F-1 1 tm214804-11_f1.htm F-1 tm214804-11_f1 - none - 28.8126191s
As filed with the Securities and Exchange Commission on April 19, 2021.
Registration No. 333-     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
hear.com N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
(State or other jurisdiction of
incorporation or organization)
8099
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer
Identification Number)
Amsterdamsestraatweg 421
3551 CL Utrecht, the Netherlands
+31 55 80 80 140
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
hear.com LLC
396 Alhambra Circle, Suite 600
Coral Gables, Florida 33134
(786) 520-2456
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
William B. Brentani
Simpson Thacher & Bartlett LLP
2475 Hanover Street
Palo Alto, California 94304
Tel: (650) 251-5000
Fax: (650) 251-5002
Nicholas J. Shaw
Simpson Thacher & Bartlett LLP
CityPoint
One Ropemaker Street
London EC2Y 9HU
Tel: +44 20 7275 6500
Fax: +44 20 7275 6502
Michael Benjamin
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Tel: (212) 906-1200
Fax: (212) 751-4864
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.   ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.
Emerging growth company   ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class
of Securities to be Registered
Proposed Maximum
Offering Price
Per Share(1)(2)
Amount of
Registration Fee
Common shares, nominal value €0.01 per share
$ 100,000,000 $ 10,910
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Includes the aggregate offering price of common shares that the underwriters have the option to purchase from the selling shareholder identified in this registration statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling shareholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and neither we nor the selling shareholder are soliciting offers to buy the securities in any jurisdiction where the offer or sale is not permitted.
Preliminary Prospectus
(Subject to Completion, Dated                , 2021)
Common Shares
[MISSING IMAGE: lg_hearcom-4c.jpg]
This is hear.com N.V.’s initial public offering. We are selling                 common shares.
We expect the initial public offering price of our common shares to be between $                and $                per share. Prior to this offering, no public market existed for our common shares. After pricing of this offering, we expect that our common shares will trade on the Nasdaq Global Market under the symbol “HCG.”
We are both an “emerging growth company” and a “foreign private issuer” under applicable U.S. Securities and Exchange Commission rules and will be eligible for reduced public company disclosure requirements. See “Prospectus Summary—​Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information. After the completion of this offering, Auris Luxembourg III S.à r.l., an entity beneficially owned by investment vehicles affiliated with EQT AB and T&W Medical A/S, will continue to own a majority of the common shares eligible to vote in the election of our directors. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq.
Investing in the common shares involves risks. See the “Risk Factors” section beginning on page 19 of this prospectus.
PRICE $      A SHARE
Public
Offering Price
Underwriting
Discounts(1)
Proceeds Before
Expenses, to Us
Per Share
$     
$     
$     
Total
$         
$         
$         
(1)
See Underwritersfor a description of the compensation payable to the underwriters.
The underwriters may also exercise their option to purchase up to an additional               common shares from the selling shareholder identified herein, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover over-allotments. We will not receive any proceeds from the sale of shares by the selling shareholder pursuant to any exercise of the underwriters option to purchase additional common shares.
At our request, the underwriters have reserved up to           common shares, or    % of the common shares offered by this prospectus, for sale at the initial public offering price in a directed share program, to certain of our directors, employees and partner providers. See UnderwritersDirected Share Program.”
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The common shares will be ready for delivery on or about                , 2021.
Morgan Stanley
J.P. Morgan
Deutsche Bank Securities
Goldman Sachs & Co. LLC
BofA SecuritiesWilliam BlairTruist Securities
               , 2021.

 
TABLE OF CONTENTS
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F-1
Through and including                  , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus we may authorize to be delivered or made available to you. We, the selling shareholder and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectuses prepared by us or on our behalf. We, the selling shareholder and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus is an offer to sell only the common shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus is current only as of its date, regardless of the time of delivery of this prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since such date.
For investors outside the United States: We, the selling shareholder and the underwriters have not done anything that would permit a public offering of our common shares or possession or distribution of this prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the common shares and the distribution of this prospectus, any amendment or supplement to this prospectus or any applicable free writing prospectus outside of the United States.
 
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Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

the term “Bribery Act” means the U.K. Bribery Act 2010;

the term “CAGR” means compound annual growth rate;

the terms “company” or “hear.com group” means the group comprising the assets that will be transferred to hear.com N.V. prior to the consummation of this offering as described under “Corporate Reorganization”;

the term “Corporate Reorganization” means the corporate reorganization as described under “Corporate Reorganization” that we expect will be implemented prior to the completion of this offering;

the term “EEA” means the European Economic Area;

the term “ePrivacy Directive” means the Directive 2002/58/EC on privacy and electronic communication;

the term “EQT” means those certain investment funds of EQT AB and its affiliates;

the term “EQT Investors” means Auris Luxembourg I S.A., North Harbour VII S.à r.l. and North Harbour VII S.à r.l., affiliates of EQT;

the term “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;

the term “FCPA” means the U.S. Foreign Corrupt Practices Act;

the term “FDA” means the U.S. Food and Drug Administration;

the term “GDPR” means the European Union’s General Data Protection Regulation (Regulation (EU) 2016/679);

the term “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the regulations that implement both laws;

the term “IFRS” means International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”);

the term “IT” means information technology;

the term “JOBS Act” means the U.S. Jumpstart Our Business Startups Act of 2012;

the term “MPP Exchange” means the contribution and transfer to us by certain members of our management (or their professional service corporations) of their limited partnership interest in North Harbour Participation S.C.Sp, which holds equity interests in the WS Audiology Group, in exchange for our common shares (the number of our common shares to be issued in connection with such exchange will be determined on the basis of a ratio that takes into account the agreed upon value of such limited partnership interests and the initial public offering price of our common shares);

the term “Nasdaq” means The Nasdaq Global Market;

the term “Parent” means Auris Luxembourg III S.à r.l., our sole shareholder and direct parent company;

the term “Recapitalization” means (i) the split of our outstanding common shares into 4,500,000 common shares with a nominal value of €0.01 each and (ii) the subscription by Parent of          new common shares with a nominal value of €0.01 each for €       in the aggregate, each to be effected prior to the offering;

the term “Relationship Agreement” means the relationship agreement between the Parent, WS Audiology and the company that we expect to enter into in connection with this offering and to which the members of our board of directors have agreed to adhere;

the term “SaaS” means software as a service;

the term “Securities Act” means the U.S. Securities Act of 1933, as amended;
 
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the term “SEC” means the U.S. Securities and Exchange Commission;

the term “Selling Shareholder” means Parent;

the term “SOX” means the U.S. Sarbanes-Oxley Act of 2002, as amended;

the term “T&W Investor” means T&W Medical A/S;

the term “WS Audiology” means WS Audiology A/S, the indirect parent company of the Parent;

the term “WS Audiology Group” means the group owned by WS Audiology, of which the hear.com group will remain a part until prior to the completion of this offering when it will be transferred to hear.com N.V. as described under “Corporate Reorganization”;

references to “underwriters” refer to the firms listed on the cover page of this prospectus; and

the term “U.S. GAAP” means U.S. generally accepted accounting principles.
Presentation of Financial Information
We report under IFRS, as issued by the IASB. We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
Our financial statements included in this prospectus are presented in euro and, unless otherwise specified, all monetary amounts are in euro. All references in this prospectus to “$” and “U.S. dollars” means U.S. dollars and all references to “€” and “euro” mean euro, unless otherwise noted.
This prospectus contains the combined financial statements and other financial information of audibene GmbH and its subsidiaries, as well as those of hear.com LLC (United States), Soundrise Hearing Solutions Private Limited (India) and Hear.com Korea Limited (South Korea), which are indirect subsidiaries of WS Audiology and are expected to be transferred, directly or indirectly, to hear.com N.V. prior to the completion of this offering in connection with the Corporate Reorganization. See “Corporate Reorganization.” hear.com N.V. is a newly incorporated Dutch public company with limited liability (naamloze vennootschap) that has been incorporated for the purpose of this offering and will be the issuer of our common shares. It has not engaged in any activities except those incidental to its formation, the Corporate Reorganization and the initial public offering of our common shares. Following the Corporate Reorganization, hear.com N.V. will become the parent company of the hear.com group and our financial statements will be prepared and reported as the consolidated financial statements of hear.com N.V.
Trademarks and Service Marks
The hear.com design logo, “hear.com,” “audibene” and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are our property. Solely for convenience, our trademarks, tradenames, and service marks referred to in this prospectus appear without the ®, TM, and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, tradenames, and service marks. This prospectus contains additional trademarks, tradenames, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply relationships with, or endorsement or sponsorship of us by, these other companies.
Market, Industry and Other Data
This prospectus contains estimates, projections and information concerning our industry, our business and the market size and growth rates of the markets in which we participate. We are responsible for all of the disclosure in this prospectus and the information incorporated by reference herein and while we believe that
 
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each of the publications, studies and surveys used throughout this prospectus are prepared by reputable sources and are generally reliable, we have not independently verified market and industry data from third-party sources. Some data and statistical and other information are based on internal estimates and calculations that are derived from publicly available information, research we conducted, internal surveys, our management’s knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable.
In each case, this information and data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information, estimates or projections. Industry publications and other reports we have obtained from independent parties may state that the data contained in these publications or other reports have been obtained in good faith or from sources considered to be reliable, but they do not guarantee the accuracy or completeness of such data. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” These and other factors could cause our future performance to differ materially from the assumptions and estimates made by third parties and us.
 
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PROSPECTUS SUMMARY
This summary highlights information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common shares, you should carefully read this entire prospectus, including our financial statements and the related notes included elsewhere in this prospectus, and the information set forth under “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Unless otherwise indicated in this prospectus, references to the “company,” “hear.com,” “we,” “us” and “our” refer to the hear.com group.
Overview
At hear.com, we are on a mission to bring high quality hearing care to anyone, anywhere. Since our founding in 2012, we have grown rapidly to become the largest online provider of expert, medical-grade hearing care globally. We reimagined the hearing care delivery model and pioneered a digital platform that enables us to deliver a highly engaging, end-to-end customer experience, which we call our Hearing Success Program.
We first meet our consumers online before engaging with them telephonically to provide individualized advice on hearing care, dispel any misconceptions and generate excitement. Once the consumer decides to continue with hearing tests and fittings, we meet them locally through our global network of over 5,000 handpicked clinic locations, which we refer to as our partner providers, or remotely through our proprietary Clinic-in-a-Box, which is our teleaudiology solution. Our data-driven approach to hearing care enables us to deliver a personalized experience and respond to customer needs in real time. Our continued investment in technology and data analytics is geared towards maximizing customer satisfaction, allowing us to connect with a broad unpenetrated base of consumers and redefine what it means to experience and treat hearing loss today.
Hearing loss is a widespread and underserved problem. In 2018, the World Health Organization (the “WHO”) estimated that 466 million people worldwide suffered from disabling hearing loss, with millions more affected with moderate hearing loss. Despite its prevalence, as reported by the WHO, only about 17% of individuals with hearing loss own hearing aids. Even though hearing aid technology has advanced significantly and enabled smaller, more powerful devices, individuals seeking hearing care often have misconceptions about hearing aids in terms of their design and usability. Additionally, they face multiple challenges stemming from a complex range of hearing devices with varying degrees of quality and parameters for fit and customization. The traditional process to purchase hearing aids can be lengthy and inconvenient for many consumers. hear.com was founded to provide consumers with a highly tailored, digital solution to access medical-grade hearing care and the latest in hearing aid technology. We built our platform to address and overcome the myriad of complexities consumers often face as they seek hearing care. We have a relentless focus on serving our customers and empowering them to make the optimal decision for their hearing care needs. This results in deep satisfaction among our customers, as demonstrated by our Net Promoter Score of 70 as of December 31, 2020 and ongoing positive customer feedback.
Our Hearing Success Program is a consumer-centric approach that we believe differentiates us from traditional hearing care providers. This comprehensive program encompasses outreach, assessment, planning, facilitation, care coordination, evaluation and advocacy for options and services that are tailored to an individuals’ hearing care needs. Our first contact with potential customers begins with our targeted digital marketing approach and the strategic placement of advertisements in a wide range of digital channels. These advertisements are designed to redirect potential customers to our online platform where we encourage them to engage through one of approximately 360 tailored versions of our website, which in the aggregate attracted over 70 million visits in 2020. Customers are then contacted telephonically by one of our internal sales consultants, who are full-time employees and highly-trained hearing experts. Our internal sales consultants provide education and expert advice for potential solutions that are tailored to the customer’s specific goals and they stay with each customer throughout the entire hearing care journey, from the initial consultation to fitting, purchasing, servicing and beyond. After they have spoken to a customer, our internal sales consultants
 
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coordinate with our global network of credentialed hearing care professionals to schedule a hearing test and fitting, either locally or remotely through our Clinic-in-a-Box solution. Once a hearing care solution is found, we handle all aspects of the purchase, including invoicing, settling reimbursement claims and providing financing options, as well as post-purchase servicing, allowing us to maintain multiple points of contact with our customers to ensure the highest levels of satisfaction and retention for their next purchase.
We have presented below the customer journey through our Hearing Success Program:
[MISSING IMAGE: tm214804d1-ph_program4c.jpg]
We believe that our platform is highly effective and scalable because we deliver significant value to (1) our customers seeking hearing care, (2) our network of partner providers seeking opportunities to serve more customers and increase their income, and (3) our manufacturing partners focused on developing the highest quality hearing aids by incorporating customer feedback and expanding their reach. We have designed our platform to improve over time by continually incorporating new data from millions of interactions with customers, hearing care professionals, and manufacturers. For example, our customer journey is constantly optimized by analyzing the data we gather from our ever increasing consumer database, which provides us with key insights on the drivers of customer satisfaction, quality of care, and cost effective outcomes. Our data-driven approach creates a “flywheel effect,” whereby the more attractive we make our offering to consumers, the more consumers we draw to our platform at lower acquisition cost, and the more attractive we become to our partner providers and manufacturing partners.
[MISSING IMAGE: tm214804d1-ph_customer4c.jpg]
The hearing care clinics in our network, which we refer to as our partner providers, represent a significant share of the global independent audiology community. We believe our global network is the largest of its kind, with over 5,000 partner providers comprising an estimated 15,000 hearing care professionals. Participation of
 
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partner providers in our network is based on a rigorous and ongoing vetting process that evaluates criteria including their record of customer satisfaction, average time to first appointment, and speed of service. This results in the selection of top-tier partner providers who are accustomed to delivering the highest standard of care for our customers. We have developed strong long-term relationships with our partner providers and work closely with them to develop innovative approaches to address the needs of our target customers. We also undertake extensive partner provider training programs, which are designed to provide the knowledge and tools required to become more entrepreneurial and customer-centric, which we believe will help them, and, in turn, us, to achieve higher conversion rates and sales volumes. We have built a strong partner management team that is responsible for acquiring new partner providers and for collaborating on quality of service and conversion rate improvements. This includes supporting hearing care professionals in establishing new clinics that then become a part of our network of partner providers. Our partner management team also works with our partner providers to obtain precise insights into customer demand in certain geographies as well as providing recruiting services to participating hearing care professionals as part of our entrepreneurship program. A key goal of ours is to become the most important business partner to our partner providers.
Our success is demonstrated by the number of contact requests we receive, which was approximately 1.4 million in 2020. We are the leading online hearing care company based on web traffic and estimate that we are a leader in online revenue in every market we serve, including the United States. We have a presence in 11 countries and our database includes close to six million consumers as of December 31, 2020. We have assembled a management team with advanced sector, technical and digital expertise, and, as of December 31, 2020, had 1,388 full-time employees dedicated to helping our customers hear better again, including 688 internal sales consultants and 181 in-house technology employees.
We believe our financial results reflect the significant market demand for our offerings and the value that we provide to the broader hearing care ecosystem. Our revenue was €151.1 million and €119.7 million for the fiscal years ended September 30, 2020 and 2019, respectively. We generated net losses of €23.1 million and €17.4 million for the fiscal years ended September 30, 2020 and 2019, respectively. Our EBITDA was €(11.0) million and €(9.1) million for the fiscal years ended September 30, 2020 and 2019, respectively. EBITDA is a non-IFRS financial measure. For a reconciliation of EBITDA to the most directly comparable IFRS financial measure, information about why we consider EBITDA useful and a discussion of the material risks and limitations of these measures, please see “—Summary Combined Financial and Operating Data—Non-IFRS Measures.”
The Hearing Economy is a Growing Market with Historically Fragmented Distribution
Hearing loss is a widespread and growing global health issue
The WHO estimates that 466 million people worldwide, or 6% of the global population, had disabling hearing loss in 2018. This population is expected to grow in size to more than 900 million people by 2050. As demographic trends shift and life expectancy increases, we expect that the proportion of the population with hearing loss will continue to rise. Unaddressed hearing loss costs the global economy an estimated $750 billion annually according to a 2017 study by the WHO.
The market for hearing care remains significantly underserved
Despite the significant individual and societal impact of hearing loss, the WHO estimates that only 17% of people with hearing loss own hearing aids as of 2020. The prevalence of hearing aid use is consistently low in individuals with mild hearing loss but generally increases in individuals with moderate or greater hearing loss according to a 2020 EuroTrak publication on behalf of the European Hearing Instrument Manufactures Association (EHIMA). Only in the more severe cases does a higher percentage of individuals use a hearing aid.
We believe the limitations of traditional hearing care and the lack of consumer-focused platforms that enable consumers to easily search, discover and access solutions are the primary reasons driving this under penetration. These limitations include the following:

Misconceptions associated with the use of hearing aids
 
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Disempowering consumer experience

Inconvenient, cumbersome process

Inaccessible hearing care service in remote areas
Future growth of hearing care to be driven by high quality digital solutions
The global hearing care market is highly fragmented, and we estimate that the online channel accounted for only 1% to 2% of global hearing aid sales in 2019. We believe this channel is highly underpenetrated and poised to capture significant market share as has been seen in other industries.
Our market opportunity
We estimate that global spend for hearing aids was approximately $18 billion in 2019. We believe this spend, however, is generated from people with severe and profound hearing loss and who primarily obtain their hearing aids through physical channels. We believe there is a substantial opportunity to increase digital penetration in the market for people suffering from hearing loss, which increases our global addressable market significantly. We currently operate in 11 countries and, based on data from the countries that account for approximately two-thirds of our current sales volumes, we estimate that we have less than 10% market share by revenue in each of the countries in which we operate. Based on an estimated 180 million adults with a moderate or a higher degree of hearing loss, average lifecycle of hearing aids, and price of hearing aids in these countries, we estimate our current addressable market to be more than $35 billion annually. We expect our addressable market to grow as we further expand into additional geographic markets.
Note that the information for the parameters on which we base our estimated addressable market calculation is derived from a combination of third-party reports and management assessment, and is subject to significant assumptions and estimates, which may change or prove to be inaccurate. While we believe the information and assumptions on which we base our estimated addressable market are reasonable, such information is inherently imprecise.
What Differentiates Us
Our development, approach, partnerships, customer engagement and investments are aimed at realizing hear.com’s singular mission to bring high quality hearing care to anyone, anywhere. Our competitive strengths consist of:
Scale and market leadership
We are the leading online hearing care company based on web traffic and estimate that we are a leader in online revenue in every market we serve, including the United States. The strength of our market leadership is demonstrated by the scale and growth of our customer contacts, the breadth and size of our partner provider network, and our deep customer satisfaction.
Our partner provider network
We believe our independent global network is the largest of its kind, with over 5,000 partner providers comprising an estimated 15,000 hearing care professionals; our partnership with these providers is usually exclusive.
Differentiated go-to-market strategy
Hearing care is a personal, often significant, decision that can require a high degree of consumer motivation to engage and substantial consideration of individual needs and preferences. Our Hearing Success Program takes a digital-first approach to simplify the path to purchase and produces a personalized and guided user experience.
 
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Proprietary and purpose-built technology platform
Our technology powers all aspects of our company: engaging our customers and supporting our partner providers and manufacturing partners, while advancing our business objectives. We have designed our technology to improve over time by continuously incorporating new data from millions of interactions with customers, hearing care partners, and manufacturers.
Customer-centricity as the fundamental tenet of our company
Understanding our customers’ needs is our highest priority and everything we do is centered around making our customers happy by delivering superior outcomes. We have devoted almost a decade, and significant resources, to developing our customer journey, which, at each step, is designed to optimize customer experience and provide tailored, thoughtful and individualized information and guidance to our customers. We believe that this differentiates us from other participants in the hearing care market and drives higher conversion rates and long-lasting relationships with our customers.
Deeply experienced management team with a culture of innovation
We are a founder-led, diverse, global, entrepreneurial, and talented team. Our non-hierarchal, fast-paced and open working culture delivers high-impact outcomes for customers, partners and our teams.
Investors should carefully consider risks related to our business and industry described under “Risk Factors” elsewhere in this prospectus regarding considerations that may offset our competitive strengths.
Our Growth Strategy
We believe that there are significant opportunities to increase awareness and educate consumers regarding hearing care, hearing aids innovation, purchase process and pricing, as well as our platform and solutions. To transform hearing care delivery at scale, we are pursuing growth through the following avenues:
Continue to attract new consumers and partner providers in existing geographic markets
Globally with only 17% of people with hearing loss owning hearing aids, and an estimated 1% to 2% online penetration, we believe the online hearing care market is significantly underpenetrated.
Bringing telehealth to hearing care
We currently offer our proprietary Clinic-in-a-Box, which is our teleaudiology solution, in the United States, Canada and Malaysia and intend to introduce it across multiple geographic and regional markets.
Efficient geographic and network expansion
We plan to expand into new geographic markets such as China, Brazil, Mexico, Colombia and Japan where we do not currently operate. We believe we can leverage our strong track record of execution from our 11 existing geographic markets in order to efficiently launch into these new geographic markets.
Develop and expand a differentiated direct-to-consumer approach
We plan to introduce a differentiated and lower cost direct-to-consumer retail model where we serve consumers with mild hearing loss in a more efficient and direct manner with fewer physical touchpoints.
Sell incremental solutions to existing consumers and encourage repeat purchases
We aim to increase the number and sales of our value-added solutions and services, which we believe will be accretive to our consumer lifetime value, without significantly increasing consumer acquisition costs. Sales of ongoing solutions and services also allow us to maintain contact with our customers after purchase and
 
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over time, which we believe contributes to developing longstanding relationships with them. We also aim to leverage these longstanding relationships to encourage customers to buy new hearing aids from us as their old ones reach the end of their lifetime, which occurs typically every four to six years.
Continue to invest in consumer innovations, solutions and services
We continually invest in and scale digital solutions and services to enhance access to medical-grade hearing care and increase the quality of hearing outcomes for our customers. Two examples of our solutions and services are:

Hearing as a service:   We are in the process of designing and implementing a subscription service for our customers, which we refer to as hearing as a service, that will cover a range of solutions and services. We aim to offer a range of options that suit a variety of customer budgets and preferences to allow our customers the flexibility to customize their subscription.

The “hear.com Horizon”:   We have begun rolling out our own brand of hearing aids, hear.com Horizon, that we co-developed with one of our manufacturing partners for our exclusive use.
Investors should carefully consider risks related to our business and industry described under “Risk Factors” elsewhere in this prospectus regarding considerations that may have a negative effect on our growth strategies.
Our Value Proposition
We believe that our platform is highly effective because we deliver significant value to our consumers, hearing care professionals, and manufacturing partners. Our value proposition by stakeholder is described below:
Consumers:   Our platform delivers high quality hearing care to consumers who may otherwise have forgone hearing care due to a variety of factors, including affordability, fear of stigma, or lack of access to expert care. Our Hearing Success Program ensures customer satisfaction across each stage of the customer journey and increases adoption, reduces complexity, and improves hearing outcomes. The value that consumers ascribe to our platform is demonstrated by our high Net Promoter Score of 70 as of December 31, 2020.
Hearing care professionals:   We help our partner providers grow their practices by providing extensive training programs and giving them access to a curated network of patients that they can use to fill excess capacity and increase their income.
Manufacturing partners:   Our digital marketing capabilities and consumer-facing platform help our manufacturing partners by increasing sales through access to new consumer segments, strengthening their brand recognition within our network, and improving the quality of their products.
Clinic-in-a-Box Solution
Our proprietary Clinic-in-a-Box, which is our teleaudiology solution, was designed to provide access to quality hearing care, regardless of geographic constraints. We introduced our Clinic-in-a-Box solution in Malaysia in 2014, upgraded and expanded it to the United States and Canada in 2020 and intend to expand it further to multiple other geographic and regional markets.
Our Clinic-in-a-Box solution was developed in-house and allows our partner providers to access a previously inaccessible consumer base. Certain high-performing partner providers are selected to use our Clinic-in-a-Box solution, ensuring that customers get the best possible experience. Before the virtual session with our hearing care professionals, customers receive everything they need for their appointment, including a tablet, pre-selected hearing aids based on the consultation with our internal sales consultants, and equipment for the hearing test and fitting. Our hearing care professional connects with the customer through video
 
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conference using the tablet provided and guides the customer on using the equipment, conducting the hearing test, fitting the hearing aid, and fine-tuning the hearing aid.
Throughout this experience, our team of hearing care professionals and internal sales consultants remains available to answer questions and support the fine tuning of the hearing aids or to address any potential issues, such as cleaning of the hearing aids, replacing batteries or connecting the device to smartphones.
[MISSING IMAGE: tm214804d1-ph_computer4c.jpg]
Risks Related to Our Business
Investing in our common shares involves a high degree of risk. You should carefully consider these risks before investing in our common shares, including the risks related to our business and industry described under “Risk Factors” elsewhere in this prospectus. In particular, the following considerations, among others, may impact our business, offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of our common shares and result in a loss of all or a portion of your investment:

our ability to achieve broad market education and to change consumer perception and purchasing habits, and to innovate in a relatively mature industry;

actual or perceived failures to comply with applicable data protection, privacy and security, advertising and consumer protection laws, regulations, standards and other requirements;

security incidents, data breaches, and unauthorized access to data, including personal information and protected health information;

our ability to attract, develop, motivate and retain well-qualified employees, and to prevent former key employees from competing in the hearing care space;

increasing competition as a result of specialty retailers, vertical integration of manufacturers and competition from non-specialty retailers;

the nature of our relationship with WS Audiology as both our indirect shareholder and largest supplier;

our ability to maintain the satisfaction of the hearing care community;

capacity constraints in our partner provider network;

accelerated consolidation and formation of hearing aid purchasing groups;

deteriorating payment behavior of customers that utilize payment plans;

our ability to successfully anticipate product returns, repairs and replacement;

the proliferation of technological developments that improve or cure hearing loss;

the ability of the teleaudiology market to develop;

the ability of select global hearing aid manufacturers to meet their delivery obligations, maintain price stability and continue to supply us with hearing aids;

the ability of our proprietary technology platform to operate properly;
 
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customer confusion about hearing aid product features and technology or about any adverse events or safety issues associated with third-party hearing aid products;

potential lawsuits brought by third parties for infringement, misappropriation, dilution or other violation of their intellectual property or proprietary rights;

our ability to establish, maintain, protect and enforce our intellectual property and proprietary rights;

our ability to continue to use our domain names and prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks;

our ability to enforce our intellectual property rights throughout the world;

risks associated with the use of open source software;

developments in laws, rules, policies and audiology board certification oversight governing licensure, the practice of professional audiology services and teleaudiology;

our ability to comply with laws regulating the corporate practice of audiology;

potential determinations that our arrangements with audiologists and other hearing care professionals constitute the improper rendering of professional audiology services or fee splitting under applicable law;

the impact of healthcare reform legislation and other changes in the healthcare industry and in healthcare spending;

our third party suppliers’ compliance with applicable FDA and other requirements;

our ability to operate as a stand-alone business following the Corporate Reorganization;

the continued alignment of our interests with those of WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor; and

other factors set forth under “Risk Factors” in this prospectus.
Our Principal Shareholders
Prior to the completion of this offering, Parent will own 100% of our outstanding common shares. After completion of this offering, Parent will own approximately     % of our outstanding common shares, or approximately      % if the underwriters exercise in full their option to purchase additional shares. Parent is a subsidiary of WS Audiology, which. is controlled by EQT and T&W Medical A/S.
EQT is a differentiated global investment organization with more than €75 billion in raised capital and approximately €46 billion in assets under management across 16 active funds. EQT funds have portfolio companies in Europe, Asia-Pacific and North America with total sales of more than €27 billion and approximately 159,000 employees. EQT works with portfolio companies to achieve sustainable growth, operational excellence and market leadership. Over the last 20 years, EQT has completed 26 acquisitions in the healthcare sector, including current investments in Certara, Aldevron, Waystar, Galderma and WS Audiology and former investments in Press Ganey, CaridianBCT, BSN Medical and Clinical Innovations.
T&W Medical A/S is a company incorporated in Denmark owned by two families who in 1956 established the global hearing aid company, Widex. In 2019, Widex merged with Sivantos (formerly, Siemens hearing aids) creating the WS Audiology Group. T&W Medical A/S has over the past decade also invested in various health care and life science companies, including UNEEG medical, a company incorporated in Denmark pioneering cognitive technologies that collect, monitor and analyze brain activities (EEG).
We are indirectly controlled by WS Audiology and the WS Audiology Group is one of the largest manufacturers of hearing aids in the world with a significant retail presence. They are also our largest supplier of hearing aids. Real or apparent conflicts of interest may arise between the WS Audiology Group and us in a number of areas relating to our past and ongoing relationships with WS Audiology as our majority
 
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shareholder. In addition, certain members of hear.com management have made investments in the WS Audiology Group. As a result of these individuals’ ownership interest in the WS Audiology Group and the WS Audiology Group’s majority ownership of hear.com, conflicts of interest could arise and result in action or inaction that is detrimental to our business or could harm the implementation of our business strategy.
WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor, are indirect shareholders of the Parent, and WS Audiology has the ability to nominate a majority of the members of our board of directors and to elect and remove directors. Additionally, for so long as WS Audiology, the EQT Investors and the T&W Investor, taken together, beneficially own more than 50% in voting power of our share capital, members of our board of directors will be required to resign upon a written request by shareholders holding more than 50% of our issued and outstanding share capital.
We intend to enter into the Relationship Agreement with the Parent and WS Audiology in connection with this offering and the members of our board of directors have agreed to adhere to the Relationship Agreement. The Relationship Agreement will contain certain arrangements regarding the continuing relationship between us, the Parent and the other parties to it.
We also intend to enter into a registration rights agreement with the Parent and certain other parties. The registration rights agreement will contain provisions that entitle the Parent and the other shareholder parties to it to certain rights to have their securities registered by us under the Securities Act.
Additionally, we expect to enter into a transitional services agreement with the WS Audiology Group, pursuant to which certain entities of the WS Audiology Group will continue to provide certain business functions to us for a limited period of time following the Corporate Reorganization, including certain IT applications, payroll services, arrangements with logistics providers and legal services.
Controlled Company
After the completion of this offering, EQT and T&W Medical A/S will continue to beneficially own more than 50% of our common shares and voting power. As a result, we will be a “controlled company” as that term is set forth in Section 5615(c)(1) of the Nasdaq Marketplace Rules. Under the Nasdaq corporate governance standards, a company of which more than 50% of the voting power for the election of our directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) the requirement that our director nominations be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that consists entirely of independent directors and that we adopt a written charter or board resolution addressing the nominations process. Following this offering, we do not intend to utilize these exemptions, but do intend to rely on other exemptions relating to our status as an emerging growth company and a foreign private issuer (see “—Implications of Being an Emerging Growth Company and a Foreign Private Issuer”). However, if we utilize any of the exemptions available to controlled companies in the future, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements. In the event that we cease to be a “controlled company,” we will be required to comply with these provisions within the transition periods specified in the Nasdaq corporate governance rules.
Corporate Information
hear.com N.V. was originally incorporated as Auris Netherlands IV N.V. under the laws of the Netherlands as a public company with limited liability (naamloze vennootschap) on December 10, 2020. Our principal executive offices are located at Amsterdamsestraatweg 421, 3551 CL Utrecht, the Netherlands. Our telephone number is +31 55 80 80 140. Our website address is www.hear.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and inclusions of our website address in this prospectus are inactive textual references only.
 
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Implications of Being an Emerging Growth Company and a Foreign Private Issuer
Emerging Growth Company
We qualify as an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and currently intend to rely on the following provisions of the JOBS Act that contain exceptions from disclosure and other requirements that otherwise are applicable to companies that conduct initial public offerings and file periodic reports with the SEC. These provisions include, but are not limited to:

being permitted to present only two years of audited financial statements in this prospectus and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our periodic reports and registration statements, including this prospectus;

not being required to comply with the auditor attestation requirements of Section 404 of SOX, the assessment of our internal control over financial reporting, which would otherwise be applicable beginning with the second annual report following consummation of this offering;

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, including in this prospectus; and

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We will remain an emerging growth company until the first to occur of the last day of the fiscal year (i) that follows the fifth anniversary of the completion of this offering, (ii) in which we have total annual gross revenue of at least $1.07 billion or (iii) in which we are deemed to be a “large accelerated filer,” as defined in the Exchange Act, which means the market value of our common shares that are held by non-affiliates exceeds $700 million as of the last business day of the second financial quarter of such financial year; or if it occurs before any of the foregoing dates, the date on which we have issued more than $1 billion in non-convertible debt over a three-year period.
We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our shareholders may be different than what you might receive from other public reporting companies in which you hold equity interests.
Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
Foreign Private Issuer
Upon the consummation of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specific information, or current reports on Form 8-K, upon the occurrence of specified significant events.
 
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We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are directly or indirectly held of record by U.S. holders and any one of the following is true: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.
Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are not emerging growth companies and will continue to be permitted to follow our home country practice on such matters.
For additional information, see the section titled “Risk Factors—Risks Related to Our Common Shares, this Offering and our Status as a Public Company—We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares may be less attractive to investors” and “Risk Factors—Risks Related to Our Common Shares, this Offering and our Status as a Public Company—As a “foreign private issuer” under the rules and regulations of the SEC, we are not subject to U.S. proxy rules and are permitted to, and may, file less or different information with the SEC than a company incorporated in the United States or otherwise not filing as a “foreign private issuer.”
 
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THE OFFERING
Common shares offered by us
                shares.
Common shares to be outstanding immediately after this offering
                shares.
Option to purchase additional shares
The underwriters have been granted an option to purchase up to            additional common shares from the selling shareholder at any time within 30 days from the date of this prospectus to cover over-allotments.
Use of proceeds
We estimate that we will receive net proceeds of approximately $                million from the sale of our common shares in this offering, based on an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds received by us from this offering, as follows:

to repay in full existing shareholder loans owed to certain entities of the WS Audiology Group, which have a weighted average interest rate of 5.8% and scheduled maturity dates ranging from August 5, 2021 to July 19, 2023;

to pay the outstanding consideration owed to the Parent and certain of its direct and indirect subsidiaries in connection with our acquisition of the hear.com group as described under “Corporate Reorganization.” This outstanding consideration will be represented by additional shareholder loans owed to the WS Audiology Group (to the extent not capitalized in connection with the Corporate Reorganization); and

the remainder for general corporate purposes, including to fund further growth and execution of our business strategy and acquisitions.
Any proceeds received by the selling shareholder in the event the underwriters exercise the option to purchase additional common shares from the selling shareholder will be received directly by the selling shareholder.
To the extent we raise more (less) proceeds in this offering than currently estimated, we expect less (more) of the additional shareholder loans to be capitalized in connection with the Corporate Reorganization and that the remainder amount to be used for general corporate purposes will not change.
Risk factors
See “Risk Factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in our common shares.
Dividend policy
We currently do not intend to declare any dividends on our common shares in the foreseeable future. See “Dividend Policy.”
 
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Directed share program
At our request, the underwriters have reserved up to            common shares, or up to    % of the common shares offered by this prospectus, for sale at the initial public offering price through a directed share program to certain of our directors, employees and partner providers. The sales will be made at our direction by Morgan Stanley & Co. LLC and its affiliates through a directed share program. The number of our common shares available for sale to the general public in this offering will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other common shares offered by this prospectus. Participants in the directed share program will not be subject to lock-up or market standoff restrictions with the underwriters or with us with respect to any common shares purchased through the directed share program, except in the case of common shares purchased by any of our directors or employees. For additional information, see “Underwriters—Directed Share Program.”
Nasdaq symbol
“HCG”
Except as otherwise indicated, all information in this prospectus:

assumes the Recapitalization is effected prior to the offering;

assumes the Corporate Reorganization is effected prior to this offering;

assumes no exercise by the underwriters of their option to purchase up to                 additional common shares from the selling shareholder;

assumes an initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover of this prospectus;

assumes the effectiveness of our amended articles of association (the “Articles of Association”) and our board rules (the “Board Rules”), the form of each of which is filed as an exhibit to the registration statement of which this prospectus is a part;

assumes the issuance of           common shares to certain members of management in connection with the MPP Exchange;

does not reflect                 common shares available for future issuance under our 2021 Equity Plans, including up to                common shares we expect to award to certain employees (or their professional service corporations) in connection with this offering; and

assumes the rate of exchange of U.S. dollars into euros of $1.00 equals €0.83, the exchange rate as of April 16, 2021.
A $1.00 increase (decrease) in the assumed initial public offering price referred to above shall modify the number of common shares to be received by certain members of our management in connection with the MPP Exchange resulting in an increase (decrease) to the number of common shares to be outstanding immediately after this offering by                 common shares.
 
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SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following tables summarize our combined financial and operating data for the periods and dates indicated. The combined statements of comprehensive loss data and cash flow data for the three months ended December 31, 2020 and 2019 and combined balance sheet data as of December 31, 2020 have been derived from our unaudited interim condensed combined financial statements included elsewhere in this prospectus. The combined statements of comprehensive loss data and cash flow data for the years ended September 30, 2020 and 2019 have been derived from our audited combined financial statements included elsewhere in this prospectus. Our unaudited interim condensed combined financial statements and our audited combined financial statements contain the financial information of audibene GmbH and its subsidiaries, as well as those of hear.com LLC (United States), Soundrise Hearing Solutions Private Limited (India) and Hear.com Korea Limited (South Korea), which are indirect subsidiaries of WS Audiology and are expected to be transferred, directly or indirectly, to hear.com N.V. prior to the completion of this offering in connection with the Corporate Reorganization. See “Corporate Reorganization.” Following the Corporate Reorganization, hear.com N.V. will become the parent company of the hear.com group and our financial statements will be prepared and reported as the consolidated financial statements of hear.com N.V. See “Presentation of Financial Information.” Our financial statements are prepared in accordance with IFRS as issued by the IASB. Our historical results are not necessarily indicative of the results that may be expected in the future.
The summary combined financial and operating data in this section is not intended to replace our audited combined financial statements and related notes or our unaudited interim condensed combined financial statements and related notes included elsewhere in this prospectus. The summary combined financial and operating data set forth below should be read in conjunction with “Presentation of Financial Information,” “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited combined financial statements included elsewhere in this prospectus.
Year Ended September 30,
Three Months Ended December 31,
2020
2019
2020
2019
(in thousands)
Combined Statements of Comprehensive Loss Data:
Revenue
 151,090    119,668    45,655    34,482
Operating expenses
Cost of revenue, excluding depreciation and amortization
(73,427) (59,077) (19,860) (16,645)
Marketing and selling expenses
(78,865) (62,926) (24,487) (18,985)
General and administrative expenses
(10,096) (6,987) (4,158) (2,286)
Depreciation and amortization
(5,516) (3,526) (1,825) (1,257)
Other operating income, net
301 198 195 249
Loss from operations
(16,513) (12,650) (4,480) (4,442)
Interest income
1,124 205 456 193
Interest expenses
(7,153) (5,068) (1,774) (1,466)
Other financial income (expense), net
(439) 156 303 19
Loss before income taxes
(22,981) (17,357) (5,495) (5,696)
Income tax expense
(130) (41) (42) (17)
Net loss.
(23,111) (17,398) (5,537) (5,713)
Year Ended September 30,
Three Months Ended December 31,
2020
2019
2020
2019
(in thousands)
Combined Statements of Cash Flow Data:
Net cash used in operating activities
   (16,661)    (9,596)     (3,519)     (5,989)
Net cash used in investing activities
(11,393) (5,177) (2,847) (1,836)
Net cash provided by financing activities
31,305 14,717 5,439 7,881
Effect of exchange rates on cash and cash equivalents
(60) (36) 36 (8)
Net increase (decrease) in cash and cash equivalents
3,191    (92) (891)    48
 
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As of December 31, 2020
Actual
As Adjusted
(in thousands)
Combined Balance Sheet Data:
Cash and cash equivalents
3,230     
Total assets
84,857
Total liabilities
178,163
of which, constitute liabilities to WS Audiology group companies
137,984
Total equity
(93,306)
The as adjusted combined balance sheet data gives effect to the issuance and sale by us of                 shares in this offering at the assumed initial offering price of $        per share, which is the midpoint of the pricing range set forth on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds thereof as described in “Use of Proceeds.”
The as adjusted combined balance sheet data are illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase our as adjusted cash and cash equivalents and total assets and would decrease our as adjusted total liabilities and total equity by €        million, assuming, in each case, the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the assumed underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 shares from the expected number of shares to be sold by us in this offering would increase (decrease) our as adjusted cash and cash equivalents, total assets, total liabilities and total equity by €        million, assuming, in each case, no change in the assumed initial public offering price per share, which is the midpoint of the price range set forth on the front cover of this prospectus.
Year Ended September 30,
Three Months Ended
December 31,
2020
2019
2020
2019
Pro Forma Per Share Data:
Basic and diluted loss per common share
                                   
Expected number of common shares outstanding
The pro forma basic and diluted loss per common share data gives effect to the consummation of the Corporate Reorganization and is based on                 common shares of the company expected to be outstanding immediately prior to the consummation of this offering. It is calculated by dividing in each case the net loss for the three months ended December 31, 2020 and 2019 and the years ended September 30, 2020 and 2019 by the expected number of common shares outstanding immediately prior to the consummation of this offering presented in the table above.
Pro forma basic loss per common share is the same as pro forma diluted loss per common share for the periods presented as the inclusion of the potentially dilutive common shares outstanding would have been antidilutive. The number of potentially dilutive common shares not included in the pro forma diluted loss per common share calculation is                .
This pro forma information is unaudited and is presented for informational purposes only. It is not necessarily indicative of what our results would have been had the Corporate Reorganization actually occurred at such date nor is it indicative of our future performance.
Key Performance Metrics
In addition to IFRS measures of performance, we review the following key performance metrics to assess our performance, make strategic and offering decisions and build our financial projections.
 
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As of or for the Year Ended
September 30,
2020
2019
Number of appointments(1)
291,000
218,000
Number of partner providers(1)
5,168
4,526
Number of appointments per partner provider(1)
56
48
Customer sales(2)
59,116
47,142
Conversion rate(1)
20.3%
21.6%
Total unit volume(2)
105,951
82,951
Average selling price(2)
€      1,426
€      1,443
(1)
We expect to only provide number of appointments, number of partner providers, number of appointments per partner provider and conversion rate data on an annual basis.
(2)
Figures reflect totals only. For a breakdown by region, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Performance Metrics and Non-IFRS Measures.”
Number of Appointments
Number of appointments is defined as the total number of initial fitting appointments we make for our customers with our partner providers in any given period.
Number of Partner Providers
Number of partner providers is defined as the total number of clinics at the end of the relevant period with whom we have entered into contractual arrangements for the fitting of hearing aids that we sell to our customers.
Number of Appointments per Partner Provider
Number of appointments per partner provider is defined as the number of appointments in any given period divided by the number of partner providers at the end of that period.
Customer Sales
Customer sales is defined as the number of customer transactions or sales, net of returns, in any given period.
Conversion Rate
Conversion rate is defined as customer sales divided by the number of appointments in any given period, and the result multiplied by 100.
Total Unit Volume
Total unit volume is defined as the number of hearing aids sold, net of returns, in any given period.
Average Selling Price
Average selling price is defined as the average selling price of one hearing aid to a customer and it is calculated by dividing revenue by total unit volume for any given period.
For additional information on our key performance metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Performance Metrics and Non-IFRS Measures.”
 
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Non-IFRS Measures
In addition to our financial results determined in accordance with IFRS, we believe that certain non-IFRS measures are useful in evaluating our operating performance. We use gross margin and EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. While not superior or an alternative to IFRS measures, we believe that these non-IFRS measures, when taken together with the corresponding IFRS measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.
Gross Margin
Total gross margin
Total gross margin for a particular period is defined as revenue less cost of revenue, excluding depreciation and amortization, divided by revenue.
The following table presents the calculation of total gross margin.
Year Ended September 30,
Three Months Ended December 31,
2020
2019
2020
2019
(in thousands, unless indicated otherwise)
Revenue
€      151,090
€      119,668
€      45,655
€      34,482
Cost of revenue, excluding depreciation and amortization(1)
(73,427)
(59,077)
(19,860)
(16,645)
Revenue less cost of revenue, excluding depreciation and amortization
77,663
60,591
25,795
17,837
Total gross margin
51.4%
50.6%
56.5%
51.7%
(1)
Cost of revenue, excluding depreciation and amortization for the three months ended December 31, 2020 and 2019 excludes depreciation of €5,000 and €4,000, respectively, and for the years ended September 30, 2020 and 2019 excludes depreciation of €18,000 and €28,000, respectively. Due to their immaterial amounts, for the purposes of deriving gross margin, we have not added back this depreciation to the cost of revenue, excluding depreciation and amortization.
Gross product margin
Gross product margin for a particular period is defined as revenue less cost of materials, divided by revenue.
The following table presents the calculation of gross product margin.
Year Ended
September 30,
Three Months Ended
December 31,
2020
2019
2020
2019
(in thousands, unless indicated otherwise)
Revenue
€      151,090
€      119,668
€      45,655
€      34,482
Less:
Cost of materials
(35,149)
(29,921)
(8,869)
(8,640)
Revenue less cost of materials
115,245
89,747
36,786
25,842
Gross product margin
76.7%
75.0%
80.6%
74.9%
We believe that total gross margin and gross product margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses and certain other nonrecurring operating expenses. For a discussion on our
 
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cost of revenue and gross margin, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations―Key Factors Affecting Our Performance―Cost of Revenue” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Three Months Ended December 31, 2020 versus Three Months Ended December 31, 2019 — Cost of Revenue, Excluding Depreciation and Amortization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Year Ended September 30, 2020 versus Year Ended September 30, 2019 — Cost of Revenue, Excluding Depreciation and Amortization.”
EBITDA
EBITDA for a particular period is defined as net profit or loss before interest expenses, interest income, other financial income (expenses), net, income taxes and depreciation and amortization.
The following table reconciles net loss to EBITDA for the periods presented.
Year Ended September 30,
Three Months Ended December 31,
2020
2019
2020
2019
(in thousands)
Net loss
€      (23,111)
€      (17,398)
€      (5,537)
€      (5,713)
Interest expenses
7,153
5,068
1,774
1,466
Interest income
(1,124)
(205)
(456)
(193)
Other financial income (expense), net
439
(156)
(303)
(19)
Income taxes
130
41
42
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Depreciation and amortization
5,516
3,526
1,825
1,257
EBITDA
€      (10,997)
€      (9,124)
€      (2,655)
€      (3,185)
We believe that the use of EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance. EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. EBITDA should not be considered as an alternative to loss before income taxes, net loss or any other performance measures derived in accordance with IFRS.
Total gross margin, gross product margin and EBITDA are non-IFRS measures and are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with IFRS. Other companies, including companies in our industry, may calculate total gross margin, gross product margin and EBITDA differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our total gross margin, gross product margin and EBITDA as tools for comparison. When evaluating our performance, you should consider total gross margin, gross product margin and EBITDA alongside other financial performance measures, including our revenue, net loss and other IFRS results.
 
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RISK FACTORS
Investing in our common shares involves a high degree of risk. You should carefully consider the following risk factors together with other information in this prospectus, including our combined financial statements and related notes included elsewhere in this prospectus, before deciding whether to invest in our common shares. The risks described below are not the only risks we face. Additional risks that we are unaware of or that we deem immaterial may also become important factors that could adversely affect our business. The occurrence of any of the events described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the trading price of our common shares may decline and you may lose all or part of your investment.
Risks Related to Our Limited Operating History and Early Stage of Growth
Our limited operating history and our evolving business make it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Our limited operating history and evolving business make it difficult to evaluate and assess the success of our business to date, our future prospects and the risks and challenges that we may encounter. These risks and challenges include our ability to:

attract new consumers to our platform and position our platform as an important way to make purchasing decisions for hearing care products and services;

retain our consumers and encourage them to continue to engage with us on purchasing hearing care products and services;

attract new and existing consumers to rapidly adopt new offerings on our platform;

attract and retain partner providers for our network, including audiologists, other hearing care professionals and fitting specialists;

comply with existing and new laws and regulations applicable to our business and in our industry;

anticipate and respond to macroeconomic changes, changes in pricing of hearing aids and industry pricing benchmarks and changes in the markets in which we operate;

react to challenges from existing and new competitors;

maintain and enhance the value of our reputation and brand;

effectively manage our growth;

hire, integrate and retain talented people at all levels of our organization;

maintain and improve the technology and security infrastructure underlying our platform, including our app and websites and related data protection and cybersecurity; and

successfully update our platform, develop and update our app, features, offerings and services to benefit our consumers and enhance the consumer experience.
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above and those described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could be adversely affected. Further, because we have limited historical audited financial data and our business continues to evolve and expand, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history, operated a more predictable business or operated in a less regulated industry. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories and evolving business that operate in regulated and competitive industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations would be adversely affected.
 
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Our recent growth rates may not be sustainable or indicative of future growth and our results of operations may fluctuate significantly from period to period.
We have experienced significant growth since our founding in 2012. Revenue increased from €119.7 million for the year ended September 30, 2019 to €151.1 million for the year ended September 30, 2020, representing an increase of 26.3%, and from €23.0 million for the first quarter of the year ended September 30, 2019 to €45.7 million for the first quarter of the year ended September 30, 2021, representing an increase of 98.7% over the nine quarters ended December 31, 2020. Our historical rate of growth may not be sustainable or indicative of our future rate of growth. We believe that our continued growth in revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section and the extent to which our various offerings grow and contribute to our results of operations. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. In addition, our base of consumers may not continue to grow or may decline due to a variety of possible risks, including increased competition, changes in the regulatory landscape and the maturation of our business. Any of these factors could cause our revenue growth to decline and may adversely affect our margins and profitability. Failure to continue our revenue growth or improve margins would have a material adverse effect on our business, financial condition and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.
Our results of operations vary and may fluctuate significantly from period to period.
Our quarterly and annual results of operations have historically varied from period to period and we expect that our results of operations will continue to do so for a variety of reasons, many of which are outside of our control and are difficult to predict. We have presented many of the factors that may cause our results of operations to fluctuate in this “Risk Factors” section, including the extent to which our various offerings, such as our teleaudiology offering, grow and contribute to our results of operations. The cumulative effects of such factors could result in large fluctuations and unpredictability in our quarterly and annual results of operations. As a result, comparing our results of operations on a period-to-period basis may not be meaningful and investors should not rely on our past results as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or results of operations fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common shares could decline substantially. Such a share price decline could occur even when we have met any previously publicly stated guidance we may provide.
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
Since 2012, we have experienced rapid growth in our business operations and the number of consumers that use our offerings, and we may continue to experience growth in the future. For example, the number of our full-time employees increased from 487 as of October 1, 2018 to 1,388 as of December 31, 2020. This growth has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. Our ability to manage our growth effectively and to integrate new employees, technologies and acquisitions into our existing business will require us to continue to expand our operational and financial infrastructure and to continue to retain, attract, train, motivate and manage employees. Management of growth is more difficult as employees work from home as a result of the COVID-19 pandemic. Continued growth could strain our ability to develop and improve our operational, financial and management controls, enhance our reporting systems and procedures, recruit, train and retain highly skilled personnel and maintain consumer satisfaction. Additionally, if we do not effectively manage the growth of our business and operations, the quality of our platform and offerings could suffer, which could negatively affect our reputation and brand, business, financial condition and results of operations.
 
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We have a history of net losses, and we may not achieve or maintain profitability in the future.
We have incurred net losses since inception. For the years ended September 30, 2020 and 2019, we incurred net losses of €23.1 million and €17.4 million, respectively. Since inception, we have spent significant funds on organizational and start-up activities, to recruit key managers and employees, to develop our hearing care products and services, to develop our platform and our customer support resources and for research and development. The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of the COVID-19 pandemic.
Our long-term success is dependent upon our ability to successfully attract new customers to our platform and develop, commercialize and market our products and services, earn revenue, obtain additional capital when needed and, ultimately, to achieve profitable operations. We will need to generate significant additional revenue to achieve profitability. It is possible that we will not achieve profitability in the future or that, even if we do achieve profitability, we may not maintain or increase profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common shares.
Risks Related to Our Business
We are exposed to risks related to conducting operations in many different jurisdictions and this could adversely affect our business and operating results.
We conduct our business operations in eleven countries across the world. Because of the international scope of our business activities, we are subject to a number of risks, many of which are beyond our control. We face complex, dynamic and varied risk landscapes in the jurisdictions in which we operate. As we enter countries and markets that are new to us, we must tailor our services and business models to the unique circumstances of such countries and markets, which can be complex, difficult and costly, and can divert management and personnel resources. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with global operations in general. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses, or our failure to adapt our practices, systems, processes and business models effectively to the user and supplier preferences of each country into which we expand, could slow our growth. Certain markets in which we operate have lower margins than more mature markets, which could have a negative impact on our overall margins as our revenues from these markets grow over time. In addition to the risks outlined elsewhere in this section, our international operations are subject to a number of other risks, including:

compliance with a variety of national and local laws of countries in which we conduct business, including those related to data privacy and security and healthcare;

restrictions on the repatriation of income or capital, deprivation of contract rights, expropriation, confiscatory taxation or other adverse tax policies or governmental actions;

changes in laws, regulations, and practices affecting the global hearing aid market and the healthcare system in general, including but not limited to protection of intellectual property rights, data privacy and security, imports, exports, quality, cost, pricing, reimbursement, approval, inspection and delivery of health care, and restrictions on the sale of hearing aids, including medical evaluation requirements;

changes in employment laws, wage increases, or rising inflation in the countries in which we or our partners and suppliers operate;

fluctuations in exchange rates for transactions conducted in currencies other than our functional currency;

adverse changes in the economies in which we, our manufacturers or suppliers operate as a result of a slowdown in overall growth, a change in government or economic policies, or financial, political or social change or instability in such countries that affects the markets in which we operate, particularly emerging markets;

differing local product preferences and product requirements;

supply disruptions, and increases in energy and transportation costs;
 
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natural disasters, including droughts, floods, and earthquakes or outbreaks of health pandemics or epidemics and contagious diseases in the countries in which we operate;

economic sanctions and restrictions on exports and other transfers of goods;

local disturbances, terrorist attacks, riots, social disruption or regional hostilities in the countries in which we or our partners and suppliers operate; and

governance uncertainty, including as a result of new or changed laws and regulations.
The occurrence of any of the above events could have a material adverse effect on our business, financial condition and results of operations.
We may be unsuccessful in achieving broad market education and changing consumer perception and purchasing habits.
Our success and future growth largely depend on our ability to increase consumer awareness of our platform and offerings, and on the willingness of consumers to utilize our platform to access information, products and services, including teleaudiology services. Also, the conversion of telephonic customer appointments with one of our team members into customer appointments with one of our partner providers in order to successfully complete the purchase of a hearing aid is critical to our business success. To effectively market our platform, we must educate consumers about the benefits of using our platform and attempt to remove common prejudices and misconceptions surrounding the use of hearing aids, such as notions about hearing aids being big and uncomfortable, inability of hearing aids to fix hearing problems, hearing aids being expensive and the use of hearing aids marking customers as old and unproductive. We focus our marketing and education efforts on consumers, but also aim to educate and inform our partner providers, fitting specialists and other participants that interact with consumers, including at the point of purchase. However, we cannot assure you that we will be successful in changing consumer perception, consumer purchasing habits or that we will achieve broad market education or awareness among consumers. Even if we are able to raise awareness among consumers, they may be slow in changing their perception and habits and may be hesitant to use our platform for a variety of reasons, including:

lack of experience with our company and platform, and concerns that we are relatively new to the industry;

perception that our platform does not provide adequate pricing information or only offers a limited selection of hearing aids and services;

concerns about the privacy and security of the data that consumers share with or through our platform;

competition and negative selling efforts from competitors, including competing platforms and price matching programs; and

perception regarding the time and complexity of using our platform.
If we fail to achieve broad market education of our platform and/or the options for purchasing our products and services, or if we are unsuccessful in changing consumer perception and purchasing habits, our business, financial condition and results of operations would be adversely affected.
We are deploying a new business model in an effort to innovate in a relatively mature industry. In order to successfully challenge incumbent business models and become profitable, we will need to continue to refine our product and strategy and combat other accompanying challenges.
Our business model is new to the hearing aid industry. If we are unable to reach our target consumer market through our online marketing, the estimated market size for our offering may be lower than we anticipate.
Delivery of hearing aids through a case-management model represents a change from the traditional channel and, as we make efforts to grow our consumer base, new consumers may be reluctant to accept this model or may not find it preferable to the traditional channel. In addition, consumers may not respond to our
 
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direct marketing campaigns, or we may be unsuccessful in reaching our target audience, particularly if we expand our sales efforts in jurisdictions where our advertising and distribution model may be more heavily regulated. If consumers prove unwilling to adopt our model as rapidly or in the numbers that we anticipate, our business, financial condition and results of operations could be materially harmed.
Also, given the novelty involved with the innovative business model we are pursuing, including “hearing as a service”, the sale of hearing aids on an installment basis and lease financing for hearing aids, it may be more difficult to accurately assess certain accounting metrics such as revenue and expense recognition. Any inaccuracies in calculating such accounting metrics may require a significant expenditure of time, attention and resources, especially by senior management, and could have a material adverse effect on our business, financial condition and results of operations.
Additionally, if we are unable to achieve our growth strategies as described in this prospectus, or as we develop them over time, it could have a material adverse effect on our business, financial condition and results of operations. For example, one of our growth strategies is to introduce a differentiated and lower cost over-the-counter retail model where we serve consumers with mild hearing loss in a more efficient and direct manner with fewer physical touchpoints. However, in certain countries where we operate, we may require the regulatory regime to change to allow us to execute this strategy. For example, in the United States, there is currently no over-the-counter hearing aid retail category because the FDA has not yet published regulations establishing a category of over-the-counter hearing aids. Under the FDA regulations, hearing aids are restricted devices and sales must follow federal and state requirements.
We may be unable to continue to attract, acquire and retain consumers, or may fail to do so in a cost-effective manner.
Our success depends in part on our ability to cost-effectively attract and acquire new consumers, retain our existing consumers and encourage our consumers to continue to utilize our platform when making purchasing decisions for hearing care products and services. To expand our base of consumers, we must appeal to consumers who have historically used traditional outlets for hearing care, and who may be unaware of the possibility or benefits of using our platform that offers integrated hearing aid delivery covering expert consultations, high-quality fitting and a range of service options. We have made significant investments related to consumer acquisition and expect to continue to spend significant amounts to acquire additional consumers. For example, our marketing and selling expenses were 52.2% and 52.6% of our revenue for the years ended September 30, 2020 and 2019, respectively. We increased our marketing and selling expenses by €15.9 million in the year ended September 30, 2020 compared to the year ended September 30, 2019, and we expect to continue to invest in marketing and sales in the near term. We cannot assure you that this spending will be effective or that revenue from new consumers that we acquire will ultimately exceed the cost of acquiring those consumers. If we fail to deliver reliable and significant discounted prices for hearing care, we may be unable to acquire or retain consumers. If we are unable to acquire or retain consumers at a rate sufficient to grow our business, we may be unable to maintain the scale necessary for operational efficiency and to drive beneficial and self-reinforcing network effects across the broader hearing care ecosystem, including hearing aid manufacturers and suppliers, our partner providers and other participants. Consequently, we may not be able to present the same quality or range of solutions on our platform or otherwise, which may adversely impact consumer interest in our platform, in which case our business, financial condition and results of operations would be adversely affected.
We believe that our paid and non-paid marketing initiatives have been critical in promoting consumer awareness of our platform and offerings, which in turn has driven new consumer growth and increased the extent to which existing consumers have used our platform. Our paid marketing initiatives include the purchase of search advertising through search engines such as Bing, Google, Yahoo and Yelp, the use of large content websites such as national, regional and local news publications, use of social media such as Instagram, Facebook, Twitter, Google Plus and YouTube, and use of public relations channels such as content-based articles and advertorials, business articles and syndicated publicity through television and other means. If we are unable to cost-effectively market to consumers and drive traffic to our app and websites, our ability to acquire new consumers and our financial condition would be materially and adversely affected. Our non-paid advertising efforts include non-paid social media and e-mail marketing. Search engines frequently modify
 
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their search algorithms and these changes can cause our websites to receive less favorable placements, which could reduce the number of consumers who visit our websites. The costs associated with advertising through search engines can also vary significantly from period to period, and have generally increased over time. We may be unable to modify our strategies in response to any future search algorithm changes made by the search engines, which could require a change in the strategy we use to generate consumer traffic to our websites. In addition, our websites must comply with search engine guidelines and policies, which are complex and may change at any time. If we fail to follow such guidelines and policies properly, search engines may rank our content lower in search results or could remove our content altogether from their indices. Although consumer traffic to our app is not reliant on search results, growth in mobile device usage may not decrease our overall reliance on search results if consumers use our mobile websites rather than our app or use search to initially find our app. In fact, growth in mobile device usage may exacerbate the risks associated with how and where our websites are displayed in search results because mobile device screens are smaller than desktop computer screens and therefore display fewer search results. The use of social media involves similar risks as described above, as marketing partners constantly change their algorithms and advertising formats. There may be increased competition for using social media channels to place advertising, potentially limiting our overall ability to place advertisements. The same applies to our use of so-called “native advertising”, which matches the form and function of the platform upon which it appears and thus the amount of advertising that we can place will depend on a multitude of factors that are beyond our control.
Additionally, our customers are likely to change their behavior in terms of the media they consume. We may struggle to adapt quickly to changing user behavior and identify new media channels too late or not at all.
In addition, we actively encourage new and existing consumers to use our app to access our platform. We believe that our app helps to facilitate increased consumer retention. While we have invested and will continue to invest in the development of our app to improve consumer utilization, there can be no assurance that our efforts to drive adoption and use of our app will be effective.
Our consumer education, acquisition and retention initiatives can be expensive and may be ineffective in driving consumer education or interest in our platform. Further, if new or existing consumers do not perceive that the prices presented through our platform are reliable or meaningful, or if we fail to offer new and relevant offerings and application features, we may not be able to attract or retain consumers or increase the extent to which they use our platform and applications for other or future purchases. If we fail to continue to grow our base of consumers, retain existing consumers or increase consumer engagement, our business, financial condition and results of operations would be adversely affected.
Actual or perceived failures to comply with applicable data protection, privacy and security, advertising and consumer protection laws, regulations, standards and other requirements could adversely affect our business, financial condition and results of operations, and could result in significant liability or reputational harm.
Numerous federal, state and international laws and regulations govern the collection, use, disclosure, storage, processing, transmission, retention, sharing, security and destruction of consumer data, particularly in the context of online advertising, and personal information, including individually identifiable health information. We also rely on a variety of marketing techniques, including email, text messaging, and social media marketing and postal mailings, and we are subject to various laws and regulations that govern such marketing and advertising practices. Laws and regulations relating to privacy, data protection, marketing and advertising, and consumer protection are evolving and are subject to frequent change and potentially differing interpretations. These requirements may be interpreted and applied in a manner that varies from one jurisdiction to another and/or may conflict with each other or other laws or regulations. Any failure, or perceived failure, by us or any of our third-party partners, data centers, or service providers to comply with privacy and data security policies or national, federal or state privacy, data security or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject, contractual requirements or other legal obligations relating to privacy, data protection, data security or consumer protection, could adversely affect our reputation, brand and business, and may result in claims, proceedings, investigations, or actions against us by governmental entities, consumers, hearing care professionals, suppliers or others. These proceedings may result in financial
 
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liabilities, may subject us to consent decrees or resolution agreements and monitoring and may require us to change our operations, including ceasing the use or sharing of certain data sets. Any such claims, proceedings or actions could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, investigations, or actions, distract our management, increase our costs of doing business, result in a loss of consumers, suppliers, and contracts with our partner providers and others and result in the imposition of monetary penalties or other liabilities, and may require us to take particular actions with respect to training, policies and procedures, contracts, and risk analyses. Further we are contractually required to indemnify and hold harmless certain third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business. Any potential breach or security incident could also result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, remediation offered to employees, contractors, hearing care professionals, and customers in an effort to maintain our business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claims expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a breach or security incident. In addition, we might not continue to be able to obtain adequate insurance coverage at an acceptable cost.
Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes. Federal, state and foreign governments have enacted, and may in the future enact legislation or regulations impacting the ability of companies and individuals to engage in these activities, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Certain types of information collected and tracked with cookies and comparable tracking technologies qualify as personal information under data privacy laws. If we fail to implement appropriate measures with respect to cookies or electronic tracking tools, we may be subject to enforcement action, for example, under the ePrivacy Directive, and, to the extent such information is collected and tracked with cookies and comparable tracking technologies qualify as personal information under applicable law, such enforcement actions would include those available under applicable privacy laws, such as those available under the General Data Protection Regulation (“GDPR”). Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, limits on behavioral or targeted advertising and/or means to make it easier for internet users to prevent the placement of cookies or to block other tracking technologies, which could, if widely adopted, result in the decreased effectiveness or use of third-party cookies and other methods of online tracking, targeting or re-targeting. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new consumers on cost-effective terms and consequently, materially and adversely affect our business, financial condition and results of operations.
We are subject to HIPAA, which requires us to protect the privacy, security, and confidentiality of the protected health information, or PHI, that we collect, disseminate, maintain and use. HIPAA applies national privacy and security standards for PHI to covered entities, including certain types of health care providers and their service providers that access PHI, known as business associates. HIPAA requires us to develop and maintain policies and procedures governing PHI that is used or disclosed, and to implement administrative, physical and technical safeguards to protect PHI, including PHI maintained, used and disclosed in electronic form. These safeguards include employee training, identifying business associates with whom covered entities need to enter into HIPAA-compliant contractual arrangements and various other measures. HIPAA also implemented the use of standard transaction code sets and standard identifiers for submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims. Ongoing implementation and oversight of these measures involves significant time, effort and expense and we may have to dedicate additional time and resources to ensure compliance with HIPAA requirements. While we undertake substantial efforts to secure the PHI, confidential information and other data subject to privacy laws that we maintain, use and disclose in electronic form, a cyber-attack or other
 
25

 
intrusion that bypasses our information security systems causing an information security breach, loss of PHI, confidential information, or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with potentially substantial fines and penalties.
HIPAA also established enforcement mechanisms for failure to comply with specific standards relating to the privacy, security and electronic transmission of PHI. Violations of HIPAA may result in civil or criminal penalties, including a tiered system of civil monetary penalties that range from $119 to $59,522 per violation, with a maximum civil penalty of $1,785,651 for violations of the same standard in a single calendar year (as of 2020, and subject to periodic adjustments for inflation). These penalties are required to be adjusted for inflation. However, a single breach incident can result in violations of multiple standards and penalties well in excess of $1,785,651. State attorneys general may bring civil actions on behalf of state residents seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations. If a person knowingly or intentionally obtains or discloses PHI in violation of HIPAA requirements, criminal penalties may also be imposed. Courts can award damages, costs, and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for HIPAA violations, its standards have been used as the basis for a duty of care in state civil suits such as those for negligence or recklessness in the handling, misuse or breach of PHI. Any such penalties or lawsuits could harm our business, financial condition, results of operations and prospects.
In addition, HIPAA mandates that the Secretary of the U.S. Department of Health and Human Services, or HHS, conduct periodic compliance audits of HIPAA covered entities and business associates. It also tasks HHS with establishing a methodology whereby harmed individuals who were victims of breaches of unsecured PHI may receive a percentage of the civil monetary penalty fine or settlement paid by the violator.
HIPAA mandates individual notification in instances of breaches of PHI and specifies that such notifications must be made “without unreasonable delay and in no case later than 60 calendar days after discovery of the breach”, though many state breach notification laws require notifications to be provided sooner. If a breach affects 500 patients or more, it must be reported to HHS without unreasonable delay, and HHS will post the name of the breaching entity on its public website. Breaches affecting 500 individuals or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually. Any notifications, including notifications to the public, could harm our business, financial condition, results of operations, and prospects.
HIPAA also provides penalties for HIPAA violations, and grants enforcement authority to states’ attorneys general in addition to the HHS Office for Civil Rights. We may also be directly or independently liable for privacy and security breaches and failures of our subcontractors. We have limited control over the actions and practices of our subcontractors. A breach of privacy or security of individually identifiable health information by a subcontractor or other entity operating on our behalf may result in an enforcement action, including criminal and civil liability, against us or litigation by a covered entity with whom we have a contractual relationship.
Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of individually identifiable information and PHI as well as employee personal information, including state medical privacy laws, state social security number protection laws, and federal and state consumer protection laws. These various laws in many cases are not preempted by HIPAA and may be subject to varying interpretations by the courts and government agencies, creating complex compliance issues for us, audiologists and other hearing care professionals with whom we contract or employ and our customers and potentially exposing us to additional expense, adverse publicity and liability, any of which could adversely affect our business, operating results and financial condition.
In addition, various federal, state and international legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, consumer protection, and advertising. Such new laws and regulations, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a
 
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significant effect on the manner in which we must handle PHI and health data, and the cost of complying with such laws and regulations could be significant and could include providing enhanced data security infrastructure. If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions, as well as reputational harm.
In June 2018, California enacted the California Consumer Privacy Act of 2018, or the CCPA, which became effective on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. For example, the CCPA gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. Failure to comply with the CCPA may result in attorney general enforcement action and damage to our reputation. The CCPA provides for civil penalties of $2,500 per violation and $7,500 per violation for willful violations, as well as a private right of action for data breaches of certain consumer data, which may increase data breach litigation. The CCPA may increase our compliance costs and potential liability for collecting, storing and processing personal information. Additionally, a new California ballot initiative, the California Privacy Rights Act, was approved by California voters on November 3, 2020, and this will impose additional data protection obligations on companies doing business in California, including additional consumer rights and expanded opt outs for certain uses of sensitive data. It would also create a new California data protection agency specifically tasked to enforce the law, which may result in increased regulatory scrutiny of businesses that collect and process personal information of California residents. Further, many additional privacy laws have been proposed or enacted at the federal level and in other states. For instance, the state of Nevada recently enacted a law that went into force on October 1, 2019 and requires companies to honor consumers’ requests to no longer sell their data. Violators may be subject to injunctions and civil penalties of up to $5,000 per violation. In addition, the state of Virginia also enacted a new comprehensive privacy law on March 2, 2021, the Virginia Consumer Data Protection Act, which will come into effect on January 1, 2023.
With laws and regulations such as GDPR, HIPAA, the CCPA, and the CPRA imposing relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations to our business, we may face challenges in addressing their requirements and making necessary changes to our policies, practices and agreements, and may incur significant costs and expenses in an effort to do so. For example, the increased consumer control over the sharing of their personal information under the CCPA may affect our customers’ ability to share such personal information with us or may require us to delete or remove consumer information from our records or data sets, which may create considerable costs or loss of revenue for our organization.
Additionally, the interpretations of existing United States federal and state consumer protection laws relating to online collection, use, storage, dissemination, and security of health related and other personal information adopted by the FTC, state attorneys general, private plaintiffs, and courts have evolved, and may continue to evolve, over time. Consumer protection and other laws require us to publish statements that describe how we handle personal information and choices individuals may have about the way we handle their personal information. If such information that we publish is considered untrue, we may be subject to government claims of unfair or deceptive trade practices, which could lead to significant liabilities and consequences. Furthermore, according to the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce and thus violate Section 5(a) of the FTC Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. If we are investigated by the FTC for our privacy, security or other practices, we may face litigation or agree to settlements that can include monetary remedies and/or compliance requirements that may impose significant and material cost and resource burdens on us, require certain aspects of our operations to be overseen by an independent monitor, and/or limit or eliminate our ability to use certain targeting marketing strategies or work with certain third-party vendors. Any of these events could adversely affect our ability to operate our business and our financial results.
The European Union adopted the General Data Protection Regulation (“GDPR”), effective May 2018, which imposes significant fines and sanctions for violations of the GDPR and is applicable to all companies
 
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processing data of European Union residents, including us. The GDPR has resulted and will continue to result in significant compliance burdens and costs for companies with customers, users, or operations in the European Union. The GDPR introduced more stringent requirements, including strict rules for the collection and processing of health data and biometric data (which will continue to be interpreted through guidance and decisions over the coming years) and for organizations such as ours that control or process personal information. The European Union’s ePrivacy Directive further addresses topics such as unsolicited marketing and cookies. We rely on the transfer of certain personal information from the European Union to the United States in the ordinary course of our business. The Court of Justice of the European Union’s (“CJEU’s”) decision of July 16, 2020 in the Schrems II matter, which invalidated the European Union-United States Privacy Shield Framework, may impact our ability to transfer personal data from Europe to the United States and other jurisdictions. While this decision did not invalidate standard contractual clauses, a mechanism we currently rely on for making cross-border data transfers in compliance with the GDPR, it did call their validity into question under certain circumstances, making data transfers between the European Union and United States more uncertain. The European regime also includes directives which, among other things, require EU member states to regulate marketing by electronic means and the use of web cookies and other tracking technology. EU member states have transposed the requirements of these directives into its own national data privacy regime, and therefore the laws may differ between jurisdictions. These are also under reform and are expected to be replaced by a regulation that should provide more consistent requirements across the EU. If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices. For example, under the GDPR we may be subject to fines of up to €20 million or up to 4% of the total worldwide annual group turnover of the preceding financial year (whichever is higher). We may also be subject to other liabilities, as well as negative publicity and a potential loss of business, business partners, consumer trust and market confidence.
We are subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard (PCI DSS), a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions. Any failure to comply with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors and merchant banks. Such failure to comply may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.
We rely on the performance of members of management and highly skilled personnel, and if we are unable to attract, develop, motivate and retain well-qualified employees, or if former key employees compete in the hearing care space, our business could be harmed.
Our ability to maintain our competitive position is largely dependent on the services of our senior management and other key personnel. In addition, our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. The market for such positions is competitive. Qualified individuals are in high demand and we may incur significant costs to attract them. In addition, the loss of any of our senior management or other key employees or our inability to recruit and develop mid-level managers could materially and adversely affect our ability to execute our business plan and we may be unable to find adequate replacements. All of our employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace.
Also, although our employees are generally subject to agreements restricting them from engaging in competitive business practices for one year following their employment with us, we may not learn of, or we may be unsuccessful in preventing, employees from leaving our company and engaging in business practices in the hearing care space that our competitive to ours within one year of the termination of their employment or thereafter. Moreover, in certain jurisdictions in which we operate, non-competition and other restrictive covenants may be limited in their enforceability.
 
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If we fail to retain talented senior management and other key personnel, if we do not succeed in attracting well-qualified employees or retaining and motivating existing employees or if our former employees engage in competitive practices in the hearing care space, our business, financial condition and results of operations may be materially adversely affected.
Failure to maintain our corporate culture or damage to our reputation could have a material adverse effect on our business.
The success of our business is largely dependent upon the dynamic, entrepreneurial culture that we foster among our predominantly young, highly-motivated team, which we believe promotes innovation, creativity and teamwork. This culture is often manifested through team meetings or social gatherings focused on the celebration of our achievements. As we expand our geographical footprint and increase our headcount, and as we endeavor to adapt our corporate culture and work environments to changing circumstances during times of a natural disaster or pandemic (including the ongoing COVID-19 pandemic), we will need to maintain our corporate culture among a larger number of employees dispersed in various geographic regions. Any failure to maintain the cohesiveness of our culture could impact our ability to foster the innovation, creativity and entrepreneurial spirit we believe we need to support our growth, which in turn could negatively affect our business, reduce our ability to retain and recruit personnel and lead to the failure to achieve our vision and implement our strategy.
Also, while we strive to create a culture in which our colleagues act with integrity and respect, any acts of misconduct by any employee, including senior management, could erode trust and confidence and damage our reputation among existing and potential customers and other stakeholders. Negative public opinion could result from actual or alleged conduct by us or those currently or formerly associated with us in any number of activities or circumstances, including inappropriate or offensive conduct during social gatherings, employment-related offenses such as sexual harassment and discrimination, and from actions taken by others in response to such conduct. Any damage to our reputation could affect the confidence of our customers, shareholders and the other parties in a wide range of transactions that are important to our business and could have a material adverse effect on our business, financial condition and results of operations.
Increasing competition as a result of specialty retailers, new entrants to the direct-to-consumer and over-the-counter hearing care markets and vertical integration of manufacturers, and competition from non-specialty retailers and low cost providers, could result in a decline in demand for our offering.
The market for hearing aids is competitive in terms of pricing, product quality, product innovation, time-to-market and customer service. The global distribution of hearing aids is highly fragmented and may be affected by competitive practices designed to capture market share. Our main competitors are specialty retailers, including retail shops owned by hearing aid manufacturers, and non-specialty retailers such as optical chains, pharmacies and convenience stores, which may have significant resources or a strong financial profile that may enable them to exploit changes in the industry on a cost-competitive basis. We may also face increased competition from large hearing aid manufacturers entering the direct-to-consumer and over-the-counter retail markets for hearing aids. The five largest global manufacturers of hearing aids have considerable retail operations. Their retail experience, coupled with their significant resources and their ability to expand into new or adjacent markets, may result in them entering the direct-to-consumer and over-the-counter retail markets for hearing aids. We operate in the direct-to-consumer online retail market for hearing aids. An increasing presence of large hearing aids manufacturers, who have the potential to provide better pricing than us, may result in a decrease in demand for our offering and, consequently, a decrease in our profitability. The WS Audiology Group, our majority shareholder, is one of these five largest global manufacturers of hearing aids and also our largest supplier of hearing aids. To the extent they become active in these markets, we may face heightened risk of competition from them as described below under “— We are controlled by the WS Audiology Group, whose business interests may not always align with our business interests.” In the future, we may also face increased competition from ultra-low-cost providers such as those operating in the consumer electronics industry.
We are exposed to the risk of vertical integration of hearing aid manufacturers, in terms of availability of supplier partners, which could cause an increase in sector concentration and competition. We may also face
 
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increased competition from new participants entering the market, such as additional non-specialty retailers that may use their existing stores as distribution channels, hearing aid manufacturers or other online participants. The risk that new participants may enter the market could also be exacerbated if, as a consequence of regulatory changes, the qualifications required for store personnel to sell hearing aids become less stringent or professions like hearing care professionals become more accessible. Moreover, new market participants also increase the risk of greater price pressure. Price pressure may result in a decline in our profit margins.
We may be unable to compete with these or other competitors, and one or more of such competitors may render our hearing care offerings economically unattractive. Increased competition may result in price reductions, reduced gross margins and loss of market share. There can be no assurance that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations.
A decline in market share or our profits could have a material adverse effect on our business, financial condition and results of operations.
We are indirectly controlled by WS Audiology, and the business interests of the WS Audiology Group may not always align with our business interests.
We are indirectly controlled by WS Audiology and the WS Audiology Group is one of the largest manufacturers of hearing aids in the world with a significant retail presence. They are also our largest supplier of hearing aids. Their years of industry experience, considerable resources and expertise in all aspects of hearing care, including manufacturing, innovation, retail and marketing, positions them to compete directly with us in many respects. They are a notable participant in the managed care market for hearing aids and are well-positioned to enter the direct-to-consumer retail markets for hearing aids. The direct-to-consumer market forms part of our existing and future addressable markets. The WS Audiology Group’s size and scale allows them to offer products and services at prices significantly more competitive than what we may be able to offer. It also gives them the ability to reach a large consumer base across the world. Their ability to offer competitive value and potentially reach large sections of the consumer base that we may also be targeting, may cause us to offer our services at lower prices and may result in lower sales volumes for us, all of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, in the future, we may face competition from them in winning certain key business accounts, which may have the ability to make significant contributions to our revenue and profitability. If we lose such business opportunities to the WS Audiology Group, that could also have a material adverse effect on our business, financial condition and results of operations.
In certain countries where we operate, such as the United States, Canada and the Netherlands, our partner provider network includes a large number of clinics owned and/or operated by the WS Audiology Group. The quality of our partner provider network, and our integral relationship with them, is a key driver of our business success. Accordingly, maintaining and growing these relationships is an area of immense focus for us. We cannot assure you that, if the WS Audiology Group becomes our direct competitor, we will be able to maintain the relationships we have established over time with the partner providers owned and/or operated by them. Our network of partner providers has been built over several years and involved significant investment. If we lose a notable portion of our partner providers at one time, or gradually over time, due to competing interests that may develop in the future with the WS Audiology Group, we cannot assure you that we will be able to recreate an equally effective partner provider network. If we fail to do so, that could have a material adverse effect on our business, financial condition and results of operations.
If our hearing care offerings fail to maintain the satisfaction of the hearing care community or if hearing care professionals develop an unfavorable perception of our business model, our partner providers may discontinue working with us in favor of a traditional approach or choose to work with our competitors.
Our relationships with our current and future hearing care professionals are critical to the growth and ongoing success of our business. If our hearing care offerings fail to maintain the satisfaction of the hearing care community or if hearing care professionals develop an unfavorable perception of our increasing market power and broad market approach, our partner providers may discontinue working with us in favor of a
 
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traditional approach or choose to work with other providers of hearing care. If our hearing care professionals are not satisfied with our hearing care offerings for any reason, including dissatisfaction with the quality of our service, an unfavorable perception of our business model or competing offers from other hearing care providers, our hearing care professionals may discontinue working with us, which could result in a decrease in customer accessibility and a reduction of our geographical footprint. In addition, dissatisfaction of our hearing care professionals with us for any reason could negatively affect our ability to expand our network to include additional hearing care professionals. A discontinuation of a significant number of our hearing care professionals’ relationship with us or an inability to expand our network of partner providers could have a material adverse effect on our business, financial condition and results of operations.
We may experience capacity constraints in our partner provider network.
The success of our business depends on our network of partner providers’ ability to meet the demand of an increasing customer base. We may experience capacity constraints in our network of partner providers as we continue to grow our business and refer an increasing number of customers to our partner providers for appointments. Our partner providers may face certain limits on their ability to take on new customers, including escalating capacity constraints due to the increasing hearing care needs of the “baby boomer” generation. If we are unable to successfully expand our network of partner providers, or if our existing partner providers are unable to meet an increased demand in customers, our ability to grow our business and serve more customers could be materially and adversely affected. The inability of the hearing care professionals within our partner provider network to meet this demand could have a material adverse effect on our business, financial condition and results of operations.
Future litigation could have a material adverse effect on our business and results of operations.
From time to time, we may become involved in various litigation matters and claims, including employment matters, regulatory proceedings, administrative proceedings, governmental investigations, and contract disputes. We may face potential claims or liability for, among other things, breach of contract, defamation, libel, fraud, or negligence. We may also face employment-related litigation, including claims of age discrimination, sexual harassment, gender discrimination, immigration violations, or other local, state, and federal labor law violations in the United States and other jurisdictions in which we operate. Such lawsuits and other administrative or legal proceedings that may arise in the course of our operations can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. In addition, lawsuits and other legal proceedings may be time consuming to defend or prosecute and may require a commitment of management and personnel resources that will be diverted from our normal business operations. Although we generally maintain insurance to mitigate certain costs, there can be no assurance that costs associated with lawsuits or other legal proceedings will not exceed the limits of insurance policies. Moreover, we may be unable to continue to maintain our existing insurance at a reasonable cost, if at all, or to secure additional coverage, which may result in costs associated with lawsuits and other legal proceedings being uninsured. Our business, financial condition and results of operations could be adversely affected if a judgment, settlement penalty or fine is not fully covered by insurance. Any such litigation or other proceedings could also have a material adverse effect on our reputation, brand identity and the trading price of our securities.
Accelerated consolidation and formation of purchasing groups increases the pricing pressure on hearing aids.
Many purchasing groups, such as audiology clinics, retailers and hospital systems, are consolidating to create new entities with greater market power. Such groups, such as Costco in the United States, have used and may continue to use their increased purchasing power to negotiate price reductions or other concessions across our industry. This pricing leverage has resulted, and will likely continue to result, in downward pressure on the average selling prices of hearing aid products generally in the United States, including with respect to the products we offer. Changes in the roles of industry participants and in general pricing structures, as well as price competition among industry participants, could have an adverse impact on our business, financial condition and results of operations.
 
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We have offered and will continue to offer our customers payment plans in certain jurisdictions and may experience deteriorating payment behavior in future.
Because the purchase of hearing aids often results in a substantial out of pocket expense for our customers, in the United States and other countries, we offer our customers payment plans for our products. Our payment plans typically allow customers to pay for their hearing aid in multiple monthly installments. Historically, we entered into contracts for such payment plans with our customers directly after which we assigned a portion of the receivables from these contracts to certain of our receivables financing lenders and retained the remaining portion on our balance sheet, while the servicing and collections on these contracts were handled by third parties. In relation to the portion of the receivables from these contracts that we retained on our balance sheet, we recognized €5.4 million in bad debt charges for the year ended September 30, 2020 to cover for expected credit losses. However, we cannot assure you that this amount will be sufficient to cover credit losses that may arise from these contracts in the future.
A deterioration in collection rates could impact our third-party financing relationships and the profitability of our business and create additional costs on top of the provision rates we currently assume. A deterioration in customer payment behavior may also adversely impact the terms of the receivables financing facilities that we use for our working capital funding.
At present, we work with third-party lenders both for the funding and the administration of these payments plans. If we fail to maintain or extend our relationships with these lenders, our cash flow would be adversely affected and operational collection procedures might suffer.
Our failure to successfully anticipate product returns may have a material adverse effect on our business, financial condition and results of operations.
Our net losses are affected by changes in reserves to account for product returns and product credits. The reserve for product returns accounts for customer returns of our products after purchase. We record a reserve for product returns based on historical return trends together with current product sales performance in each reporting period. If actual returns are greater than those projected and reserved for by management, additional sales returns may be recorded in the future. Further, the introduction of new products, changes in product mix, changes in consumer confidence or other competitive and general economic conditions may cause actual returns to differ from product return reserves. Any significant increase in product returns that exceeds our reserves could have a material adverse effect on our business, financial condition and results of operations.
Formation of workers’ councils could disrupt operations, increase labor costs and hinder the pace of innovation.
While across the globe most of our employees are not represented by labor unions or workers’ councils, our employees may form labor unions or workers’ councils and, as our business expands globally, we may be subject to new labor-related requirements that may impose additional requirements or costs on our business. As is the case with any negotiation, we may not be able to negotiate or renew acceptable collective bargaining agreements in such cases, which could result in strikes or work stoppages by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. In addition, negotiations with labor unions and/or workers’ councils could hinder the pace of innovation by diverting management’s attention away from discovering and implementing the type of innovative strategies that we believe are crucial to the success of our business. A disruption in operations, higher ongoing labor costs or a hindrance to the pace of innovation could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, if we become subject to oversight by workers’ councils, we may be required to consult with such workers’ council with respect to certain decisions and to provide specific information and records upon request. Any failure to engage with or provide information a workers’ council could result in actual or threatened legal challenges or proceedings. Additionally, consultation with and/or obtaining approvals from workers’ councils may involve additional expense and unanticipated delays, particularly if we are required to make changes to accommodate feedback and recommendations from such workers’ councils. If consultations
 
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with a workers’ council does not yield a desired result, or if a workers’ council withholds or delays its approvals, we may be unable to execute key transactions in a timely fashion at all, which may impede our ability to execute our growth strategy and/or have a material adverse effect on our business, financial condition and results of operations.
Our management team has limited experience managing a public company, and regulatory compliance may divert its attention from the day-to-day management of our business.
Our management team has limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws and regulations pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that will be subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business, which would adversely impact our business operations.
We may be unable to accurately forecast revenue and appropriately plan our expenses in the future.
We base our current and future expense levels on our operating forecasts and estimates of future income. Income and results of operations are difficult to forecast because they generally depend on the number and timing of our consumers using our platform or using the services provided by our teleaudiology platform, which are uncertain. Additionally, our business is affected by general economic and business conditions around the world, including the impact of the COVID-19 pandemic. A softening in income, whether caused by changes in consumer preferences or a weakening in global economies, may result in decreased revenue levels, and we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in income. This inability could result in lower net income or greater net loss in a given quarter than expected.
Negative media coverage could adversely affect our business.
Unfavorable publicity regarding, for example, the healthcare industry, the hearing care industry, telehealth and teleaudiology services, litigation or regulatory activity, the actions of the entities included or otherwise involved in our platform, negative perceptions of products and services available on our platform, pricing structures in place amongst the industry participants, our data privacy or data security practices, our platform or our revenue could materially adversely affect our reputation. Such negative publicity also could have an adverse effect on our ability to attract and retain consumers, partners, or employees, and result in decreased revenue, which would materially adversely affect our business, financial condition and results of operations.
We may need additional capital in the future, which may not be available to us on favorable terms, or at all, and may dilute your ownership of our common shares.
We intend to continue to make investments to support our business growth and may require additional capital to fund and support our business, to respond to competitive challenges or take advantage of strategic opportunities. Accordingly, we may require additional capital from equity or debt financing in the future and may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility, including our ability to issue or repurchase equity, develop new or enhanced existing offerings, complete acquisitions or otherwise take advantage of business opportunities. If we raise additional funds or finance acquisitions through further issuances of equity, convertible debt securities or other securities convertible into equity, you and our other shareholders could suffer significant dilution in your percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common shares. If we raise additional funds through debt financing, such financing could impose restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital or to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, including as a result of the disruption to the capital and debt markets caused by the COVID-19 pandemic or a similar pandemic, our ability to grow or support our business and to respond to business challenges could be significantly limited.
 
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Alternative technologies or therapies that improve or cure hearing loss could adversely affect our business, financial condition and results of operations.
If medical research were to lead to the discovery of alternative therapies or technologies that improve or cure the various forms of hearing loss as an alternative to the hearing aid, such as by surgical techniques, the use of pharmaceuticals or breakthrough bio-technological innovations or therapies, our profitability could suffer through a reduction in sales. The discovery of a cure for the various forms of hearing loss and the development of other alternatives to hearing aids could result in decreased demand for our products and, accordingly, could have a material adverse effect on our business, financial condition and results of operations.
The teleaudiology market is immature and volatile, and if it does not develop, or if it develops more slowly than we expect, the growth of our business will be harmed.
The teleaudiology market is relatively new and unproven, and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption. The success of our teleaudiology offering will depend to a substantial extent on the willingness of our consumers to use, and to increase the frequency and extent of their utilization of, our platform, as well as on our ability to demonstrate the value of teleaudiology to future partners, health plans, government agencies and other participants in the hearing care market. If any of these events do not occur or do not occur quickly, it could have a material adverse effect on our business, financial condition and results of operations.
Our teleaudiology offering depends in part on our ability to maintain and expand a network of skilled hearing care professionals.
The success of our teleaudiology offering depends in part on our continued ability to maintain a network of skilled, licensed and qualified hearing care professionals. We may not have access to a sufficient number of qualified hearing care professionals required to provide hearing care through our teleaudiology solution or a sufficient number of credentialed hearing care professionals to serve our customers in certain locations. We may also face competition in the market that may prevent us from recruiting or retaining qualified professionals and other service providers for our teleaudiology services. As a result, the growth of our teleaudiology offering could be negatively impacted, which would have a material adverse effect on our business, financial condition and results of operations.
A pandemic, epidemic or outbreak of an infectious disease, including the outbreak of the novel strain of coronavirus disease, could impact our business.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, was identified in Wuhan, China. Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to almost every country in the world and all 50 states within the United States. Global health concerns relating to the outbreak of COVID-19 have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. In particular for our business, governmental authorities have also recommended, and in certain cases, required, that elective or other medical appointments be suspended or cancelled to avoid non-essential patient exposure to medical environments and potential infection. These and other measures, including the temporary closure of partner provider stores in some of the countries in which we operate, have not only negatively impacted consumer spending and business spending habits, they have adversely impacted and may further impact our workforce and operations and the operations of healthcare professionals, our partner providers, consumers and other participants. Although certain of these measures have eased in some geographic regions, overall measures to contain the COVID-19 outbreak may remain in place for a significant period of time or be reintroduced, and certain geographic regions are experiencing a resurgence of SARS-CoV-2 infections. The duration and severity of this pandemic is unknown and the extent of the business disruption and financial impact depend on factors beyond our knowledge and control.
Given the uncertainty around the duration and extent of the COVID-19 pandemic, we expect the evolving COVID-19 pandemic to continue to impact our business, financial condition, results of operations and
 
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liquidity, but cannot accurately predict at this time the future potential impact on our business, financial condition, results of operations or liquidity. Various government measures, community self-isolation practices and shelter-in-place requirements, as well as the perceived need by individuals to continue such practices to avoid infection, have generally reduced the extent to which consumers visit our partner providers in-person and seek treatment for their hearing conditions or ailments. In addition, many of our partner providers and fitting specialists have reduced staffing, closed locations or otherwise limited operations, and many of them have had to, and may continue to, reduce or postpone appointments with our customers. Any decrease in the number of consumers seeking hearing aid care could negatively impact demand for and use of certain of our offerings, which would have an adverse effect on our business, financial condition and results of operations.
Conversely, pandemics, epidemics and outbreaks may significantly and temporarily increase demand for our digital offerings in general, and especially our teleaudiology offering. The COVID-19 pandemic has significantly accelerated the awareness and use of our teleaudiology offering. While we have experienced a significant increase in demand for the teleaudiology offering, there can be no assurance that the levels of interest, demand and use of our teleaudiology offering will continue at current levels or will not decrease during or after the pandemic. Any such decrease could have an adverse effect on our growth and the success of our teleaudiology offering.
The spread of SARS-CoV-2 has also caused us to modify our business practices (including employee travel, employee work locations, and the cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, consumers and partners. For example, we have implemented work-from-home measures, which have required us to provide technical support to our employees to enable them to connect to our systems from their homes. In addition, the COVID-19 pandemic and the determination of appropriate measures and business practices has diverted management’s time and attention. If our employees are not able to effectively work from home, or if our employees are diagnosed with COVID-19 or another contagious disease, we may experience a decrease in productivity and operational efficiency, which would negatively impact our business, financial condition and results of operations. There is also no certainty that the measures we have taken to mitigate the impact of the COVID-19 pandemic on our business will be sufficient or otherwise be satisfactory to government authorities. Further, because most of our employees are working remotely in connection with the COVID-19 pandemic, we may experience an increased risk of security breaches, loss of data, and other disruptions as a result of accessing sensitive information from remote locations.
While the potential economic impact brought by and the duration of any pandemic, epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
The full extent to which the outbreak of COVID-19 will impact our business, results of operations and financial condition is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the outbreak of COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
To the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Changes in consumer sentiment or laws, rules or regulations regarding the use of cookies and other tracking technologies and other privacy matters could have a material adverse effect on our ability to generate net revenues and could adversely affect our ability to collect proprietary data on consumer behavior.
Consumers may become increasingly resistant to the collection, use and sharing of information online, including information used to deliver and optimize advertising, and take steps to prevent such collection, use
 
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and sharing of information. For example, consumer complaints and/or lawsuits regarding online advertising or the use of cookies or other tracking technologies in general and our practices specifically could adversely impact our business.
Consumers can currently opt out of the placement or use of most cookies for online advertising purposes by either deleting or disabling cookies on their browsers, visiting websites that allow consumers to place an opt-out cookie on their browsers, which instructs participating entities not to use certain data about consumers’ online activity for the delivery of targeted advertising, or by downloading browser plug-ins and other tools that can be set to: identify cookies and other tracking technologies used on websites; prevent websites from placing third-party cookies and other tracking technologies on the consumer’s browser; or block the delivery of online advertisements on apps and websites.
Various software tools and applications have been developed that can block advertisements from a consumer’s screen or allow consumers to shift the location in which advertising appears on webpages or opt out of display, search and internet-based advertising entirely. In particular, Apple’s mobile operating system permits these technologies to work in its mobile Safari browser. In addition, changes in device and software features could make it easier for internet users to prevent the placement of cookies or to block other tracking technologies. In particular, the default settings of consumer devices and software may be set to prevent the placement of cookies unless the user actively elects to allow them. For example, Apple’s Safari browser currently has a default setting under which third-party cookies are not accepted and users must activate a browser setting to enable cookies to be set, and Apple has announced that its new mobile operating system will require consumers to opt in to the use of Apple’s resettable device identifier for advertising purposes. Various industry participants have worked to develop and finalize standards relating to a mechanism in which consumers choose whether to allow the tracking of their online search and browsing activities, and such standards may be implemented and adopted by industry participants at any time.
We currently use cookies, pixel tags and similar technologies from third-party advertising technology providers to provide and optimize our advertising. If consumer sentiment regarding privacy issues or the development and deployment of new browser solutions or other Do Not Track mechanisms result in a material increase in the number of consumers who choose to opt out or block cookies and other tracking technologies or who are otherwise using browsers where they need to, and fail to, allow the browser to accept cookies, or otherwise result in cookies or other tracking technologies not functioning properly, our ability to advertise effectively and conduct our business, and our results of operations and financial condition would be adversely affected.
We face the risk of litigation resulting from unauthorized text messages sent in violation of the United States TCPA and similar legislation in the other countries and regions in which we operate.
We send short message service, or SMS, text messages to individuals who are eligible to use our service. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws. Numerous class action suits under federal and state laws have been filed in recent years against companies who conduct SMS texting programs, with many resulting in multi-million-dollar judgments against senders of such messages and comparably large settlements to the plaintiffs. We have been, and in the future may be subject to such litigation, which could be costly and time-consuming to defend. The Telephone Consumer Protection Act (“TCPA”), a United States federal statute that protects consumers from unwanted telephone calls, faxes and text messages, restricts certain telemarketing and other calls to mobile phones and the use of automated SMS text messages without proper consent. Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain or our SMS texting practices are not adequate or violate applicable law. Further, the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (“TRACED”) extended the statute of limitations for enforcement of violations of the TCPA to four years. Similar legal provisions exist in other countries in which we operate. This has resulted and may in the future result in civil claims against us. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations, we could face direct liability, could be required to change some portions of our business model, could face negative publicity and our business, financial condition and results of
 
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operations could be adversely affected. Even an unsuccessful challenge of our SMS texting practices by our consumers, regulatory authorities or other third parties could result in negative publicity, harm our reputation, and could require a costly response from and defense by us.
We experience seasonality in our business, which may cause fluctuations in our financial results.
Historically, we have experienced and expect to continue to experience seasonality in our business, with higher sales volumes in the second and third calendar quarters, and lower sales volumes in the first and fourth calendar quarter.
Our sales volumes in the second and third calendar quarter tend to be higher as a result of the timing of marketing campaign launches as well as general higher activity and responsiveness of our customer base during warmer months. Our sales volumes in the first and fourth calendar quarter tend to be lower as a result of reduced marketing activities and a general lower rate of our customer base’s responsiveness during winter months. These factors may contribute to substantial fluctuations in our quarterly operating results. Because of these fluctuations, among other factors, it is possible that in future periods our operating results will fall below the expectations of securities analysts or investors, in which case the market price of our shares would likely decrease. These fluctuations, among other factors, also mean that our operating results in any particular period may not be relied upon as an indication of future performance.
The estimated addressable market presented in this prospectus is subject to inherent challenges and uncertainties. If we have overestimated the size of our addressable market or the various markets in which we operate or plan to operate, our future growth opportunities may be limited.
The addressable market presented in this prospectus has been calculated based on a combination of third-party estimates, the Company’s internal estimates and management’s experience. Accordingly, it is subject to a degree of uncertainty and is based on assumptions that may not prove to be accurate. In particular, we calculated our addressable market based on the estimated number of people 20 years and older with moderate or a higher degree of hearing loss in the markets in which we operate and intend to enter (as applicable), the average lifecycle of hearing aids, the average selling price of hearing aids and the average number of hearing aids purchased per transaction. The information for these parameters is derived from a combination of third-party reports and management assessment, and is subject to significant assumptions and estimates, which may change or prove to be inaccurate. While we believe the information and assumptions on which we base our estimated addressable market are reasonable, such information is inherently imprecise. In addition, our expectations, assumptions and estimates of future opportunities are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this prospectus. If third-party or internally generated data prove to be inaccurate, or if we make errors in our assumptions based on that data, our future growth opportunities may be affected. Moreover, if our estimated addressable market, or the size of any of the various markets in which we operate or plan to operate, proves to be inaccurate, our future growth opportunities may be limited and there could be a material adverse effect on our prospects, business, financial condition and results of operations.
Repair or replacement costs due to the guarantees and warranties provided on the products that we sell on our platforms could have a material adverse effect on our business, financial condition and results of operations.
The products that we sell on our platform carry guarantee and warranty cover for our customers, which enables them to return defective or damaged products for a replacement or refund. While these product guarantee and warranty obligations rest primarily with the manufacturers who supply the products, we cannot assure you that we may not become liable to fulfil these obligations if the applicable manufacturer is unable or unwilling to fulfil their guarantee or warranty obligations. Substantial amounts of claims in respect of such unmet guarantee and warranty obligations by our manufacturers could have a material adverse effect on our business, financial condition and results of operations.
In addition, to the extent we develop and sell any products, such as IT products or services, we may become liable for guarantee and warranty obligations in respect of those products and services. As a result, for
 
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any products or services that we develop and sell, if actual defect rates, parts and equipment costs or service labor costs exceed our estimates, it could have a material adverse effect on our business, financial condition and results of operations.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.
Under consumer product legislation in many jurisdictions, we may be forced to recall or repurchase defective products, and more restrictive laws and regulations relating to these matters may be adopted in the future. We also face exposure to product liability claims in the event that any of the hearing aids sold on our platform are alleged to have resulted in personal injury or otherwise to have caused harm. For example, we may be sued if any hearing aids sold on our platform allegedly cause injury or are found to be otherwise unsuitable during marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranty. While our supplier contracts generally contain provisions that would indemnify us for product defects, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for our current or future products;

injury to our reputation;

costs to defend the related litigation;

a diversion of management’s time and our resources;

substantial monetary awards to customers;

regulatory investigations, product recalls, withdrawals or labeling, marketing, sales or promotional restrictions;

loss of revenue; and

the inability to sell our current or any future products.
Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the sale of our current or any future products we develop. Although we currently carry product liability insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient funds to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
In addition, any product defects, recalls or claims that result in significant adverse publicity could have a negative effect on our reputation, result in loss of market share or failure to achieve market acceptance.
We depend on our information technology systems, and those of our third-party vendors, contractors and consultants, and any failure or significant disruptions of these systems, security incidents, breaches or loss of or unauthorized access to data or other disruptions could compromise confidential information related to our business and our customers and could materially adversely affect our business, reputation, financial condition and results of operations.
We create, receive, collect, transmit, store, use, disclose, share, maintain and process (collectively, “Process”) confidential information in digital form that is necessary to conduct our business, including PHI and other types of personal data or personally identifiable information relating to our employees, customers,
 
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prospective customers, and others. We are increasingly dependent on information technology systems and infrastructure, or IT Systems, to operate our business, and we are highly dependent on IT networks and systems, including the internet, to securely Process confidential information, including intellectual property, proprietary business information, PHI, and personal information. In the ordinary course of our business, we Process and contract with third-party vendors to Process large amounts of confidential information, including intellectual property, proprietary business information, PHI and personal information. Our business depends on keeping our IT Systems secure and maintaining the confidentiality, integrity, and availability of our confidential information. We have established physical, electronic, administrative and organizational measures to safeguard and secure our systems to prevent a security incident or data compromise. We rely in part on commercially available systems, software, tools, and monitoring to provide security for our IT Systems and the processing, transmission and storage of digital information. We have also outsourced elements of our IT Systems and data storage systems, and as a result a number of third-party vendors may have access to our confidential information, including personal information, and we must rely on these third-party vendors to maintain such information.
While we believe we have implemented reasonable preventative and detective security controls, our IT Systems and those of our third-party vendors are vulnerable to damage or interruption from a variety of sources, including telecommunications or network failures or interruptions, system malfunction, natural disasters, malicious or negligent human acts, terrorism and war. Such IT Systems, including our servers and the data stored thereon, are additionally vulnerable to physical or electronic break-ins, computer viruses, security breaches from inadvertent, negligent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, computer viruses, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). Security breaches of our infrastructure, whether ours or of our third-party service providers, can create system disruptions, shutdowns or unauthorized access, acquisition, use, disclosure or modifications of our information, and could cause our information, including PHI, to be accessed, used or disclosed without authorization. As a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our increased reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Cyber-attacks are becoming more sophisticated and frequent and we or our third-party vendors may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The success of any of these attempts could substantially impact our IT Systems, and the privacy and security of PHI and other information contained therein or otherwise Processed in the ordinary course of our business operations, and could ultimately harm our reputation and our business. In addition, any actual or perceived security incident or breach may cause us to incur increased expenses to improve our security controls and to remediate security vulnerabilities. We exercise limited control over our third-party vendors, which increases our vulnerability to problems with services they provide.
Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. Hackers and data thieves are increasingly sophisticated, the techniques used by such cyber criminals also change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile international governments or agencies. As cyber threats continue to evolve, we may be required to expend additional resources to further enhance our information security measures, develop additional protocols and/or to investigate and remediate any information security vulnerabilities.
In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, including personal information or PHI. We can provide no assurance that our current IT Systems, or those of the third parties upon which we rely, are fully protected against security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, ransomware, denial-of-service attacks, misplaced or lost data, programming and/or human errors or other similar events. Compliance with privacy and security laws, requirements and regulations may result in cost increases due to new constraints on our business, the development of new processes, the effects of
 
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potential non-compliance by us or third-party service providers, and enforcement actions. Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. As such, it is possible that we or our third-party vendors may experience cybersecurity and other breach incidents that remain undetected for an extended period. Even when a security breach is detected, the full extent of the breach may not be determined immediately. We may be required to expend significant capital and other resources to protect against security incidents and to safeguard the privacy and security of PHI and other information, to prevent, investigate, contain, and remediate security incidents, to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities, and to manage liabilities and obligations relating to the unauthorized access to personal information. While we have implemented reasonable security measures to protect our data security and IT Systems, our efforts may not be successful, and incidents could result in unexpected interruptions, delays, cessation of service and other harm to our business, reputation and our competitive position. If an event were to occur and cause interruptions in our operations, it could result in a material disruption of our offerings to consumers, result in disruption or interruption to our business operations, reduce demand for our product and subject us to significant liability and expense as well as regulatory action and lawsuits, which would harm our business, operating results and financial condition.
Moreover, we and our third-party vendors Process sensitive data, including PHI, personal information, intellectual property and proprietary business information in the ordinary course of our business. If a security breach affects our IT Systems or results in the unauthorized access to, acquisition of, use or disclosure of PHI or personal information, our reputation could be materially damaged. The CCPA, in particular, includes a private right of action for California consumers whose CCPA-covered personal information is impacted by a data security incident resulting from a company’s failure to maintain reasonable security procedures, and hence may result in civil litigation in the event of a data breach impacting such information. In addition, such a breach may require notification to governmental agencies and authorities, the media, individuals, and other third parties pursuant to various federal, state and international privacy and security laws, if applicable, including the General Data Protection Regulation (GDPR), United States Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and the regulations that implement both laws (collectively, HIPAA), and state breach notification laws. We would also be exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, results of operations and financial condition. Amongst others, the GDPR provides for material and immaterial damages for individuals due to data protection violations. Class actions and mass litigation subsequent to data breaches have become and increasing risk.
If our or our third-party vendors’ IT systems or security measures fail or are breached, it could result in unauthorized access to, acquisition of or the use or disclosure of confidential and proprietary business information, intellectual property, sensitive consumer data (including health information) or other personally identifiable information of our consumers, employees, partners or contractors, a loss of or damage to our data, or an inability to access data sources, process data or provide our services. Such failures or breaches of our or our third-party vendors’ security measures, or our or our third-party vendors’ inability to effectively resolve such failures or breaches in a timely manner, could severely damage our reputation, adversely impact consumer, partner, or investor confidence in us, and reduce the demand for our solutions and services. In addition, we could face litigation, significant damages for contract breach or violations of law, significant monetary penalties, or regulatory actions for violation of applicable laws or regulations, and incur significant costs for remedial measures to prevent future occurrences and mitigate past violations. The costs related to significant security breaches or disruptions could be material and although we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability. In any event, insurance coverage would not address the reputational damage that could result from a security incident or any regulatory actions or litigation that may result and exceed the limits of the cybersecurity insurance we maintain against such risk. If the IT Systems of our third-party vendors become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. Any disruption or loss to IT Systems on which critical aspects of our operations depend could have an adverse effect on our business.
 
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Use of social media, emails and text messages may adversely impact our reputation, subject us to fines or other penalties or be an ineffective source to market our offerings.
We use social media, emails and text messages as part of our omnichannel approach to marketing and consumer outreach. Changes to these social networking services’ terms of use or terms of service that limit promotional communications, restrictions that would limit our ability or our consumers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or reductions in the use of or engagement with social networking services by consumers and potential consumers could also harm our business. As laws and regulations rapidly evolve to govern the use of these channels, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations in the use of these channels could adversely affect our reputation or subject us to fines or other penalties. In addition, our employees or third parties acting at our direction may knowingly or inadvertently make use of social media in ways that could lead to the loss or infringement of intellectual property, as well as the public disclosure of proprietary, confidential or sensitive personal information of our business, employees, consumers or others. Any such inappropriate use of social media, emails and text messages could also cause reputational damage and adversely affect our business.
Our consumers may engage with us online through our social media pages, including, for example, our presence on Facebook, Instagram and Twitter, by providing feedback and public commentary about all aspects of our business. Information concerning us or our offerings and brands, whether accurate or not, may be posted on social media pages at any time and may have a disproportionately adverse impact on our brand, reputation or business. The harm may be immediate without affording us an opportunity for redress or correction and could have a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally, we use emails and text messages to communicate with consumers and we collect personal information of consumers, including email addresses and phone numbers, to further our marketing efforts with such consenting consumers. If we fail to adequately or accurately collect such information or if our information technology or data storage systems are breached, our business, financial condition and results of operations could be harmed. Further, any failure, or perceived failure, by us, or any third parties processing personal data, to comply with posted privacy policies or with any federal or state privacy, data security or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy, data security or consumer protection would adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities, consumers, suppliers or others or other liabilities or may require us to change our operations and/or cease using certain data sets.
Our business relies on email, mail and other messaging channels and any technical, legal or other restrictions on the sending of such correspondence or a decrease in consumer willingness to receive such correspondence could adversely affect our business.
Our business depends in part upon the emailing and mailing of promotional materials and other information to consumers and hearing care providers, and is also significantly dependent on email and other messaging channels, such as text messages. We distribute pricing information and other promotional materials in the mail, and also provide emails, mobile alerts and other messages to consumers informing them of the discounted prices available on our app and websites. These communications help generate a significant portion of our revenues. Because email, mail and other messaging channels are important to our business, if we are unable to successfully deliver messages to consumers through these channels, if legal restrictions prevent us from delivering such messages to consumers, if consumers do not or cannot open or otherwise utilize our messages or if consumers reject the receipt of communications referencing particular prescriptions or conditions, our revenues and profitability would be adversely affected.
Further, actions taken by third parties that block, impose restrictions on or charge for the delivery of these communications could also harm our business. For example, from time to time, internet service providers or other third parties may block bulk communications or otherwise experience difficulties that result in our inability to successfully deliver communications to consumers. In addition, we must comply with laws, such as,
 
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in the United States, the TCPA and the Controlling Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM”). The TCPA regulates certain uses of text messages, for example by prohibiting the use of “automatic telephone dialing systems” to send text messages without the prior consent of the receiving party. Similarly, CAN-SPAM imposes requirements on the content of marketing email messages we send to consumers. As a result, our use of mail, email and other messaging channels to send communications about our platform or other matters, including health related topics referencing particular prescriptions or conditions, may result in legal claims against us, which if successful might limit or prohibit our ability to send such communications.
We rely on a single third-party service provider for the delivery of substantially all of our mailing communications and rely on third-party service providers for delivery of emails, text messages and other forms of electronic communication. If we were unable to use any one of our current service providers, alternate providers are available; however, we believe our revenue could be impacted for some period as we transition to a new provider, and the new provider may be unable to provide equivalent or satisfactory services. Any disruption or restriction on the distribution of our communications, termination or disruption of our relationships with our third-party service providers, particularly our single third-party service provider for the delivery of mail communications, or any increase in the associated costs, may be beyond our control and would adversely affect our business.
We rely on information technology to operate our business and maintain competitiveness, and must adapt to technological developments or industry trends.
Our ability to attract new consumers and increase revenue from our existing consumers depends in large part on our ability to enhance and improve our existing offerings, increase adoption and usage of our offerings, and introduce new features and capabilities. The markets in which we compete are relatively new and subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing consumer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis.
We depend on the use of information technologies and systems. As our operations grow, we must continuously improve and upgrade our systems and infrastructure while maintaining or improving the reliability and integrity of our infrastructure. Our future success also depends on our ability to adapt our systems and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our existing solutions in response to competitive services and offerings. The emergence of alternative platforms such as smartphones and tablets and the emergence of niche competitors who may be able to optimize their offerings, services or strategies for such platforms may require new investments in technology. New developments in other areas, such as cloud computing, have made it easier for competition to enter our markets due to lower up-front technology costs. We may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner, and we may not be able to accurately predict the new technologies and systems we should spend our resources on. There is also no guarantee that we will possess the financial resources or personnel for the research, design and development of new applications or services, or that we will be able to use these resources successfully and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of our competitors or future competitors will not result in our present or future applications and services becoming uncompetitive or obsolete. If we were unable to enhance our offerings and platform capabilities to keep pace with rapid technological and regulatory change, or if new technologies emerge that are able to deliver competitive offerings at lower prices, more efficiently, more conveniently or more securely than our offerings, our business, financial condition and results of operations could be adversely affected.
Government regulation of the internet is evolving, and unfavorable changes or failure by us to comply with these laws and regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws specifically governing the internet in the countries and regions in which we operate. Furthermore, the regulatory landscape impacting these areas is constantly evolving. Existing and future regulations and laws could impede the growth of the internet or other online
 
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services. These regulations and laws may involve taxation, tariffs, privacy and data security, anti-spam, content, copyrights, distribution, electronic contracts, electronic communications, money laundering, electronic payments and consumer protection. It is not clear how existing laws and regulations governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the internet as the vast majority of these laws and regulations were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet. It is possible that general business regulations and laws, or those specifically governing the internet may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
We cannot assure you that our practices have complied, comply or will in the future comply with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business, and proceedings or actions against us by governmental entities or others. For example, in the United States, recent automatic renewal laws, which require companies to adhere to enhanced disclosure requirements when entering into automatically renewing contracts with consumers, resulted in class action lawsuits against companies that offer online products and services on a subscription or recurring basis. These and similar proceedings or actions could hurt our reputation, force us to spend significant resources in defense of these proceedings, distract our management, increase our costs of doing business, and cause consumers and paid merchants to decrease their use of our platform, and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our app and websites or may even attempt to completely block access to our platform. Adverse legal or regulatory developments could substantially harm our business.
We may experience fluctuations in our tax obligations and effective tax rate, which could materially and adversely affect our results of operations.
We are subject to income and other taxes in the countries in which we operate. Tax laws, regulations and administrative practices in various jurisdictions may be subject to significant change, with or without advance notice, due to economic, political and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. For example, our effective tax rates could be affected by numerous factors, such as changes in tax, accounting and other laws, regulations, administrative practices, principles and interpretations, the mix and level of earnings in a given taxing jurisdiction or our ownership or capital structures.
Pending and future tax audits and changes in fiscal regulations could lead to additional tax liabilities.
Our business is subject to the general tax environment in the countries in which we currently operate. Our ability to use tax loss carryforwards and other favorable tax provisions depends on national tax laws and their interpretation in these countries. Changes in tax legislation, administrative practices or case law could increase our tax burden and such changes might even occur retroactively. Furthermore, tax laws may be interpreted differently by the competent tax authorities and courts, and their interpretation may change at any time, which could lead to an increase of our tax burden. In addition, court decisions are sometimes ignored by competent tax authorities or overruled by higher courts, which could lead to higher legal and tax advisory costs and create significant uncertainty.
We are subject to audits by tax officials in the jurisdictions in which we operate. For example, in Germany, audibene GmbH has been subject to a general tax audit for each of 2012, 2013, 2014, 2015 and 2016. While we believe that we have paid all material tax liabilities and filed all material tax returns as of the date of this prospectus, and made provisions that we believe to be adequate with respect to material tax risks resulting from current or past tax audits, there can be no assurance that tax deficiencies will not be asserted against us or that the taxes assessed by the competent authorities pursuant to such tax audits will not exceed such provisions. All of the tax assessments issued for periods which were not yet finally audited may be subject to review.
 
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Future tax audits may result in additional tax, interest payments and/or penalties, which would negatively affect our financial condition and results of operation. Changes in fiscal regulations (for example, in connection with the OECD BEPS initiative or the respective EU initiatives, such as the Council Directive (EU) 2016/1164 of July 12, 2016 (“ATAD 1”) and Council Directive (EU) 2017/952 of May 29, 2017 (“ATAD 2”)) or the interpretation of tax laws by the courts or the tax authorities in the jurisdictions in which we conduct our business may also have negative consequences and increase our tax burden and give rise to additional reporting and disclosure obligations, which could increase our costs and have a material adverse effect on our financial position.
While ATAD 1 contains, among others, rules combatting certain hybrid mismatches between EU Member States, ATAD 2 introduces more detailed rules to neutralize hybrid mismatches and extends the scope to (i) a variety of other mismatches between EU Member States and (ii) mismatches between EU Member States and third countries. Germany has not yet implemented ATAD 1 and 2 into its national law. The German Federal Ministry of Finance released a draft bill, which provides for significant changes to the German taxation of cross-border transactions. The draft bill has not been endorsed by the German parliament, but the proposed measures might take effect retroactively as from January 1, 2020 onwards.
Our ability to utilize our net operating loss carryforwards and other tax attributes may be limited.
As of September 30, 2020, we had corporate income tax loss carryforwards of €54.6 million including municipal tax loss carryforwards of €37.7 million. Based on the tax loss carryforwards, €3.2 million and €8.1 million expire between 2022 to 2025 and after 2025, respectively. As a result of the Corporate Reorganization and changes in the ownership of Soundrise Hearing Solutions Private Limited (India), we expect that tax loss carryforwards of €2.1 million that expire between 2022 to 2025 will be forfeited.
The largest portion of our tax loss carryforwards are in Germany where, as of September 30, 2020, we had corporate income tax loss carryforwards of €40.3 million and municipal tax loss carryforwards of €37.7 million. While we currently do not expect these tax loss carryforwards to be time bound or to be subject to forfeiture, we cannot assure you that we will be able to utilize them in the future (in whole or in part) for, among others, the reasons discussed below.
Our ability to utilize our net operating losses in audibene GmbH, which consists of tax loss carryforwards and current losses of the ongoing business year (together “tax losses”), is currently limited, and may be limited further, under Section 8c of the Körperschaftsteuergesetz (German Corporation Income Tax Act or KStG) and Section 10a of the Gewerbesteuergesetz (German Trade Tax Act or GewStG). The same applies to interest carryforwards, if any. These limitations apply if a qualified ownership change, as defined by Section 8c KStG, occurs and no exemption is applicable. Generally, whenever more than 50% of the shares or voting rights in a corporation are directly or indirectly transferred within a period of five years to one acquirer (including related persons) or a group of acquirers acting in concert, the accrued tax losses accrued up to the date of the qualified ownership change are forfeited and cannot be utilized. A qualified ownership change may also occur in case of a transaction comparable to a transfer of shares or voting rights or in case of an increase in capital leading to a respective change in the shareholding. If the qualified ownership change occurs within the ongoing business year, profits earned until that point in time may be offset against the tax losses accrued until that point in time.
However, tax losses should not forfeit as follows: (i) to the extent the entity accounting for the tax losses provides for built-in gains (stille Reserven) taxable in Germany, the tax losses may be further utilized despite a qualified ownership change; (ii) in case of certain intragroup reorganizations consisting of transfers of more than 50% of the shares, tax losses can be preserved if certain conditions are satisfied; (iii) in certain cases there is an option to apply for the non-application of the Section 8c KStG rules, so-called “Fortführungsgebundener Verlustvortrag” according to Section 8d KStG, according to which relief may be available where the company has maintained exclusively the same business during a specified observation period and during this period no harmful event as defined by law has occurred; and (iv) Section 8c para. 1a KStG holds an exemption from the forfeiture of tax losses for share transfers for the purpose of restructuring the respective corporate entity, so-called “Sanierungsklausel”.
In a decision of August 29, 2017, the Lower Tax Court of Hamburg (Germany) has referred the question to the German Constitutional Court whether the full forfeiture of losses in the case of a qualified ownership
 
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change as described above is unconstitutional which is the opinion of the Lower Tax Court of Hamburg. Only the German Constitutional Court is authorized to decide if the regulation is unconstitutional.
In addition, if the tax loss carryforwards shall be offset against income in future tax years, certain restrictions need to be considered, so-called minimum taxation according to Section 10d EStG. Only the first €1 million of annual taxable profits may be offset in full against the tax loss carryforwards. Beyond the threshold of €1 million, only 60% of the annual taxable profits are available for loss utilization. The remaining 40% are subject to immediate taxation.
Future changes in share ownership may also trigger an ownership change and, consequently, a Section 8c KStG, and/or a Section 10a GewStG limitation. Any limitation may result in the forfeiture of a portion or the complete net operating loss carryforwards before they can be utilized (considering the minimum taxation rules described above). As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to reduce German income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.
General economic factors, natural disasters or other unexpected events may adversely affect our business, financial performance and results of operations.
Our business, financial performance and results of operations depend in part on worldwide macroeconomic economic conditions and their impact on consumer spending. Recessionary economic cycles, higher interest rates, volatile fuel and energy costs, inflation, levels of unemployment, conditions in the residential real estate and mortgage markets, access to credit, consumer debt levels, unsettled financial markets and other economic factors that may affect costs of manufacturing hearing aids, consumer spending or buying habits could materially and adversely affect demand for our offerings. Volatility in the financial markets has also had and may continue to have a negative impact on consumer spending patterns. In addition, negative national or global economic conditions may materially and adversely affect the partners we contract with and their financial performance, liquidity and access to capital. This may affect their ability to renew contracts with us on the same or better terms, which could impact the competitiveness of the discounted prices we are able to offer our consumers, which could harm our business, financial condition and results of operations.
Economic factors such as increased insurance and hearing care costs, commodity prices, shipping costs, inflation, higher costs of labor, and changes in or interpretations of other laws, regulations and taxes may also increase our costs and our make our offerings less competitive, increase general and administrative expenses, and otherwise adversely affect our financial condition and results of operations. Additionally, public health crises, natural disasters, such as earthquakes and wildfires, and other adverse weather and climate conditions, political crises, such as terrorist attacks, war and other political instability or other unexpected events, could disrupt our operations, internet or mobile networks or the operations of our partners. If any of these events occurs, our business could be adversely affected.
We rely on a select number of global hearing aid manufacturers for the supply of the products that we offer on our platform and could suffer if they fail to meet their delivery obligations, raise prices or cease to supply us with the products we require.
We rely on a select number of global hearing aid manufacturers for the supply of the products that we offer on our platform and could suffer if they fail to meet their delivery obligations, raise prices or cease to supply us with the products we require. We currently source approximately 70% of the products that we offer on our platform from local country affiliates of WS Audiology, our majority shareholder, and the remainder from four other leading hearing aid manufacturers. This reliance on a small number of sources adds additional risks to our business that are beyond our control. For example, the occurrence of epidemics or pandemics, such as the COVID-19 pandemic, may cause the WS Audiology Group or our other suppliers to close or reduce the scope of their operations either temporarily or permanently. In addition, the manufacturers that supply products to us may also supply products to our competitors. The industry’s reliance on a limited number of key suppliers subjects us to the risk that in the event of an increase in demand, the WS Audiology Group and our other suppliers may fail to provide supplies to us in a timely manner while they continue to supply our competitors, some of which have greater purchasing power than us. The failure of the WS Audiology Group
 
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and our other suppliers to deliver products in a timely fashion could have disruptive effects on our ability to serve our customers and meet demand in a timely manner, or we may be required to find new suppliers at an increased cost. Furthermore, we generally do not enter into long-term commitment contracts with the WS Audiology Group or our other suppliers, but rather enter into framework agreements as a basis for individual orders. The terms of such framework agreements are typically up to two years and in most cases do not contain any firm purchase commitments. We can make no assurance that we will be able to renew such supply agreements. If we are unable to renew supply agreements, our access to key products could be reduced, which could harm our business. Additionally, our reputation and the quality of our service are in part dependent on the quality of the products that we source from our suppliers. If we are unable to control the quality of the products supplied to us or to address known quality problems in a timely manner, our reputation in the market may be damaged and sales of our products may suffer. As a result, we may experience a material adverse effect on our business, financial condition and results of operations.
If manufacturers and suppliers that we source our products from are unable to procure raw materials, semi-finished products and finished products on terms or within timeframes acceptable to us, our business may suffer.
If our manufacturers or suppliers experience shortages, limited access or increased costs of certain raw materials and other semi-finished or finished goods, including as a result of the COVID-19 pandemic, it may result in production delays or delays in deliveries of products that we offer on our platforms. Production by one or more manufacturers or suppliers may be suspended or delayed, temporarily or permanently, due to economic or technical problems such as the insolvency of the manufacturer, the failure of the manufacturing facilities or disruption of the production process, all of which are beyond our control. Any shortage, delay or interruption in the availability of the products that we offer on our platforms may negatively affect our ability to meet consumer demand. As a result, our business may be unable to offer a satisfactory experience to customers, which could have a material adverse effect on our business, financial condition and results of operations.
International trade disputes could result in tariffs and other protectionist measures that could have a material adverse effect on our business, financial condition and results of operations.
Tariffs could increase the cost of the products that we source to provide on our platforms. These increased costs could adversely impact the gross margin that we earn on our products. Tariffs could also make our products more expensive for customers, which could make our products less competitive and reduce demand. Countries may also adopt other protectionist measures that could limit our ability to offer our preferred selection of products. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could have a material adverse effect on our business, financial condition and results of operations.
We are dependent on international manufacturers and suppliers, which exposes us to international operational and political risks that may harm our business.
We rely on a number of international manufacturers and suppliers for the products that we offer on our platform. Our reliance on international operations exposes us to risks and uncertainties, including:

controlling quality of supplies;

trade protection measures, tariffs and other duties, especially in light of trade disputes between the United States and several foreign countries, including China and countries in Europe;

political, social and economic instability;

the outbreak of contagious diseases, such as the novel coronavirus (COVID-19);

laws and business practices that favor local companies;

interruptions and limitations in telecommunication services;

product or material delays or disruption;
 
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import and export license requirements and restrictions;

difficulties in the protection of intellectual property;

exchange controls, currency restrictions and fluctuations in currency values; and

potential adverse tax consequences.
If any of these risks were to materialize, it could have a material adverse effect on our business, financial condition and results of operations.
We depend on our relationships with third parties and would be adversely impacted by system failures or other disruptions in the operations of these parties.
We use and rely on services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control. Failures by our telecommunications providers may interrupt our ability to provide phone support to our consumers and distributed denial of service attacks directed at our telecommunication service providers could prevent consumers from accessing our websites. In addition, we have in the past and may in the future experience down periods where our third-party credit card processors are unable to process the payments of our consumers, disrupting our ability to process or receive revenue from our offerings. Disruptions to our consumer support, website and credit card processing services could lead to consumer dissatisfaction, which would adversely affect our business, financial condition and results of operations.
Our business depends on network and mobile infrastructure and our ability to maintain and scale our technology. Any significant interruptions or delays in service on our app or websites or any undetected errors or design faults could result in limited capacity, reduced demand, processing delays and loss of consumers.
A key element of our strategy is to generate a significant number of visitors to, and their use of, our mobile app and websites. Our reputation and ability to acquire, retain and serve our consumers are dependent upon the reliable performance of our mobile app and websites and the underlying network infrastructure. Our platform is designed to operate without perceptible interruption in accordance with our service level commitments. However, as our base of consumers and the amount of information shared on our mobile app and websites continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on computing, including cloud computing and the related infrastructure, to handle the traffic on our mobile app and websites. The operation of these systems is complex and could result in operational failures. In the event that the traffic of our consumers exceeds the capacity of our current network infrastructure or in the event that our base of consumers or the amount of traffic on our app and websites grows more quickly than anticipated, we may be required to incur significant additional costs to enhance the underlying network infrastructure. Interruptions or delays in these systems, whether due to system failures, computer viruses, physical or electronic break-ins, undetected errors, design faults or other unexpected events or causes, could affect the security or availability of our app and websites and prevent our consumers from accessing our app and websites. If sustained or repeated, these performance issues could reduce the attractiveness of our offerings. In addition, the costs and complexities involved in expanding and upgrading our systems may prevent us from doing so in a timely manner and may prevent us from adequately meeting the demand placed on our systems. Any internet or mobile platform interruption or inadequacy that causes performance issues or interruptions in the availability of our app or websites could reduce consumer satisfaction and result in a reduction in the number of consumers using our offerings.
We depend on the development and maintenance of the internet and mobile infrastructure. This includes maintenance of reliable internet and mobile infrastructure with the necessary speed, data capacity and security, as well as timely development of complementary offerings, for providing reliable internet and mobile access. Our business, financial condition and results of operations could be materially and adversely affected if for any reason the reliability of our internet and mobile infrastructure is compromised.
 
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We currently rely upon third-party data storage providers, including cloud storage solution providers, such as Amazon Web Services and some specific uses of Google Cloud Platform. Nearly all of our data storage and analytics are conducted on, and the data and content we create associated with sales on our app and websites are processed through, servers hosted by these providers, particularly Amazon Web Services. We also rely on email service providers, bandwidth providers, internet service providers and mobile networks to deliver email and “push” communications to consumers and to allow consumers to access our websites. If our third-party vendors are unable or unwilling to provide the services necessary to support our business, or if our agreements with such vendors are terminated, our operations could be significantly disrupted. Some of our vendor agreements may be unilaterally terminated by the licensor for convenience, including with respect to Amazon Web Services, and if such agreements are terminated, we may not be able to enter into similar relationships in the future on reasonable terms or at all.
Any damage to, or failure of, our systems or the systems of our third-party data centers or our other third-party providers could result in interruptions to the availability or functionality of our app and websites. As a result, we could lose consumer data and miss opportunities to acquire and retain consumers, which could result in decreased revenue. If for any reason our arrangements with our data centers or third-party providers are terminated or interrupted, such termination or interruption could adversely affect our business, financial condition and results of operations. We exercise little control over these providers, which increases our vulnerability to problems with the services they provide. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could hurt our relationships with our partner providers and consumers and expose us to third-party liabilities. We could experience additional expense in arranging for new facilities, technology, services and support. In addition, the failure of our third-party data centers or any other third-party providers to meet our capacity requirements could result in interruption in the availability or functionality of our app and websites.
The satisfactory performance, reliability and availability of our mobile app, websites, transaction processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain consumers, as well as to maintain adequate consumer service levels. Our revenue depends in part on the number of consumers that visit and use our mobile app and websites in fulfilling their hearing care needs. Unavailability of our mobile app or websites could materially and adversely affect consumer perception of our brand. Any slowdown or failure of our mobile app, websites or the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our consumers.
The occurrence of a natural disaster, power loss, telecommunications failure, data loss, computer virus, an act of terrorism, cyberattack, vandalism or sabotage, act of war or any similar event, or a decision to close our third-party data centers on which we normally operate or the facilities of any other third-party provider without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in the availability of our app and websites. Cloud computing, in particular, is dependent upon having access to an internet connection in order to retrieve data. If a natural disaster, blackout or other unforeseen event were to occur that disrupted the ability to obtain an internet connection, we may experience a slowdown or delay in our operations. Our disaster recovery preparations may not be adequate to account for disasters or similar events that may occur in the future and may not effectively permit us to continue operating in the event of any problems with respect to our systems or those of our third-party data centers or any other third-party facilities. Our disaster recovery and data redundancy plans may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur. If any such event were to occur to our business, our operations could be impaired and our business, financial condition and results of operations may be materially and adversely affected.
Our proprietary technology platform may not operate properly, which could cause severe business disruption, damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any or all of which could harm our business.
Our proprietary technology platform powers all aspects of our company: engaging our customers and supporting our partner providers and manufacturing partners, while advancing our business objectives. It allows us to improve user experience through proactive and personalized outreach, online scheduling, virtual partner provider visits and ready access to hearing care information. Our technology also supports our partner
 
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providers by reducing common administrative burdens such as invoicing, settlement of reimbursement claims and potential financing, along with coordination of hearing care, ultimately allowing our partner providers to spend more time delivering clinical care. We collect data, consumer reactions and other insights, which we convey to our manufacturing partners enabling them to improve the quality of their hearing aids based on this feedback. We have designed our technology to improve over time by continuously incorporating new data from millions of interactions with customers, hearing care partners, and manufacturers.
The development and maintenance of our proprietary technology platform is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we may discover problems that prevent our proprietary technology platform from operating properly. If our information technology and software solutions do not function reliably or fail to achieve expectations in terms of performance and intended purpose, we may experience severe business disruption, damage to our reputation, claims against us from our stakeholders or diversion in application of our resources from other purposes, any or all of which could have a material adverse effect on our business, financial condition and results of operations.
We rely on third-party platforms such as the Apple App Store and Google Play App Store, to distribute our platform and offerings.
Our app is accessed and operates through third-party platforms or marketplaces, including the Apple App Store and Google Play App Store, which also serve as online distribution platforms for our mobile app. As a result, the expansion and prospects of our business and our app depend on our continued relationships with these providers and any other emerging platform providers that are widely adopted by consumers. We are subject to the standard terms and conditions that these providers have for application developers, which govern the content, promotion, distribution and operation of apps on their platforms or marketplaces, and which the providers can change unilaterally on short or no notice. Our business would be harmed if the providers discontinue or limit our access to their platforms or marketplaces; the platforms or marketplaces decline in popularity; the platforms modify their algorithms, communication channels available to developers, respective terms of service or other policies, including fees; the providers adopt changes or updates to their technology that impede integration with other software systems or otherwise require us to modify our technology or update our app in order to ensure that consumers can continue to access and use our platform.
If alternative providers increase in popularity, we could be adversely impacted if we fail to create compatible versions of our app in a timely manner, or if we fail to establish a relationship with such alternative providers. Likewise, if our current providers alter their operating platforms, we could be adversely impacted as our offerings may not be compatible with the altered platforms or may require significant and costly modifications in order to become compatible. If our providers do not perform their obligations in accordance with our platform agreements, we could be adversely impacted.
In the past, some of these platforms or marketplaces have been unavailable for short periods of time. If this or a similar event were to occur on a short- or long-term basis, or if these platforms or marketplaces otherwise experience issues that impact the ability of consumers to download or access our app and other information, it could have a material adverse effect on our brand and reputation, as well as our business, financial condition and operating results.
We rely on software-as-a-service, or SaaS, technologies from third parties.
We rely on SaaS technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services, marketing services and data storage services. For example, we rely on Amazon Web Services for a substantial portion of our computing and storage capacity, and rely on Salesforce.com for customer communication and internal workflows. Amazon Web Services provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. Amazon Web Services may terminate its agreement with us by providing 30 days prior written notice. Similarly, Salesforce.com provides us with storage capacity and workflow management solutions. Salesforce.com may terminate its agreements with us immediately upon notice. Our other vendor agreements may be unilaterally terminated by the counterparty for convenience. If
 
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these services become unavailable due to contract cancellations, extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, or for any other reason, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing our offerings and supporting our consumers and partners could be impaired and our ability to access or save data stored to the cloud may be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could harm our business, financial condition, and results of operations.
We may seek to grow our business through acquisitions of, or investments in, new or complementary businesses, technologies or products, or through strategic alliances, and the failure to manage these acquisitions, investments or alliances, or to integrate them with our existing business, could have a material adverse effect on us.
We may in the future consider opportunities to acquire or make investments in new or complementary businesses, technologies, offerings, or products, or enter into strategic alliances that may enhance our capabilities, expand our network, complement our current offerings or expand the breadth of our markets. Our ability to successfully grow through these types of strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies and products and to obtain any necessary financing, and is subject to numerous risks, including:

failure to identify acquisition, investment or other strategic alliance opportunities that we deem suitable or available on favorable terms;

problems integrating the acquired business, technologies or products, including issues maintaining uniform standards, procedures, controls and policies;

unanticipated costs associated with acquisitions, investments or strategic alliances;

adverse impacts on our overall margins;

diversion of management’s attention from our existing business;

adverse effects on existing business relationships with consumers, partners and other participants;

risks associated with entering new markets in which we may have limited or no experience;

potential loss of key employees of acquired businesses; and

increased legal and accounting compliance costs.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets. In the future, if our acquisitions do not yield expected returns, we may be required to take impairment charges to our results of operations based on our impairment assessment process, which could harm our results of operations.
If we are unable to identify suitable acquisitions or strategic relationships, or if we are unable to integrate any acquired businesses, technologies and products effectively, our business, financial condition and results of operations could be materially and adversely affected. Also, while we employ several different methodologies to assess potential business opportunities, the new businesses may not meet or exceed our expectations.
There are a variety of hearing aid products and technologies, and consumer confusion about product features and technology could lead consumers to purchase competitive products instead of the products that we sell, or to conflate any adverse events or safety issues associated with third-party hearing aid products with the products that we sell, which could adversely affect our business, financial condition and results of operations.
We believe that many individuals do not have full information regarding the types of hearing aids and hearing aid features and technologies available in the market, in part due to the lack of consumer education in the traditional hearing industry sales model. Consumers may not have sufficient information about hearing aids generally or how hearing aid products and technologies compare to each other. This confusion may result in consumers purchasing hearing aids from our competitors instead of from us, even if our hearing aids would
 
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provide them with their desired product features. In addition, any adverse events or safety issues relating to competitive hearing aid products and related negative publicity, even if such events are not attributable to our products, could result in reduced purchases of hearing aids by consumers generally. Any of these occurrences could lead to reduced sales of our products and adversely affect our business, financial condition and results of operations.
We may be unable to successfully execute on our growth initiatives, business strategies or operating plans.
We are continually executing on growth initiatives, strategies and operating plans designed to enhance our business and extend our solutions to address additional chronic conditions. The anticipated benefits from these efforts are based on several assumptions that may prove to be inaccurate. Moreover, we may not be able to successfully complete these growth initiatives, strategies and operating plans and realize all of the benefits, including growth targets and cost savings, that we expect to achieve or it may be more costly to do so than we anticipate. A variety of risks could cause us not to realize some or all of the expected benefits. These risks include, among others, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, increased difficulty and cost in implementing these efforts, including difficulties in complying with new regulatory requirements and the incurrence of other unexpected costs associated with operating our business. Moreover, our continued implementation of these programs may disrupt our operations and performance. As a result, we cannot assure you that we will realize these benefits. If, for any reason, the benefits we realize are less than our estimates or the implementation of these growth initiatives, strategies and operating plans adversely affect our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove inaccurate, our business, financial condition and results of operations may be materially adversely affected.
Risks Related to Intellectual Property
We may be sued by third parties for infringement, misappropriation, dilution or other violation of their intellectual property or proprietary rights.
Internet and advertising companies are frequently subject to litigation based on allegations of infringement, misappropriation, dilution or other violations of intellectual property rights. Some internet and advertising companies, including some of our competitors, as well as non-practicing entities, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us.
Third parties may in the future assert that we have infringed, misappropriated or otherwise violated their intellectual property rights.
For instance, the use of our technology to provide our offerings could be challenged by claims that such use infringes, dilutes, misappropriates or otherwise violates the intellectual property rights of a third party. In addition, we may in the future be exposed to claims that content published or made available through our mobile app or websites violates third-party intellectual property rights.
As we face increasing competition and gain greater visibility as a public company, the possibility of intellectual property rights claims against us grows. Such claims and litigation may involve non practicing entities or other adverse intellectual property rights holders who have no relevant product revenue, and therefore our own pending patent applications and other intellectual property rights may provide little or no deterrence to these rights holders in bringing intellectual property rights claims against us. There may be intellectual property rights held by others, including issued patents or pending patent applications and trademarks, that cover significant aspects of our technologies, content, branding or business methods, and we cannot assure that we are not infringing, misappropriating, diluting or otherwise violating, and have not infringed, misappropriated, diluted or otherwise violated any third-party intellectual property rights or that we will not be held to have done so or be accused of doing so in the future. We expect that we may receive in the future notices that claim we or our partners, or clients using our solutions and services, have infringed, misappropriated diluted, or otherwise violated other parties’ intellectual property rights, particularly as the number of competitors in our market grows and the functionality of applications amongst competitors overlaps.
 
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Any claim that we have violated intellectual property or other proprietary rights of third parties, with or without merit, and whether or not such claim results in litigation, is settled out of court or is determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of management and technical personnel from our business. Furthermore, an adverse outcome of a dispute may result in an injunction and could require us to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a third party’s intellectual property rights. Any settlement or adverse judgment resulting from such a claim could require us to enter into a licensing agreement to continue using the technology, content or other intellectual property that is the subject of the claim; restrict or prohibit our use of such technology, content or other intellectual property; require us to expend significant resources to redesign our technology or solutions; and require us to indemnify third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. There also can be no assurance that we would be able to develop or license suitable alternative technology, content or other intellectual property to permit us to continue offering the affected technology, content or services to our partners or customers. If we cannot develop or license technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Any of these events could materially harm our business, financial condition and results of operations.
We may be unable to establish, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of our technology.
Our business depends on proprietary technology and content, including software, processes, databases, confidential information and know-how, the protection of which is crucial to the success of our business. We rely on a combination of trademark, patent, copyright, domain name and trade secret-protection laws, in addition to confidentiality agreements and other practices to protect our brands, proprietary information, technologies and processes.
Our most material trademark assets are the registered trademarks “hear.com” and “audibene.” Our trademarks are valuable assets that support our brand and consumers’ perception of our offerings. We also hold the rights to the “hear.com” internet domain name. Our trademarks and domain name rights are subject to internet regulatory bodies and trademark and other related laws of each applicable jurisdiction. The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, or determined to be infringing on or dilutive of other marks. In addition, third parties have filed, and may in the future use, or file for registration of trademarks similar or identical to our trademarks, which, if used or obtained, may impede our ability to build brand identity and could lead to market confusion. If we are unable to protect our trademarks or domain names in the United States or in other jurisdictions in which we operate or may ultimately operate, our brand recognition and reputation would suffer, we could incur significant re-branding expenses and our operating results could be adversely impacted. As of December 31, 2020, we owned one pending patent application in the European Union and no issued patents or pending patent applications in the United States. We cannot guarantee that our pending patent application will be issued. Any patents that may be issued in the future may not provide us with competitive advantages, may be of limited territorial reach and may be held invalid or unenforceable if successfully challenged by third parties, and may expire before we have obtained any significant competitive advantage from the patent. It is also possible that we will fail to identify patentable aspects of our technology before it is too late to obtain patent protection, will be unable to devote the resources to file and prosecute all applications for such technology, or will inadvertently lose protection for failing to comply with all procedural, documentary, payment, and similar obligations during the patent prosecution process. Our limited patent protection may restrict our ability to protect our technologies and processes from competition. It is also possible that third parties, including our competitors, may obtain patents relating to technologies that overlap or compete with
 
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our technology. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek to charge us a licensing fee or otherwise preclude the use of our technology.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay the introduction and implementation of new technologies, result in our substituting inferior or more costly technologies into our software or injure our reputation. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Moreover, policing unauthorized use of our technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming, particularly in countries where the laws may not be as protective of intellectual property rights as those in Europe and the United States and where mechanisms for enforcement of intellectual property rights may be weak. If we fail to meaningfully establish, maintain, protect and enforce our intellectual property and proprietary rights, our business, financial condition and results of operations could be adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, trade secrets, technology, and other proprietary information, including our technology platform, and to maintain our competitive position. With respect to our technology platform, we consider trade secrets and know-how to be one of our primary sources of intellectual property. However, trade secrets and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside contractors, consultants, advisors, and other third parties. We also enter into confidentiality and invention assignment agreements with our employees and consultants. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses containing invention assignment, to grant us ownership of technologies that are developed through a relationship with employees or third parties. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information, including our technology and processes. In addition, no assurance can be given that the confidentiality agreements we enter into will be effective in controlling disclosure of such proprietary information and trade secrets. The confidentiality agreements on which we rely to protect certain technologies may be breached, may not be adequate to protect our confidential information, trade secrets and proprietary technologies and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, trade secrets or proprietary technology. Further, these agreements do not prevent our competitors or others from independently developing the same or similar technologies and processes, which may allow them to provide a service similar or superior to ours, which could harm our competitive position.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, it could harm our competitive position, business, financial condition, results of operations and prospects.
 
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We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants, and advisors are currently or were previously employed at other companies in our field, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, and agreeing to maintain the confidentiality of our information and trade secrets, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Former employees may breach their confidentiality obligations and use our trade secrets or other proprietary information to help our competitors. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
We may be unable to continue the use of our domain names, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks.
We have registered domain names for our websites that we use in our business. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our solutions under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of management’s attention.
ICANN (the Internet Corporation for Assigned Names and Numbers), the international authority over top-level domain names, has been increasing the number of generic top-level domains, or “TLDs.” This may allow companies or individuals to create new web addresses that appear to the right of the “dot” in a web address, beyond such long-standing TLDs as “.com,” “.org” and “.gov.” ICANN may also add additional TLDs in the future. As a result, we may be unable to maintain exclusive rights to all potentially relevant or desirable domain names in the United States, which may harm our business. Furthermore, attempts may be made by third parties to register our trademarks as new TLDs or as domain names within new TLDs, and we may be required to enforce our rights against such registration attempts, which could result in significant expense and the diversion of management’s attention.
If we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new solutions or services in the future.
In the future, we may identify additional third-party intellectual property we may need to license in order to engage in our business, including to develop or commercialize new solutions or services. However, such licenses may not be available on acceptable terms or at all. Further, when licensing intellectual property we
 
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must rely on the licensors to protect and maintain such technology and intellectual property, and we may have limited control over the decisions our licensors make with respect to such protection and maintenance, and these licensors may not make the same decisions we would have made if we owned such intellectual property. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater development or commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial royalties based on sales of our solutions and services. Such royalties are a component of the cost of our solutions or services and may affect the margins on our solutions and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us. If we are unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our licensors fail to abide by the terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed intellectual property rights are found to be invalid or unenforceable, our business, financial condition, results of operations and prospects could be affected. Moreover, we could encounter delays and other obstacles in our attempt to develop alternatives. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing solutions and services, which could harm our competitive position, business, financial condition, results of operations and prospects.
If we fail to comply with our obligations under license or technology agreements with third parties, we may be required to pay damages and we could lose license rights that are critical to our business.
We license certain intellectual property, including technologies and software from third parties, that is important to our business, and in the future we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of the obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from selling our solutions and services, or adversely impact our ability to commercialize future solutions and services. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed intellectual property are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. In addition, our rights to certain technologies, are licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating, diluting or otherwise violating the licensor’s rights. In addition, the agreements under which we license intellectual property or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
Failure to maintain, protect or enforce our intellectual property rights could harm our business and results of operations.
We may pursue the protection of our patentable technology, domain names, trademarks and service marks in Europe, the United States and other countries where we operate. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes to the development of our technology or intellectual property rights. Those agreements that we do execute may be breached, and
 
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we may not have adequate remedies for any such breach. These contractual arrangements and the other steps we have taken to protect our intellectual property rights may not prevent the misappropriation or disclosure of our proprietary information nor deter independent development of similar technology or intellectual property by others.
Effective trade secret, patent, copyright, trademark and domain name protection is expensive to obtain, develop and maintain, both in terms of initial and ongoing registration or prosecution requirements and expenses and the costs of defending our rights. We may, over time, increase our investment in protecting our intellectual property through additional patent filings that could be expensive and time-consuming. We do not know whether our pending patent application will result in the issuance of a patent. Our patent, trademarks and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Moreover, any issued patents may not provide us with a competitive advantage and, as with any technology, competitors may be able to develop similar or superior technologies to our own, now or in the future, without infringing our patent rights. In addition, due to a recent United States Supreme Court case, it has become increasingly difficult to obtain and assert patents relating to software or business methods, as many such patents have been invalidated for being too abstract to constitute patent-eligible subject matter, and future changes to laws and regulations may be unpredictable and could impact our ability to obtain new patents or enforce any patents we might obtain in the future. We do not know whether this will affect our ability to obtain new patents on our innovations, or successfully assert patents we may obtain in the future in litigation or pre-litigation campaigns.
Monitoring unauthorized use of the content on our app and websites, and our other intellectual property and technology, is difficult and costly. Our efforts to protect our proprietary rights and intellectual property may not have been and may not be adequate to prevent their misappropriation or misuse. Third parties, including our competitors, could be infringing, misappropriating or otherwise violating our intellectual property rights. Third parties from time to time copy content or other intellectual property or technology from our solutions without authorization and seek to use it for their own benefit. We generally seek to address such unauthorized copying or use, but we have not always been successful in stopping all unauthorized use of our content or other intellectual property or technology, and may not be successful in doing so in the future. Further, we may not have been and may not be able to detect unauthorized use of our technology or intellectual property, or to take appropriate steps to enforce our intellectual property rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our solutions and services. Our competitors may also independently develop similar technology. Effective patent, trademark, copyright and trade secret protection may not be available to us in every jurisdiction in which our solutions or technology are hosted or available. Competitors could also independently create technology that we consider a trade secret, and use that technology to compete with us. Further, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights may be uncertain. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property rights could result in competitors offering solutions that incorporate our most technologically advanced features, which could reduce demand for our solutions.
We may find it necessary or appropriate to initiate claims or litigation to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of intellectual property rights owned by others. In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue, or may find that our intellectual property rights do not cover the use or technology in question. Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. Litigation is inherently uncertain and any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and results of operations. If we fail to maintain, protect and enforce our intellectual property, our business and results of operations may be harmed.
Issued patents covering our offerings could be found invalid or unenforceable if challenged.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability. Any future patents or patent applications (including licensed patents) may be challenged at a future point in time in
 
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opposition, derivation, reexamination, inter partes review, post-grant review or interference. Any successful third-party challenge to our patents in this or any other proceeding could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business and could harm our business. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future offering candidates.
We may not be able to enforce our intellectual property rights throughout the world.
We may also be required to protect our proprietary technology and content in an increasing number of jurisdictions, a process that is expensive and may not be successful, or which we may not pursue in every location. Filing, prosecuting, maintaining, defending, and enforcing intellectual property rights on our solutions, services, and technologies in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States and Europe may be less extensive than those in the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained protection to develop their own solutions and services and, further, may export otherwise violating solutions and services to territories where we have protection but enforcement is not as strong as that in Europe and the United States. These solutions and services may compete with our solutions and services, and our intellectual property rights may not be effective or sufficient to prevent such use. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of Europe and the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside of Europe and the United States. These challenges can be caused by the absence or inconsistency of the application of rules and methods for the establishment and enforcement of intellectual property rights outside of Europe and the United States. For instance, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable for business methods. Even in the European Union, certain laws may compel patent owners to grant licenses to third parties, and in such countries the patent owner may have limited remedies available, and this could materially diminish the value of such patent. We do not know the degree of future protection that we will have, or be able to maintain, on our technologies, products and services.
In addition, the legal systems of some countries, particularly developing countries, do not favor the enforcement of intellectual property protection, especially those relating to healthcare. This could make it difficult for us to stop the infringement, misappropriation or other violation of our other intellectual property rights. Accordingly, we may choose not to seek protection in certain countries, and we will not have the benefit of protection in such countries. Proceedings to enforce our intellectual property rights in international jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in Europe, the United States and other countries may affect our ability to obtain adequate protection for our solutions, services and other technologies and the enforcement of intellectual property. Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
We use open source software, which may pose risks to our proprietary software and solutions.
We use open source software in our solutions and will use open source software in the future. Some licenses governing the use of open source software contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses to third parties at no cost, if we combine or link our proprietary software with open source software in certain manners. Although we monitor our use of open source software, we cannot assure you that all open source software is reviewed prior to use in our solutions, that our developers have not incorporated open source software into our solutions that we are unaware of, or that they will not do so in the future. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by European, United States or international courts. There is a risk that open source software licenses could be
 
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construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our solutions. Companies that incorporate open source software into their products have, in the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open source software incorporated into their product. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of an open source license, we could incur significant legal costs defending ourselves against such allegations. As a result of our current or future use of open source software, we may face claims or litigation, be required to release our proprietary source code, pay damages for breach of contract, re-engineer our solutions, discontinue making our solutions available in the event re-engineering cannot be accomplished on a timely basis or take other remedial action. Any such re-engineering or other remedial efforts could require significant additional research and development resources, and we may not be able to successfully complete any such re-engineering or other remedial efforts. Further, in addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software, and may contain security vulnerabilities. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and results of operations.
Risks Related to the Healthcare Industry
All our offerings are subject to laws, rules, policies and audiology board certification oversight governing licensure, the practice of professional audiology services and teleaudiology that could change and make our approach illegal for us or our partners.
We are subject to numerous state and local hearing aid and audiology practice laws and regulations relating to, among other matters, licensure, the conduct of examinations, otoscopy, and board certification and registration of audiologists or other hearing care professionals and other individuals we employ or contract with to provide services and dispense hearing aids. These state and local laws and regulations are complex, change frequently and have tended to become more stringent over time. Further, our ability to conduct and optimize our teleaudiology and other offerings in each state or foreign jurisdiction is dependent upon their treatment of such offerings, including the permissibility of asynchronous store-and-forward teleaudiology, under such state or foreign jurisdictions’ laws, rules and policies governing the provision of audiology services, which are subject to changing political, regulatory and other influences. Some state or foreign medical boards have established rules or interpreted existing rules in a manner that limits or restricts our ability to conduct or optimize our business and such rules and interpretations have resulted in or may result in audiologists declining to work for or contract with us.
Due to the nature of the teleaudiology services and the provision of hearing care and treatment by healthcare providers, we and certain of our hearing care professionals are and may in the future be subject to complaints, inquiries and compliance orders by national and state regulators and medical boards. Such complaints, inquiries or compliance orders may result in disciplinary actions taken by these regulators or certification boards against the licensed audiologists or other hearing care professionals who provide services, including through our teleaudiology offering, which could include reprimands, suspension, restriction or revocation of the specialist’s professional license and certification, probation, required continuing medical education courses, monetary fines, administrative actions and other conditions. Regardless of outcome, these complaints, inquiries or compliance orders could have an adverse impact on our teleaudiology offering and our platform generally due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors. For example, in Canada, the Alberta College of Speech-Language Pathologists and Audiologists (the “ACSLPA”) issued an Advisory Statement in January 2021 with regard to our teleaudiology solution, determining that, among other things, the audiological practice of otoscopy cannot be practiced virtually in a way that complies with the ACSLPA’s interpretation of the established Standards of Practice. While the Advisory Statement itself does not have an immediate impact on hear.com directly, non-compliance with the ACSLPA Advisory Statement could result in a complaint from other college members or the public to the hearing care professional. This complaint could result in the revoking of the hearing care professional’s license to practice audiology. As a consequence, audiologists may decide not to work or contract with us or implement our teleaudiology solution as a result of this Advisory Statement or similar advisory.
 
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Due to the uncertain regulatory environment, certain governmental and regulatory authorities may determine that we or the audiologists and other hearing care professionals that we employ or contract with are in violation of their laws and regulations or may change such laws and regulations in a way that restricts our offerings in their jurisdictions. In the event that we must remedy such violations or take steps to comply with such restrictions, we may be required to modify our offerings in such states and foreign jurisdictions in a manner that undermines our offerings or business, we may become subject to fines, other penalties or regulatory or enforcement actions or, if we determine that the requirements to operate in compliance in such states and foreign jurisdictions are overly burdensome, we may elect to terminate our operations in such states and foreign jurisdictions. In each case, our revenue may decline and our business, financial condition and results of operations could be materially adversely affected.
Laws regulating the corporate practice of audiology could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws could subject us to penalties or require a restructuring of our business.
Some states have laws that prohibit business entities, such as us, from providing professional audiology services, employing audiologists or hearing care professionals, exercising control over professional judgment or medical decisions by audiologists or hearing care professionals or engaging in certain arrangements with audiologists or hearing care professionals (such activities generally referred to as the “corporate practice of audiology”). Corporate practice of audiology regulations and other similar laws may also prevent fee-splitting, or the sharing of professional service income with non-professional or business interests. In some states these prohibitions are expressly stated in a statute or regulation, while in other states the prohibition is a matter of judicial or regulatory interpretation. Some of the relevant laws, regulations and agency interpretations in states with corporate practice of audiology restrictions have been subject to limited judicial and regulatory interpretation. The interpretation and enforcement of these laws varies significantly from state to state. Moreover, state laws are subject to change. States in which we currently operate generally prohibit the corporate practice of audiology, and other states may as well.
Penalties for violations of the corporate practice of audiology vary by state and may result in audiologists or hearing care professionals being subject to disciplinary action, as well as to forfeiture of revenues from payors for services rendered. For lay entities, violations may also bring both civil and, in more extreme cases, criminal liability for engaging in the provision of professional audiology services without a license.
Regulatory authorities and other parties may assert that we are engaged in the prohibited corporate practice of audiology or that our agreements with audiologists and hearing care professionals are in violation of prohibitions on the corporate practice of audiology or that our arrangements constitute unlawful fee-splitting. If this were to occur, we could be subject to civil and/or criminal penalties, our agreements could be found legally invalid and unenforceable (in whole or in part), potentially resulting in a loss of revenues and an adverse effect on the results of operations derived from such practices or we could be required to restructure our contractual arrangements. Such a determination could force a restructuring of our agreements with audiologists and hearing care professionals with the affected practices. There can be no assurance that such a restructuring would be feasible, or that it could be accomplished within a reasonable time frame without a material adverse effect on our business, results of operations, financial condition and cash flows. If our agreements or arrangements with audiologists or other hearing care professionals are deemed invalid under state corporate practice of audiology and similar laws or federal law, or are terminated as a result of changes in state law, it could have a material impact on our results of operations and financial condition. Any changes to federal or state law that prohibit such agreements or arrangements could also have a material impact upon our results of operations and financial condition.
If our arrangements with audiologists and other hearing care professionals are found to constitute the improper rendering of professional audiology services or fee splitting under applicable state laws, our business, financial condition and our ability to operate in those states could be adversely impacted.
Our contractual relationships with our partner providers and other hearing care professionals may implicate certain state laws in the United States and laws of foreign jurisdictions in which we operate that generally prohibit non-professional entities from providing licensed audiology services, exercising control over
 
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licensed audiologists or other hearing care professionals or engaging in certain practices such as fee-splitting with such licensed professionals. Although we believe that the hearing care professionals maintain exclusive authority regarding the delivery of medical care, there can be no assurance that these laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the future that could have a material and adverse effect on our business, financial condition and results of operations. Regulatory authorities, state boards of audiology and hearing aid dispensers, state attorneys general and other parties, including our partner providers, some of whom are directly employed by us, may assert that we are engaged in the provision of professional audiology services, and/or that our arrangements with our affiliated or employed audiologists and other hearing care professionals constitute unlawful fee-splitting. If a jurisdiction’s prohibition on the corporate practice of audiology or fee-splitting is interpreted in a manner that is inconsistent with our practices, we would be required to restructure or terminate our relationships with our partner providers and employed audiologists and other hearing care professionals to bring our activities into compliance with such laws. A determination of non-compliance, or the termination of or failure to successfully restructure these relationships could result in disciplinary action, penalties, damages, fines, and/or a loss of revenue, any of which could have a material and adverse effect on our business, financial condition and results of operations. State or foreign corporate practice of audiology and fee-splitting prohibitions in the United States and foreign jurisdictions also often impose penalties on healthcare professionals for aiding in the improper rendering of professional services, which could discourage audiologists, hearing care professionals and other healthcare professionals from participating in our network of providers.
The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently unknown, but may adversely affect our business, financial condition and results of operations.
Our revenue is dependent on the hearing care industry and could be affected by changes in healthcare spending, reimbursement policies and other related policies. For example, in the United States, the healthcare industry is subject to changing political, regulatory and other influences. The Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010, or collectively, the ACA, enacted in March 2010, made major changes in how healthcare is delivered and reimbursed, and increased access to health insurance benefits to the uninsured and underinsured population of the United States. The ACA, among other things, increased the number of individuals with Medicaid and private insurance coverage and strengthened enforcement of fraud and abuse laws and encouraged the use of information technology.
Since its enactment, there have been judicial, United States congressional and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Cuts and Jobs Act of 2017, or Tax Act, was enacted, which includes a provision reducing to $0, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” On December 14, 2018, a United States District Court judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the United States Court of Appeals for the 5th Circuit affirmed the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The Supreme Court heard oral argument on November 10, 2020, and a decision is expected by mid-2021. In addition, there may be other efforts to challenge, repeal or replace the ACA will impact the ACA. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact our business in the future.
The results of the 2020 U.S. presidential and congressional elections have created regulatory uncertainty, including with respect to the U.S. government’s role in the U.S. healthcare industry. As a result of such elections, there are renewed and reinvigorated calls for health insurance reform, as well as changes to the ACA, which could cause significant uncertainty in the U.S. healthcare market, could increase our costs, decrease our revenues or inhibit our ability to sell our products. We cannot predict with certainty what impact any federal, state or international health reforms will have on us, but such changes could impose new and/or more stringent
 
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regulatory requirements on our activities, any of which could adversely affect our business, results of operations and financial condition.
We may be subject to state, federal and foreign fraud and abuse and other healthcare regulatory laws and regulations. If we or our commercial partners act in a manner that violates such laws or otherwise engage in misconduct, we may be subject to civil or criminal penalties as well as exclusion from government healthcare programs.
Although the majority of consumers who use our offerings do so outside of any health benefits covered under their health insurance, including any commercial or government healthcare program, we may nonetheless be subject to healthcare fraud and abuse regulation and enforcement by the United States federal and state governments and by the regulatory authorities in foreign jurisdictions in which we conduct our business. These laws impact, among other things, our sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with medical device manufacturers (including hearing aid manufacturers), marketing partners, healthcare professionals and consumers, and include, but are not limited to, the following:

the United States federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

the United States federal false claims laws, including the civil False Claims Act (which can be enforced through “qui tam,” or whistleblower actions, by private citizens on behalf of the federal government), which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the United States federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the United States federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs. Similar to the United States federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

the United States federal Civil Monetary Penalties Law, which, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration, including waivers of copayments and deductible amounts (or any part thereof), to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by a state or federal healthcare program;

federal consumer protection and unfair competition laws, which broadly regulate platform activities and activities that potentially harm consumers; and

state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers and self-pay patients.
With respect to our operations in foreign jurisdictions, we may also be subject to regulations prohibiting kickbacks, schemes to defraud healthcare benefit programs and deceptive advertising. In the European Union,
 
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these regulations are often harmonized at the level of the European Union. They are similar to those applicable in the United States but sometimes more stringent. These regulations are enforced by the competent authorities of the EU member states, which may result in discrepancies in their application.
To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and referral sources, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, entities may also have to agree to additional compliance, monitoring and reporting requirements as part of a consent decree, non-prosecution or corporate integrity agreement. Any such investigation or settlements could increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and increase costs.
The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities may conclude that our business practices, including, without limitation, our revenue sharing arrangements with our partners, our arrangements with the hearing aid manufacturers, our arrangements with providers licensed to practice audiology or to dispense hearing aids, our arrangements with entities that provide us with rebate administrative services, and our sales and marketing practices, do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, and additional oversight, monitoring and reporting requirements if we become subject to a corporate integrity agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the medical device manufacturers (including hearing aid manufacturers), marketing partners or other entities with whom we do business is found not to be in compliance with applicable laws, they may be subject to the same criminal, civil or administrative sanctions, including exclusion from government-funded healthcare programs.
The products that we sell are subject to extensive government regulation and oversight by the FDA. We rely on our third-party suppliers to comply with applicable requirements, and their failure to do so, may materially and adversely affect our business.
In the United States, the design, development, research, manufacture, testing, labeling, promotion, advertising, distribution, marketing, sale and export and import of hearing instruments are subject to regulation by numerous governmental authorities, including by the FDA as medical devices. Specifically, the Federal Food, Drug, and Cosmetic Act, or the FDCA, as well as FDA regulations and other federal and state statutes and regulations, govern, among other things, medical device design and development, preclinical and clinical testing, device safety, premarket clearance or approval, establishment registration and device listing, manufacturing, labeling, storage, record-keeping, advertising and promotion, sales and distribution, export and import, recalls and field safety corrective actions and post-market surveillance, including complaint handling and medical device reporting of adverse events.
We rely on our third-party suppliers to comply with applicable requirements relating to the products that they manufacture and supply to us for sale to our customers. If these third parties fail to comply with applicable requirements, our operations could be disrupted and we may be required to contract with alternate suppliers, which could result in substantial delays and which could materially and adversely affect our business, financial conditions, results of operations and growth prospects.
 
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Risks Related to the Corporate Reorganization and Our Operation as a Stand-alone Business
The hear.com group is subject to a number of risks in connection with the Corporate Reorganization, the transitional services agreement and its operation as a stand-alone business.
Prior to the consummation of this offering, the hear.com group has been part of the WS Audiology Group and will only be separated into a stand-alone business in connection with this offering. See “Corporate Reorganization.” Certain business functions are currently and will, pursuant to a transitional services agreement (the “TSA”), continue to be carried out centrally by the WS Audiology Group for a limited period of time following the Corporate Reorganization, including certain IT applications, payroll services, arrangements with logistics providers and legal services. We expect that the TSA will initially be for a term of nine months, with the option for us to extend the term for one period of three months, subject to early termination rights based on advance written notice. The TSA, and the Corporate Reorganization more generally, will be negotiated prior to this offering, at a time when the hear.com group will still be part of the WS Audiology Group. The agreements generally will be entered into on arms-length terms similar to those that would be agreed with an unaffiliated third party such as a buyer in a sale transaction, but we cannot assure you that we will succeed in obtaining the services to which they relate at the same or better levels, or at the same or lower costs, directly from third party providers. The TSA is important to us, allowing us to construct business infrastructure that is appropriate to our needs as a stand-alone business without disrupting the hear.com group’s business operations. The TSA, however, does not include every service that the hear.com group has received from the WS Audiology Group in the past. Following the cessation of the TSA, we will need to provide internally, or obtain from unaffiliated third parties, the services that we will no longer receive from the WS Audiology Group. After the TSA expires, we may not be able to replace these services at all, or to obtain these services at prices or on terms as favorable as the TSA provide.
If the services covered by the TSA are not provided as anticipated, or if we are unable to successfully implement plans to migrate from the TSA to stand-alone business functions on the timescale anticipated and on the costs projected, or at all, such developments could have a material adverse effect on our business, financial condition and results of operations. In addition, any failure or significant disruption to the delivery of the WS Audiology Groups’ services during the transitional period could impact our ability to provide services and to perform administrative services on a timely basis, may result in service interruptions and divert management attention from other aspects of our operations or could result in weaknesses and deficiencies in our internal controls. Any such development could have a material adverse effect on our business, financial condition and results of operations.
In connection with this offering, our corporate governance and internal policies and procedures will need to be amended for our operation as a stand-alone business.
Because the hear.com business has historically operated as part of the WS Audiology Group, we may be unable to successfully establish the infrastructure or implement the changes necessary to operate as a stand-alone business, or may incur additional costs that could adversely affect our business. In particular, in connection with this offering our corporate governance arrangements and internal policies and procedures will need to be adopted for the operation of the hear.com group as a stand-alone business. Any failure to implement corporate governance arrangements or internal policies and procedures suitable to the needs of a stand-alone business could have a material adverse effect on our business, financial condition and results of operations. If we fail to obtain the quality of services necessary to operate effectively or incur greater costs in obtaining these services, our business, financial condition and results of operations may be adversely affected.
The audited combined financial statements and the hear.com group’s historical results may not be representative of our future results as a stand-alone company.
The audited combined financial statements presented in this prospectus are combined carve-out financial statements prepared from the historical IFRS group reporting packages prepared for the purpose of reporting to the WS Audiology Group. Although the entities comprising the hear.com group have been under control of the same parent entity and, with some exceptions, largely operated separately from the rest of the WS Audiology Group, the hear.com group was not organized as a distinct stand-alone group and did not prepare its own consolidated financial statements. Additionally, in the past, the WS Audiology Group has provided
 
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significant financing to the hear.com group. For these reasons, the audited combined financial statements and the other historical financial information included in this prospectus do not necessarily reflect what our results of operations, financial condition, cash flows or expenses would have been as a stand-alone company or indicate what they will be in the future.
The historical costs and expenses reflected in the hear.com group’s audited combined financial statements include an allocation for certain corporate functions historically provided by the WS Audiology Group, including insurance costs and information technology functions. These allocations are based on what the hear.com group and the WS Audiology Group consider to be reasonable reflections of the historical utilization levels of these functions required in support of the hear.com group’s business; however, we believe the costs of these functions on a stand-alone basis may differ from costs allocated historically.
The historical income taxes reflected in the hear.com group’s audited combined financial statements have been determined as if all entities comprising the hear.com group were separate tax-paying entities. For example, in the United States, hear.com, LLC has been a member of a tax group and income taxes have been levied at a higher tax group level. For purposes of the combined financial statements, tax expense for this entity has been computed on a stand-alone basis. We believe this method is reasonable for purposes of the combined financial statements; however, the tax impact may not reflect what they would have been as a stand-alone company or indicate what our income taxes will be in the future.
For more information on results of operations, financial condition and cash flows, refer to “Selected Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited combined financial statements and accompanying notes included elsewhere in this prospectus.
We will incur significant transaction and separation costs as a result of the Corporate Reorganization.
We expect to incur significant one-time transaction costs related to the Corporate Reorganization. These transaction costs include legal, tax advisory, and accounting fees and expenses and other related charges. We may also incur additional unanticipated transaction costs in connection with the Corporate Reorganization, including in connection with the TSA and our preparations for operating as a stand-alone business.
Risks Related to Our Common Shares, this Offering and Our Status as a Public Company
An active and liquid trading market for our common shares may not develop or be sustainable. If an active trading market does not develop, investors may not be able to resell their common shares at or above the initial public offering price and our ability to raise capital in the future may be impaired.
Prior to this offering, there has been no public market for our common shares. The initial public offering price for our common shares will be determined through negotiations with the underwriters. This price may not reflect the price at which investors in the market will be willing to buy and sell our common shares following this offering. Although we have applied to list our common shares on the Nasdaq Global Market, or Nasdaq, an active and liquid trading market for our common shares may never develop or, if developed, be maintained following this offering. If an active and liquid market for our common shares does not develop or is not maintained, the liquidity and market price of the common shares may be adversely affected and it may be difficult for you to sell common shares you purchase in this offering without depressing the market price for the common shares or at all. An inactive and illiquid trading market may also impair our ability to raise capital to continue to fund operations by selling common shares and may impair our ability to acquire other companies or technologies by using our common shares as consideration.
If you purchase common shares in this offering, you will suffer immediate dilution in the net tangible book value of your investment.
The initial public offering price of our common shares is higher than the net tangible book value per share of outstanding common shares prior to completion of this offering. Based on our net tangible book value as of December 31, 2020, upon the issuance and sale of                 common shares by us at an
 
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assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, if you purchase our common shares in this offering, you will suffer immediate dilution of approximately $        per share in net tangible book value. Dilution is the amount by which the offering price paid by purchasers of our common shares in this offering will exceed the pro forma net tangible book value per share of our common shares upon completion of this offering. If the underwriters exercise their option to purchase additional shares, you will experience further dilution. In addition, you will pay more for your common shares than the amounts paid by our existing owners. You may experience additional dilution upon future equity issuances or the exercise of share options to purchase common shares granted to our directors, executive officers and employees under our current and future share incentive plans. See “Dilution.”
The trading price of our common shares is likely to be highly volatile, which could result in substantial losses for purchasers of our common shares in this offering, and a decline in our share price and invite securities litigation against our company or our management.
Our share price is likely to be volatile. The stock market has experienced extreme volatility. This volatility often has been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common shares at or above the initial public offering price and you may lose some or all of your investment. The market price for our common shares may be influenced by many factors, including:

actual or anticipated fluctuations in our (quarterly) financial results or the (quarterly) financial results of companies perceived to be similar to us;

results of operations that vary from those of our competitors;

changes in the market’s expectations about our operating results and results of operations that vary from the expectations of securities analysts and investors;

the success of existing or new competitive products or technologies;

announcements by us or our competitors of significant contracts, new products, acquisitions, strategic partnerships, joint marketing relationships, joint ventures, collaborations or capital commitments;

operating and share price performance of other companies that investors deem comparable to us;

the recruitment or departure of key personnel;

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

sales or future sales of our common shares by us, our insiders or other shareholders, or the perception of such future sales;

short sales, hedging and other derivative transactions in our common shares;

changes in estimates or recommendations by securities analysts, if any, that cover our shares;

investor perceptions of the investment opportunity associated with our common shares relative to other investment alternatives;

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

the development and sustainability of an active and liquid trading market for our shares;

announcements relating to litigation and arbitration proceedings or regulatory action involving us;
 
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regulatory or legal developments in the United States and other countries, including changes to tax laws;

changes in accounting principles;

fluctuations in exchange rates;

general economic, industry and market conditions;

other events or factors, including those resulting from natural disasters, outbreaks of health epidemics and contagious diseases (including the COVID-19 pandemic), war, acts of terrorism or responses to these events; and

the other factors described in this “Risk Factors” section.
Any of these factors may materially adversely affect the market price of our common shares, regardless of our actual operating performance. The stock market in general, and Nasdaq in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these shares, and of our securities, may not be predictable. A loss of investor confidence in the market for the shares of other companies which investors perceive to be similar to us could depress the price of our securities regardless of our business, prospects, financial conditions or results of operations. In addition, price volatility may be greater if the public float and trading volume of our common shares are low. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
In the past, securities class action litigation has often been brought against a company and its management following periods of market volatility and a decline in the market price of the company’s securities. Such litigation, if instituted against us, could cause us or members of our management to incur substantial costs and divert management’s attention and resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such securities class action litigation, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our business, financial condition and results of operations.
Future sales, or the perception of future sales, of common shares by us or our existing shareholders following this offering could cause the market price for our common shares to decline.
After this offering, the sale of our common shares, or the perception that such sales could occur, could harm the prevailing market price of our common shares. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Upon consummation of this offering, we will have a total of                 common shares outstanding. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates (including our principal shareholders), which may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale,” and any common shares purchased in our directed share program which are subject to the lock-up agreements described in “Underwriters.”
The                 common shares held by the Parent and certain of our directors, executive officers and employees immediately following the consummation of this offering will represent approximately        % of our total outstanding common shares following this offering (which, in either case, do not include any shares that may be purchased by these holders through our directed share program), based on the number of shares outstanding as of December 31, 2020 (after giving effect to the Recapitalization and the Corporate Reorganization). Such shares will be “restricted securities” within the meaning of Rule 144 and subject to
 
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certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares Eligible for Future Sale.”
In connection with this offering, we, our directors and executive officers, and the Parent, have agreed with the underwriters, subject to certain exceptions, (i) not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common shares beneficially owned or any other securities so owned convertible into or exercisable or exchangeable for common shares or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares, in each case during the period ending 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. See “Shares Eligible for Future Sale—Lock-Up Agreements.” for a description of these lock-up agreements.
Upon the expiration of the contractual lock-up agreements pertaining to this offering, up to an additional                 shares will be eligible for sale in the public market, of which                 are held by our directors, executive officers and the Parent and will be subject to volume, manner of sale and other limitations under Rule 144. Following completion of this offering, shares covered by registration rights would represent approximately        % of our outstanding common shares (or        %, if the underwriters exercise in full their option to purchase additional common shares). Registration of any of these outstanding common shares would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”
As restrictions on resale end or if these shareholders exercise their registration rights, the market price of our common shares could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our common shares or other securities.
Future offerings of debt securities, which would rank senior to our common shares upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common shares for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common shares.
We may require further capital in the future to finance our business operations and planned growth. Therefore, we may seek to raise capital through offerings of debt securities (possibly including convertible debt securities) or additional offerings of equity securities. An issuance of additional equity securities or securities with a right to convert into equity, such as convertible bonds or warrant bonds, could adversely affect the market price of our common shares and would dilute the economic and voting interests of shareholders if made without granting subscription rights to existing shareholders. Because the timing and nature of any future offering would depend on market conditions and other factors beyond our control, it is not possible to predict or estimate the amount, timing, or nature of future offerings. Purchasers of our common shares in this offering bear therefore the risk of our future offerings reducing the market price of our common shares and diluting their ownership interest in us. In addition, the exercise of shares options to purchase common shares granted to our directors, officers and employees under our current and future share incentive plans could lead to a dilution of the economic and voting interests of existing shareholders. See “Dilution.” Furthermore, a proposal to the shareholder meeting to take any of the abovementioned measures with dilutive effects on the existing shareholdings, or any announcement thereof, could adversely affect the market price of our common shares.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of our common shares issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding common shares. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.
Shareholders in jurisdictions outside the Netherlands may not be able to participate in future issues of our common shares unless we decide to take additional steps to comply with applicable local laws and regulations of such jurisdictions.
In the case of certain offerings of additional equity capital our existing shareholders are generally entitled under Dutch law to full preemptive rights, unless such rights are specifically excluded either by a resolution of
 
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the general meeting of shareholders or by a resolution of the board of directors (if the board of directors has been designated by the general meeting of shareholders for this purpose). See “Description of Share Capital and Articles of Association—Comparison of Dutch Corporate Law and Our Articles of Association and U.S. Corporate Law—Preemptive Rights.” Shareholders outside the Netherlands may however not be able to exercise preemptive rights in accordance with applicable local laws and jurisdictions. For example, shareholders in the United States may not be able to exercise preemptive rights unless the common shares to be issued upon exercise of such rights are registered under the Securities Act or are subject to an exemption from registration under the Securities Act. We cannot assure any shareholders outside the Netherlands that steps will be taken to enable them to exercise preemptive rights, or to permit them to receive any proceeds or other amounts relating to preemptive rights.
We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.
We are a holding company with no material direct operations. Following the completion of the offering and the Corporate Reorganization, audibene GmbH (Germany), hear.com USA Parent LLC (United States), Soundrise Hearing Solutions Private Limited (India) and Hear.com Korea Limited (South Korea), together with their respective subsidiaries, will own substantially all of our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us. If we are unable to obtain funds from our subsidiaries, we may be unable to meet our financial obligations.
Our common shares are subordinate to all other securities and claims, including our existing and future indebtedness, and you may lose some or all of your investment.
Our common shares will rank junior to all other securities and to other non-equity claims against us and our assets, including our existing and future indebtedness, available to satisfy claims against us, including in a liquidation. In the event of a liquidation, you may lose some or all of your investment.
We have broad discretion in the use of the net proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return on your investment.
Although we currently intend to use the net proceeds from this offering in the manner described in the section titled “Use of Proceeds” in this prospectus, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common shares. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering. The failure by our management to apply these funds effectively could result in financial losses that could harm our business, and may cause the price of our common shares to decline. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
As a “foreign private issuer” under the rules and regulations of the SEC, we are not subject to U.S. proxy rules and are permitted to, and may, file less or different information with the SEC than a company incorporated in the United States or otherwise not filing as a “foreign private issuer.”
We are considered a “foreign private issuer” as such term is defined in Rule 405 of Regulation C under the Exchange Act. We are therefore exempt from certain rules under the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are
 
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required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Moreover, we currently prepare our financial statements in accordance with IFRS as issued by the IASB. We will not be required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial statements are prepared in accordance with IFRS as issued by the IASB. Foreign private issuers are also exempt from Regulation Fair Disclosure, which imposes restrictions on the selective disclosure of material information. In addition, our directors, officers, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Accordingly, if you continue to hold our securities, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers and receive less or different information about us than you would receive about a U.S. domestic public company.
We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
We could lose our status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of our outstanding voting securities are directly or indirectly held of record by U.S. holders and any one of the following is true: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our status as a “foreign private issuer” in the future, we would no longer be exempt from the rules under the Exchange Act applicable to foreign private issuers and, among others, would be required to comply with all of the periodic disclosure, current reporting requirements and proxy solicitation rules of the Exchange Act applicable to U.S. domestic issuers and would be required to file periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States. If this were to happen, we would likely incur substantial costs in fulfilling these additional regulatory requirements, which are more detailed and extensive than the requirements for foreign private issuers, and members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled. The regulatory and compliance costs to us if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. These rules and regulations could also make it more difficult for us to attract and retain qualified directors. In addition, we might also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules.
As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.
We are considered a “foreign private issuer” under the Exchange Act. As a result, in accordance with the listing requirements of Nasdaq we will rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of Nasdaq. In accordance with Dutch law and generally accepted business practices, our Articles of Association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Although we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands, thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b). As permitted by the listing requirements of Nasdaq, we have also opted out of the requirements of Nasdaq Listing Rule 5605(d), which requires, among other things, an issuer to have a compensation committee that consists entirely of independent directors, Nasdaq Listing Rule 5605(e), which requires independent director oversight of director nominations, and Nasdaq Listing Rule 5605(b)(2), which requires an issuer to have a majority of independent directors on its board. We also intend to rely on the phase-in rules of the SEC and Nasdaq with respect to the independence of our audit committee. These rules require that all members of our audit committee must meet the independence standard for audit committee members within one year of the effectiveness of the registration statement of which this
 
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prospectus forms a part. In addition, we have opted out of shareholder approval requirements, as included in Nasdaq Listing Rules, for the issuance of securities in connection with certain events such as the acquisition of shares or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. For an overview of our corporate governance principles, see “Description of Share Capital and Articles of Association—Corporate governance.” Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to these Nasdaq requirements.
Nasdaq may not continue to list our common shares on its exchange, which could limit the ability of investors to make transactions in our common shares and subject us to additional trading restrictions.
To continue listing our securities on Nasdaq, we are required to demonstrate compliance with Nasdaq’s continued listing requirements. There can be no assurance that we will be able to meet Nasdaq’s continued listing requirement or maintain other listing standards. If our common shares are delisted by Nasdaq, and it is not possible to list our common shares on another national securities exchange, we expect our common shares to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

a less liquid trading market for our common shares;

more limited market quotations for our common shares;

determination that our common shares are “penny stocks” that requires broker to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common shares;

more limited research coverage by securities analysts;

loss of reputation;

more difficult and more expensive equity financings in the future; and

decreased ability to issue additional securities or obtain additional funding in the future.
The U.S. National Securities Markets Improvement Act of 1996, which is a U.S. federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If our common shares remain listed on Nasdaq, such shares will be covered securities. Although U.S. states are preempted from regulating the sale of our common shares, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If our securities were no longer listed on Nasdaq and therefore not “covered securities,” we would be subject to regulation in each state in which we offer our securities.
We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares may be less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure in this prospectus;

not being required to comply with the auditor attestation requirements of Section 404 of SOX in the assessment of our internal control over financial reporting, which would otherwise be applicable beginning with the second annual report following consummation of the offering;
 
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reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

not being required to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the consummation of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that are held by non-affiliates exceeds $700 million as of the last day of the second financial quarter of such financial year, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. SOX, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations, such as U.S. and Dutch laws and regulations, impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect that we will need to hire additional accounting, finance and other personnel or engage outside consultants in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, its committees, or as executive officers.
We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common shares, fines, sanctions and other regulatory action and potentially civil litigation.
If we fail to implement effective internal controls over financial reporting, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial and other public information and have a negative effect on the trading price of our common shares.
We have been a private company since our inception and, as such, we have not had the internal control and financial reporting requirements that are required of a publicly-traded company. As a private company,
 
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we had limited accounting personnel and other resources to address our internal controls. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. We cannot assure you that the robust internal control and financial reporting requirements we will adopt as the result of being a public company will not lead to the discovery of past or future control deficiencies in our financial reporting. Any failure to identify and remediate past control deficiencies, or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations.
Upon the completion of this offering, we will become a public company in the United States subject to SOX. Section 404(a) of SOX (“Section 404”) requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. We will be required to disclose changes made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls annually. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. In particular, we will be required to furnish a report by management on, among other things, the effectiveness and any material weaknesses of our internal control over financial reporting beginning with our annual report on Form 20-F for the year ended September 30, 2022. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of SOX, which would otherwise be applicable beginning with the second annual report following consummation of this offering. We could be an “emerging growth company” for up to five years after this offering. An independent assessment of the effectiveness of our internal controls by our registered public accounting could detect past or future problems that our management’s assessment might not. Any testing by us conducted in connection with Section 404 of SOX, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify areas for further attention or improvement. In particular, undetected past or future material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation and the trading price of our common shares may suffer. We may also not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or may not be able to remediate some of the identified deficiencies in time to meet the deadline imposed by SOX for compliance with the requirements of Section 404.
The process of designing, implementing and maintaining effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we fail to design, implement and maintain effective internal controls and financial reporting procedures, it could severely inhibit our ability to accurately report our results of operations and result in material misstatements in our financial statements, impair our ability to raise revenue, subject us to regulatory scrutiny and sanctions and cause investors to lose confidence in our reported financial information, which in turn could have a negative effect on our business and the trading price of our common shares. Additionally, ineffective internal control over financial reporting could result in deficiencies that are deemed material weaknesses, and any such material weaknesses could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures. Ineffective internal control over financial reporting could also expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations, civil or criminal sanctions and lawsuits. In addition, our internal controls over financial reporting will not prevent or detect all errors or fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
We do not anticipate paying any cash dividends on our common shares in the foreseeable future. Accordingly, shareholders must rely on capital appreciation, if any, for any return on their investment.
We have never declared nor paid cash dividends on our common shares. We currently plan to retain all of our future earnings, if any, to finance the operation, development and growth of our business. In addition, the
 
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terms of any future debt or credit agreements and any restrictions imposed by applicable law may preclude us from paying dividends. As a result, capital appreciation, if any, of our common shares will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common shares.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common shares will likely depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We do not currently have research coverage, and there can be no assurance that analysts will cover us, or provide favorable coverage. Securities or industry analysts may elect not to provide research coverage of our common shares after this offering, and such lack of research coverage may negatively impact the market price of our common shares. In the event we do have analyst coverage, if one or more analysts downgrade our common shares, change their opinion of our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline. While we expect research analyst coverage of our common shares, if no analysts commence coverage of our shares, the trading price and volume for our common shares could be adversely affected.
Upon the consummation of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap). The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation in a U.S. jurisdiction.
Upon the consummation of this offering, we will be a public company with limited liability (naamloze vennootschap) organized under the laws of the Netherlands. Our corporate affairs are governed by our Articles of Association and by the laws governing companies incorporated in the Netherlands. A further summary of applicable Dutch company law and our Articles of Association is contained in this prospectus under “Description of Share Capital and Articles of Association.” However, there can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.
The rights of shareholders and the responsibilities of directors under Dutch law may be different from the rights and obligations of shareholders and directors in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our executive officers and board of directors are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Description of Share Capital and Articles of Association—Comparison of Dutch Corporate Law and our Articles of Association and U.S. Corporate Law—Corporate Governance.”
Provisions in our organizational documents or Dutch corporate law might delay or prevent acquisition bids for us or other change of control transactions that might be considered favorable.
Under Dutch law, various protective measures to prevent change of control transactions are possible and permissible within the boundaries set by Dutch corporate law and Dutch case law. Certain provisions of our organizational documents may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a shareholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common shares.
These provisions provide for, among other things:

the authorization by the general meeting of shareholders to our board of directors (granted for a period not exceeding five years in line with our Articles of Association) that preferred shares may be
 
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issued by our board of directors to dilute the interest of any potential acquirer. Such preferred shares may be issued upon payment of at least 25% of their nominal value and they may be issued to a friendly party;

a provision that our directors may only be removed at the general meeting of shareholders by a two-thirds majority of the votes cast representing more than 50% of our outstanding share capital if such removal is not proposed by our board of directors;

our directors being appointed on the basis of a binding nomination by our board of directors, which can only be overruled by the general meeting of shareholders by a resolution adopted by at least a two-thirds majority of the votes cast, provided such majority represents more than half of the issued share capital (in which case the board of directors may draw up a new nomination);

requirements that certain matters, including an amendment of our Articles of Association, may only be brought to our shareholders for a vote upon a proposal by our board of directors;

a provision that special meetings may be called only by our board of directors, and not by shareholders generally (subject to the Dutch law requirement that holders of 10% of our issued shares may call a special meeting);

a provision that shareholders’ resolutions may be adopted in writing without holding a meeting of shareholders, only when, among other things, all shareholders entitled to vote have cast their vote in favor of the proposal concerned;

a provision that in principle our board of directors (and not our shareholders) may (i) schedule the date of the annual meeting and (ii) provide written notice of the date of the annual meeting;

a provision that, consistent with Dutch law, holders representing at least 3% of our issued shares must give advance notice of not less than 60 calendar days to bring business before an annual or special meeting of shareholders;

to the extent permitted under Dutch law, our directors being permitted to adopt, amend or repeal our governing documents without seeking shareholder approval; and

a forum-selection clause designating the Netherlands as the exclusive forum for hearing disputes, including shareholder derivative actions (other than actions brought to enforce a duty or liability created by United States federal securities laws).
These provisions could make it more difficult or less attractive for a third-party to acquire us or a controlling stake in us, even if the third-party’s offer may be considered beneficial by many of our shareholders. As a result, our shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Share Capital and Articles of Association.”
Our Articles of Association will provide that the competent courts of Amsterdam, the Netherlands will be the sole and exclusive forums for certain shareholder litigation matters, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our current and former directors, officers, employees or shareholders.
Our Articles of Association will provide that, unless we otherwise consent in writing to the selection of an alternative forum, the competent courts of Amsterdam, the Netherlands shall be the sole and exclusive forum for any dispute between (i) any person holding our common shares or an interest in our common shares and (ii) us, any of our directors, officers or employees (including any of our former directors, former officers or former employees to the extent the dispute arises from such director, officer or other employee’s acts or omissions while serving as our director, officer or employee), in each case (a) whether such dispute relates to the Articles of Association or otherwise and (b) provided that the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, the Exchange Act or the rules and regulations promulgated thereunder; however, there is uncertainty as to whether a court would enforce such provision for any cause of action under the Securities Act, and investors cannot waive compliance with federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in our common shares shall be deemed to have notice of and consented to the forum provisions in our Articles of Association.
 
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These choice of forum provisions may limit a shareholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for disputes with us or any of our directors, officers or other employees which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions that will be contained in our Articles of Association to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Provisions in our organizational documents and Relationship Agreement or Dutch corporate law might prevent, delay or frustrate any attempt to replace or remove the members of our board of directors.
Certain provisions of our organizational documents and Relationship Agreement or Dutch corporate law may make it more difficult for a shareholder or a third party to effect a change in our board of directors. These provisions include: a provision that our directors are appointed on the basis of a binding nomination prepared by our board of directors, which can only be overruled by a two-thirds majority of the votes cast representing more than 50% of our issued share capital; a provision that our directors may only be removed by the general meeting of shareholders by a two-thirds majority of the votes cast representing more than 50% of our issued share capital (unless the removal is proposed by the board in which case a simple majority of the votes can be sufficient); and a requirement that certain matters, including an amendment of our Articles of Association, may only be brought to our shareholders for a vote upon a proposal by our board of directors. We also expect that our Relationship Agreement will provide that, following the completion of this offering, our board of directors will initially consist of nine directors, of which (i) three directors will qualify as independent directors under the Exchange Act, the Listing Rules and the DCGC, and will be designated by WS Audiology; (ii) two directors will be members of our management and will be designated by WS Audiology; and (iii) for so long as WS Audiology, the EQT Investors and the T&W Investor, taken together, beneficially own more than 40% in voting power of our share capital, four directors will be designated by WS Audiology (the directors mentioned under (iii) collectively, the “Designated Directors”). The two members of management appointed as directors will initially be the only executive directors on the board and the remaining directors will initially be the non-executive directors. Additionally, we expect that our Relationship Agreement will provide that the two directors who are members of management and the Designated Directors will be required to resign upon request from WS Audiology and that, for so long as WS Audiology, the EQT Investors and the T&W Investor, taken together, beneficially own more than 50% in voting power of our share capital, members of our board of directors will be required to resign upon a written request by shareholders holding more than 50% of our issued and outstanding share capital. See “Certain Relationships and Related Party Transactions—Relationship Agreement.”
We are indirectly controlled by WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor, whose interests may be different than the interests of other holders of our common shares.
Upon the completion of this offering, WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor will indirectly own approximately        % of our outstanding common shares, or approximately        % if the underwriters exercise in full their option to purchase additional shares. WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor, are indirect shareholders of the Parent. As a result, they are able to indirectly control actions taken by us, including, the nomination of a majority of the members of our board of directors, the election and removal of directors, future issuances of our common shares or other securities, the payment of any dividends on our common shares, amendments to our organizational documents and the approval of significant corporate transactions, including mergers, sales of substantially all of our assets, distributions of our assets, the incurrence of indebtedness, any incurrence of liens on our assets or other significant corporate transactions. See “Principal and Selling Shareholders” elsewhere in this prospectus for more information regarding the ownership of our common shares.
The interests of WS Audiology, the EQT Investors and the T&W Investor may be materially different than the interests of our other stakeholders. For example, they may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such
 
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transactions might involve risks to you. In addition, to the extent that WS Audiology, the EQT Investors and the T&W Investor acquired an interest in our common shares at prices substantially below the price at which shares are being sold in this offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than to other investors, or they may want us to pursue strategies that deviate from the interests of other shareholders. WS Audiology, the EQT Investors and the T&W Investor may also cause us to pay dividends rather than make capital expenditures or repay any future debt. EQT and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. We expect that our Relationship Agreement will provide that none of WS Audiology, EQT, the T&W Investor or any of their respective affiliates, will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. WS Audiology, the EQT Investors and the T&W Investor also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
So long as WS Audiology and its controlling shareholders, the EQT Investors and the T&W Investor, continue to indirectly own a significant amount of our outstanding common shares, even if such amount is less than 50%, they will continue to be able to strongly influence or effectively control our decisions. For example, so long as WS Audiology, the EQT Investors and the T&W Investor, taken together, beneficially own more than 50% in voting power of our share capital, they will indirectly be able to determine the outcome of matters requiring shareholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your common shares as part of a sale of our company and ultimately might affect the market price of our common shares.
We may have potential business conflicts of interest with the WS Audiology Group with respect to our past and ongoing relationships with WS Audiology as our majority shareholder.
Real or apparent conflicts of interest may arise between the WS Audiology Group and us in a number of areas relating to our past and ongoing relationships of WS Audiology as our majority shareholder, including:

supply arrangements;

intellectual property matters;

business combinations involving our company;

entry into arms-length commercial transactions; and

other matters affecting both us and the WS Audiology Group.
In addition, certain members of hear.com management have made investments in the WS Audiology Group. As a result of these individuals’ ownership interest in the WS Audiology Group and the WS Audiology Group’s majority ownership of hear.com, conflicts of interest could arise and result in action or inaction that is detrimental to our business or could harm the implementation of our business strategy.
We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.
We are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.
Upon the consummation of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap) and we will be subject to the Dutch Corporate Governance Code (“DCGC”). The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including Nasdaq. The DCGC contains both principles and best practice provisions that regulate (i) relations between the board of directors and the shareholders (such as the general meeting of shareholders), (ii) accounting and auditing, (iii) disclosure and (financial) reporting and (iv) compliance and
 
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enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the DCGC. If they do not comply with those provisions (for example, because of a conflicting Nasdaq requirement), the company is required to give the reasons for such non-compliance.
We acknowledge the importance of good corporate governance. The board of directors agrees with the general approach and with the majority of the provisions in the DCGC. However, considering our interests and the interests of our stakeholders, there are a limited number of best practice provisions we do not apply either because such provisions conflict with or are inconsistent with the corporate governance rules of Nasdaq that apply to us, or because such provisions do not reflect best practices of global companies listed on Nasdaq. See “Description of Share Capital and Articles of Association.” This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.
The ability of shareholders to bring actions or enforce judgments against us or our directors and executive officers may be limited. Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under the laws of the Netherlands and the majority of our directors reside outside the United States. The majority of our assets and those of our directors are located outside the United States. It may not be possible for investors to effect service of process within the United States upon us or our non-U.S. resident directors or executive officers or to collect and enforce judgments obtained against us or them in the United States, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.
If a judgment is obtained in a U.S. court against us or our directors you will need to enforce such judgment in jurisdictions where we or the relevant director has assets. As a result, it could be difficult or impossible for you to bring an action against us or against these individuals outside of the United States in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws outside of the United States could render you unable to enforce a judgment against our assets or the assets of our directors.
There is currently no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be automatically be recognized or enforceable in the Netherlands unless the underlying claim is relitigated before a Dutch court of competent jurisdiction. Under current practice, however, a Dutch court will generally, subject to compliance with certain procedural requirements, recognize and give effect to the judgment if such judgment (i) is a final judgment and has been rendered by a court which has established its jurisdiction on the basis of internationally accepted grounds of jurisdiction, (ii) has not been rendered in violation of principles of proper procedure (behoorlijke rechtspleging), (iii) is not contrary to the public policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a Dutch court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court rendered in a dispute between the same parties, concerning the same subject matter and based on the same cause of action, provided that such prior judgment is capable of being recognized in the Netherlands. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. If a Dutch court upholds and regards as conclusive evidence the final judgment of the U.S. court, the Dutch court will generally grant the same judgment without litigating again on the merits.
Moreover, a Dutch court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering). Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities.
Dutch civil procedure differs substantially from U.S. civil procedure in a number of respects. Insofar as the production of evidence is concerned, U.S. law and the laws of several other jurisdictions based on common
 
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law provide for pre-trial discovery, a process by which parties to the proceedings may prior to trial compel the production of documents by adverse or third parties and the deposition of witnesses. Evidence obtained in this manner may be decisive in the outcome of any proceeding. Such pre-trial discovery process does not exist under Dutch law. In the event directors or other third parties are liable towards a Dutch company, only the company itself can bring a civil action against those parties. The individual shareholders do not have the right to bring an action on behalf of the company. Only in the event that the cause for the liability of a third party to the company also constitutes a tortious act directly against a shareholder, such shareholder has an individual right of action against such third party in its own name. The Dutch Civil Code does provide for the possibility to initiate such actions collectively and a foundation or an association whose objective is to protect the rights of a group of persons having similar interests can institute a collective action. The collective action itself does not result in an order for payment of monetary damages but may only result in a declaratory judgment (verklaring van recht). To obtain compensation for damages, individual claimants can base their claim on the declaratory judgment obtained by the foundation or association but they still need to individually sue the defendant for damages. Alternatively, in order to obtain compensation for damages, the foundation or association and the defendant may reach—often on the basis of such declaratory judgment—a settlement. A Dutch court may declare the settlement agreement binding upon all injured parties with an opt-out choice for an individual injured party. An individual injured party may also itself institute a civil claim for damages.
Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or directors and executive officers who are residents of or possessing assets in the Netherlands or other countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws. Moreover, in light of recent decisions of the Supreme Court of the United States, our actions may not be subject to the civil liability provisions of U.S. federal securities laws.
Dutch and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws.
As a company with its registered office in the Netherlands, we are subject to Dutch insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings (recast). Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us and any conflict between insolvency laws could adversely affect the ability of our shareholders to enforce their rights. Insolvency laws in the Netherlands or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.
Risks Related to Taxation
It is intended that hear.com N.V. will operate so as to be treated exclusively as a resident of the Netherlands for tax purposes, but the tax authorities of another jurisdiction may treat it also as a resident of another jurisdiction for tax purposes.
It is intended that hear.com N.V., as from its incorporation, for tax purposes will be treated as a resident of the Netherlands only. This includes tax residency for Dutch corporate income tax, Dutch dividend withholding tax and tax treaty purposes. However, we cannot exclude that a jurisdiction other than the Netherlands may treat hear.com N.V. as a resident of that other jurisdiction for tax purposes.
A company that is incorporated under the laws of the Netherlands is generally deemed to be a resident of the Netherlands for Dutch corporate income tax purposes and Dutch dividend withholding tax purposes based on domestic Dutch tax law (the “Incorporation Fiction”). However, the Incorporation Fiction does not apply for the purpose of certain specific regulations, such as the Dutch participation exemption regime.
In principle, an entity is considered tax resident of the Netherlands for bilateral tax treaty purposes if that entity is considered tax resident of the Netherlands based on domestic Dutch tax law. As such, hear.com N.V.
 
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is in principle also tax resident of the Netherlands for bilateral tax treaty purposes based on the Incorporation Fiction. However, a jurisdiction other than the Netherlands can simultaneously claim that hear.com N.V. is tax resident of that other jurisdiction, for example if hear.com N.V. is effectively managed from that other jurisdiction. As such, both the Netherlands and the other jurisdiction may treat hear.com N.V. as a domestic tax resident (“dual residency”). If the Netherlands and the other jurisdiction concluded a bilateral tax treaty to avoid double taxation, such tax treaty typically contains rules to determine whether hear.com N.V. is tax resident in either the Netherlands or in the other jurisdiction for treaty purposes. Such determination provision is typically either (i) a tie-breaker provision that assigns exclusive tax residency to the jurisdiction where hear.com N.V. is effectively managed or (ii) a mutual agreement procedure based on which the jurisdictions involved must agree in which of either jurisdiction hear.com N.V. is exclusively resident for treaty purposes. In case of a mutual agreement procedure, some bilateral tax treaties provide that the treaty is not applicable until the Netherlands has reached agreement with the other jurisdiction on the tax residency of a dual-resident entity. As such, the entity could remain tax resident in both the Netherlands and the other jurisdiction until the Netherlands and the other jurisdiction reached an agreement.
Under most bilateral tax treaties, the jurisdiction where a company is effectively managed typically plays an important role—or is even decisive—for the assessment to which jurisdiction tax residency of a dual-resident entity is assigned. To assess from which jurisdiction a company is effectively managed, all facts and circumstances should be taken into account.
hear.com N.V. intends to set up operations in such manner that it would not be regarded as a tax resident of any jurisdiction other than the Netherlands. However, we cannot assure you that its tax residence in the Netherlands will not be challenged by the relevant tax authorities in the Netherlands or by the tax authorities in any other jurisdiction (for domestic law purposes of such other jurisdiction or for the purposes of any applicable tax treaty (notably, any applicable tax treaty with the Netherlands) or otherwise).
As mentioned above, all facts and circumstances should be taken into account when assessing where hear.com N.V. is effectively managed. As such, no assurance can be provided with respect to hear.com N.V.’s tax residency. In any case, all important management decisions should be prepared and made in the Netherlands.
A failure to achieve or maintain sole tax residency in the Netherlands could result in significant adverse tax consequences for hear.com N.V., its subsidiaries and hear.com N.V.’s shareholders that are described in the section entitled “Certain Tax Considerations―Certain Dutch Tax Considerations.” The impact of this risk on the taxation of hear.com N.V.’s shareholders would differ based on the views taken by each relevant jurisdiction.
hear.com N.V. may not be eligible for treaty benefits based on bilateral tax treaties between the Netherlands and other jurisdictions.
It is intended that hear.com N.V. will be eligible for benefits under the bilateral tax treaties entered into between the Netherlands and other jurisdictions, notably the United States, Germany, India and South Korea. To be eligible for tax treaty benefits, hear.com N.V. must first of all be tax resident of the Netherlands for the purpose of the applicable treaty. However, other requirements provided in the applicable tax treaty must be satisfied as well. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) may modify, if applicable, such requirements. For example, the MLI introduces a “principal purpose test” clause, based on which treaty benefits can be denied if obtaining tax treaty benefits was the principal purpose or one of the principal purposes of the structure or transaction. Furthermore, the facts and circumstances relating to hear.com N.V.’s management and operations and the interpretation by relevant tax authorities and courts are relevant for the eligibility of hear.com N.V. for tax treaty benefits.
If hear.com N.V. is not eligible for benefits under the relevant tax treaties between the Netherlands and other jurisdictions, significant adverse tax consequences could arise to hear.com N.V., its subsidiaries and hear.com N.V.’s shareholders. Furthermore, the tax consequences described in the section entitled “Certain
 
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Tax Considerations―Certain Dutch Tax Considerations” may be different if hear.com N.V. is not eligible for benefits under the relevant tax treaties between the Netherlands and other jurisdictions.
We may be or become a passive foreign investment company, or a PFIC, which could result in adverse U.S. tax consequences to U.S. holders of our common shares.
In general, we will be a PFIC for U.S. federal income tax purposes for any taxable year in which:

at least 75% of our gross income is passive income; or

at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income.
Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe we were a PFIC for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or the foreseeable future, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. Because we have valued our goodwill based on the expected market value of our common shares, a decrease in the price of our common shares may also result in our becoming a PFIC.
If we were a PFIC, such characterization could result in adverse U.S. federal income tax consequences to you if you are a U.S. holder of our common shares. For example, if we are or become a PFIC, U.S. holders of our common shares may become subject to increased tax liabilities under U.S. federal income tax laws and regulations and will become subject to burdensome reporting requirements. For more information on PFICs, see “Certain Tax Considerations—Certain United States Federal Income Tax Considerations—Passive Foreign Investment Company.”
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “targets,” “projections,” “should,” “could,” “would,” “may,” “might,” “will,” and other similar expressions. These forward-looking statements are contained throughout this prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”
We base these forward-looking statements or projections on our current expectations, plans and assumptions, which we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at this time. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections contained in this prospectus are subject to and involve risks, uncertainties and assumptions, and therefore you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results, and therefore actual results might differ materially from those expressed in the forward-looking statements and projections. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect. Factors that might materially affect such forward-looking statements and projections include:

our ability to conduct operations in many different jurisdictions;

our ability to achieve broad market education and to change consumer perception and purchasing habits, and to innovate in a relatively mature industry;

our ability to attract, acquire and retain consumers in a cost-effective manner;

actual or perceived failures to comply with applicable data protection, privacy and security, advertising and consumer protection laws, regulations, standards and other requirements;

security incidents, data breaches, and unauthorized access to data, including personal information and protected health information;

our ability to attract, develop, motivate and retain well-qualified employees, and to prevent former key employees from competing in the hearing care space;

our ability to maintain our corporate culture;

increasing competition as a result of vertical integration of manufacturers and competition from non-specialty retailers;

our ability to maintain the satisfaction of the hearing care community;

capacity constraints in our partner provider network;

the impact of any future litigation on our business;

accelerated consolidation and formation of hearing aid purchasing groups;

deteriorating payment behavior of customers that utilize payment plans;

our ability to successfully anticipate product returns, repairs and replacement;

the formation of workers’ councils in jurisdictions in which we operate;

the occurrence of natural disasters and epidemic diseases, such as the recent COVID-19 pandemic;

changes in consumer sentiment or laws, rules or regulations regarding the use of cookies and other tracking technologies;
 
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our ability to effectively use social media, emails and text messages;

any technical, legal or other restrictions on the sending of email, mail or other messaging channels;

any failure or significant disruptions of our information technology systems and those of our third-party vendors, contractors and consultants;

fluctuations in our tax obligations and effective tax rate;

the ability of third party hearing aid manufacturers to meet their delivery obligations;

our ability to maintain and scale our network and mobile infrastructure;

the ability of third-party platforms such as the Apple App Store and Google Play App Store to distribute our platform and offerings;

our ability to avoid customer confusion about hearing aid product features and technologies;

our ability to successfully execute on our growth initiatives, business strategies or operating plan;

our ability to establish, maintain and enforce our intellectual property and proprietary rights;

our ability to protect the confidentiality of our trade secrets;

our ability to continue the use of our domain names and to prevent third parties from acquiring and using name names that infringe on, are similar to, or otherwise decrease the value of our brands, trademarks or service marks;

our ability to license rights to use technologies on reasonable terms;

changes in laws, rules and policies governing the provision of professional audiology services, fee splitting and/or audiology board oversight;

the impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending;

actions by our controlling shareholders;

any inability to design, implement, and maintain effective internal controls when required by law;

the costs and management time associated with operating as a publicly traded company; and

the other factors discussed under “Risk Factors.”
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Before investing in our common shares, investors should be aware that the occurrence of the events described under the caption “Risk Factors” and elsewhere in this prospectus could have a material adverse effect on our business, results of operations and future financial performance.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
 
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $        million from the sale of our common shares in this offering, based on an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds received by us from this offering, as follows:

to repay in full existing shareholder loans owed to certain entities of the WS Audiology Group, which have a weighted average interest rate of 5.8% and scheduled maturity dates ranging from August 5, 2021 to July 19, 2023;

to repay the outstanding consideration owed to the Parent and certain of its direct and indirect subsidiaries in connection with our acquisition of the hear.com group as described under “Corporate Reorganization.” This outstanding consideration will be represented by intercompany loans owed to the WS Audiology Group (to the extent not capitalized in connection with the Corporate Reorganization); and

the remainder for general corporate purposes, including to fund further growth and execution of our business strategy and acquisitions.
Any proceeds received by the selling shareholder in the event the underwriters exercise the option to purchase additional common shares from the selling shareholder will be received directly by the selling shareholder.
To the extent we raise more (less) proceeds in this offering than currently estimated, we expect less (more) of the additional shareholder loans to be capitalized in connection with the Corporate Reorganization and that the remainder amount to be used for general corporate purposes will not change.
A $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $        million, assuming the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the assumed underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price per share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) our net proceeds from this offering by $                million.
 
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DIVIDEND POLICY
We currently do not expect to declare any dividends on our common shares in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any determination to declare dividends in the future will be at the discretion of our board of directors, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition. In addition, because we are a holding company, our ability to pay dividends on our common shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries.
 
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CORPORATE REORGANIZATION
hear.com N.V. is a Dutch public company with limited liability (naamloze vennootschap) that has been incorporated for the purpose of this offering.
We expect that certain assets will be transferred, directly or indirectly, to hear.com N.V. prior to the consummation of this offering, including:

all shares in audibene GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung), which is currently our operating company in Germany and holds shares in certain entities that operate the hear.com business in other countries in which we are active;

all shares in hear.com, LLC, a Delaware limited liability company that operates the hear.com business in the United States;

all shares in Soundrise Hearing Solutions Private Limited, an Indian private limited company that operates the hear.com business in India;

all shares in Hear.com Korea Limited, a South Korean limited company (Yuhan Hoesa) that operates the hear.com business in South Korea; and

certain trademarks, domain names, and other assets currently owned by certain entities and employees of the WS Audiology Group.
In connection with such asset transfers, we expect that the cash pooling arrangements with the WS Audiology Group will be capitalized and that we will incur additional shareholder loans owed to the WS Audiology Group, which loans will be either capitalized or repaid with the use of proceeds from this offering.
In this prospectus, these assets are collectively referred to as the “hear.com group.” We refer to these transactions collectively as the “Corporate Reorganization.”
Additionally, following the Corporate Reorganization, hear.com N.V. will become the parent company of the hear.com group and our financial statements will be prepared and reported as the consolidated financial statements of hear.com N.V. See “Presentation of Financial Information.”
See “Certain Relationships and Related Party Transactions — Transitional Services Agreement” for a description of the transitional services agreement we expect to enter into in connection with the Corporate Reorganization.
 
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2020:

on an actual basis;

on a pro forma basis, giving effect to, the Recapitalization; and

on a pro forma as adjusted basis, giving effect to (i) the Recapitalization and the Corporate Reorganization and (ii) the issuance and sale by us of                 shares of our common shares in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the application of the net proceeds received by us from this offering to (a) repay the existing shareholder loans owed to certain entities of the WS Audiology Group and (b) repay the outstanding consideration owed to the WS Audiology Group as additional shareholder loans in connection with our acquisition of the hear.com group as described under “Corporate Reorganization,” in each case as described in “Use of Proceeds.”
You should read this table together with “Selected Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited combined financial statements and the related notes appearing elsewhere in this prospectus.
As of December 31, 2020
Actual
Pro Forma
Pro Forma
As Adjusted
(in thousands)
Cash and cash equivalents
3,230                
Long-term debt, including current portion of long-term debt:(1)
Shareholder loans owed to the WS Audiology Group
11,391 11,391
Cash pooling arrangements with the WS Audiology Group
126,593 126,593
Total long-term debt
137,984 137,984
Shareholders’ Equity:
Common shares, nominal value, €1.00 per share, 225,000 shares authorized, actual, 45,000 shares issued and outstanding, actual; common shares, nominal value €0.01 per share,              shares authorized, pro forma,       shares issued and outstanding, pro forma; common shares, nominal value €0.01 per share,       shares authorized, pro forma as adjusted,       shares issued and outstanding, pro forma as adjusted
Net assets attributable to the WS Audiology Group
(98,052) (98,052)
Currency translation differences
4,746