as of December 31, 2021 are as follows (in thousands):

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

The Company leases office and laboratory space in Malvern, Pennsylvania under a noncancelable lease (the “Malvern Lease”).

The Malvern Lease, which was concluded to be an operating lease, was amended in December 2020 to extend the term of the lease from May 2021 to May 2028.

The Malvern Lease has annual scheduled payment increases and provides the Company a renewal option for an additional term of 60 months at the end of the lease term.

The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

As the Company is not reasonably certain to exercise the renewal option, the additional 60-month term has been excluded.

On January 1, 2022 and upon adoption of ASU 2016-02, the Company recorded an operating lease liability of $ 1.8 million and an operating lease ROU asset of $ 1.4 million related to the Malvern Lease.

The Company also eliminated approximately $ 0.4 million of deferred rent and tenant allowance liabilities as of January 1, 2022 as these components are reflected as a reduction in the operating lease ROU asset.

Operating lease leasehold improvements are depreciated over the lesser of the useful lives of the leasehold improvements or the lease term.

The tenant allowance was historically amortized over the initial, non-cancelable term of the Malvern Lease.

The Company's lease does not provide an implicit rate, and therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.

The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease.

The Company used an incremental borrowing rate of 9.75 % to discount the Malvern Lease payments included in the operating lease liabilities recognized upon adoption of ASU 2016-02.

The Company recognized $ 0.3 million of lease cost during the year ended December 31, 2022.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 0.3 million for the year ended December 31, 2022, and this amount is included in operating activities in the consolidated statements of cash flows.

As of December 31, 2022, the remaining lease term for the Malvern Lease is 5.5 years.

The following table reconciles the undiscounted future minimum lease payments (displayed in aggregate by year) under non-cancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the consolidated balance sheets as of December 31, 2022 (in thousands):

Total undiscounted future minimum lease payments

Less imputed interest

Total operating lease liabilities

At December 31, 2021, the Company’s future minimum lease payments under non-cancelable operating leases for the five years ending December 31, 2022 through 2026 and thereafter were as follows:

$ 0.3 million, $ 0.4 million, $ 0.4 million, $ 0.4 million, $ 0.4 million and $ 0.5 million, respectively.

TELA Bio, Inc.

Notes to Consolidated Financial Statements (continued)

As of December 31, 2022, $ 0.3 million representing the current portion of operating lease liabilities is included in accrued expenses and other current liabilities in the consolidated balance sheets and $ 1.2 million representing the long-term portion of operating lease liabilities is included in other long-term liabilities in the consolidated balance sheets.

(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.

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

On May 26, 2022, the Company entered into the MidCap Credit Agreement and upon closing used a portion of the proceeds to repay all borrowings under the OrbiMed Credit Facility, and terminated the OrbiMed Credit Facility.

The following exhibits are being filed herewith:

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Form of TELA Bio, Inc.

Amended and Restated 2019 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement (incorporated by reference to exhibit 10.11 to the Company’s Report on Form 10-K, filed on March 25, 2021) .

Amended and Restated 2019 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement (incorporated by reference to exhibit 10.1 to the Company’s Report on Form 10-Q, filed on May 11, 2022).

Form of TELA Bio, Inc.

Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (incorporated by reference to exhibit 10.12 to the Company’s Report on Form 10-K, filed on March 25, 2021) .

Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (time-based vesting) (incorporated by reference to exhibit 10.2 to the Company’s Report on Form 10-Q, filed on May 11, 2022).

Form of TELA Bio, Inc.

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

TELA Bio, Inc.

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

Amendment No.

1 to TELA Bio, Inc.

2019 Employee Stock Purchase Plan (fil ed herewith ) .

Form of TELA Bio, Inc.

Inducement Award Agreement for Non-Qualified Stock Option (filed herewith).

Form of TELA Bio, Inc.

Inducement Award Agreement for Restricted Stock Unit (filed herewith).

TELA Bio, Inc.

2 unchanged sentences

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

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

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

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).

Employment Agreement, dated August 27, 2021, by and between the Company and Roberto Cuca (incorporated by reference to exhibit 10.1 to the Company’s Report on Form 8-K, filed on September 27, 2021) .

Employment Agreement, dated September 15, 2020, by and between the Company and Paul Talmo (filed herewith).

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).

Employment Agreement, dated September 15, 2020, by and between the Company and Paul Talmo (incorporated by reference to exhibit 10.19 to the Company’s Report on Form 10-K, filed on March 23, 2022).

Credit and Security Agreement, dated as of May 26, 2022, by and among TELA Bio, Inc., MidCap Financial Trust and the lenders from time to time party thereto (incorporated by reference to exhibit 10.1 to the Company’s Report on Form 8-K, filed on May 31, 2022 ).

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

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

XBRL Instance Document (filed herewith).

XBRL Taxonomy Extension Schema Document (filed herewith).

XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

Inline XBRL Instance Document (filed herewith).

Inline XBRL Taxonomy Extension Schema Document (filed herewith).

Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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Antony Koblish

President, Chief Executive Officer

President, Chief Executive Officer and Director

March 23, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

29 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures