DarioHealth (DRIO) Risk Analysis

If our current products or any of our future products are defectively designed or manufactured, contain defective components, or are misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our device or failing to adhere to the operating guidelines or any devices not functioning as intended, could cause significant harm to patients, including death. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. Product liability claims could divert management's attention from our core business, be expensive to defend and result in sizable damage awards against us. While we maintain product liability insurance, we may not have sufficient insurance coverage for all future claims. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue. Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results of operations.

Healthcare reforms, changes in healthcare policies and changes to third-party coverage and reimbursements, including legislation enacted reforming the U.S. healthcare system and both domestic and foreign healthcare cost containment legislation, and any future changes to such legislation, may affect demand for our products and services and may have a material adverse effect on our financial condition and results of operations. Reforms implemented under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, ("ACA") in the United States, as well as state-level healthcare reform proposals, could reduce medical procedure volumes and impact the demand for medical device products or the prices at which we can sell products. The impact of healthcare reform legislation, and practices including price regulation, competitive pricing, comparative effectiveness of therapies, technology assessments, and managed care arrangements are uncertain. There can be no assurance that current levels of reimbursement will not be decreased in the future, or that future legislation, regulation, or reimbursement policies of third parties will not adversely affect the demand for our products and services or our ability to sell products and provide services on a profitable basis. The adoption of significant changes to the healthcare system in the United States, the EEA or other jurisdictions in which we may market our products and services, could limit the prices we are able to charge for our products and services or the amounts of reimbursement available for our products and services, could limit the acceptance and availability of our products and services, reduce medical procedure volumes and increase operational and other costs. Legislative and regulatory changes under the ACA remain possible, but it is unknown what form any such changes or any law would take, and how or whether it may affect the medical device industry as a whole or our business in the future. In addition to the ACA, there have been and will likely continue to be other federal and state changes that affect the provision of healthcare goods and services in the United States. While we are unable to predict what changes may ultimately be enacted, to the extent that future changes affect how our products and services are paid for and reimbursed by government and private payers, our business could be adversely impacted. Moreover, complying with any new legislation or reversing changes implemented under the ACA could be time-intensive and expensive, resulting in a material adverse effect on the business. In addition, there has been heightened governmental scrutiny, including increasing legislative and enforcement interest, in recent years over the manner in which manufacturers set prices for their marketed healthcare products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among other things, to bring more transparency to healthcare product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for healthcare products. Individual states in the United States have also become increasingly active in implementing regulations designed to control healthcare product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation of healthcare products from other countries. Additionally, third-party payors and government authorities have become increasingly interested in reference pricing systems and publication of discounts and list prices.

The market for digital solutions addressing cardiometabolic and behavioral health conditions is highly competitive and continues to evolve. Our primary business model focuses on providing digital cardiometabolic and behavioral health programs to health plans and self-insured employers, while we also sell connected health devices for chronic condition management directly to consumers. In our enterprise business, we compete with a range of digital health vendors offering condition management, coaching and virtual care services, including companies such as Teladoc Health, Omada Health, Vida Health and Virta Health.  Some competitors offer broad virtual care platforms, while others focus on specific conditions such as diabetes, weight management or mental health. Many of these companies have greater financial resources, larger sales organizations, broader product offerings or longer operating histories than we do. In our D2C device business, we compete with manufacturers and sellers of blood glucose monitoring systems and other connected health devices, including large, established companies with greater brand recognition, broader distribution and substantially greater financial, marketing and research & development resources than we do. Competition in our markets may result in pricing pressure, longer sales cycles, higher customer acquisition costs and lower margins. Some competitors may bundle services or offer lower prices to gain market share. In addition, large technology companies and new entrants may seek to enter digital health markets by leveraging existing consumer platforms or data assets. To compete effectively, we must continue to demonstrate value to payers and employers, maintain engagement among members and differentiate our offerings. If we are unable to compete successfully against current or future competitors, our ability to grow revenue and achieve profitability could be adversely affected.

Our product offering consists of our digital health engagement platform, which is designed to provide digital health solutions across cardiometabolic and behavioral health conditions, through which we digitally engage users, assist them in monitoring chronic conditions and provide coaching, support, digital communications, connected devices, data analytics and alerts. We primarily generate revenue under a Business-to-Business-to-Consumer ("B2B2C") model by contracting with employers, health plans and other enterprise customers, who in turn make our solutions available to their eligible members. While we have entered into agreements with employers and health plans in the United States, enterprise adoption of digital health solutions is subject to lengthy sales cycles, budget constraints, procurement processes, clinical validation requirements and competitive evaluations. In addition, even where contracts are executed, revenue realization depends on member eligibility, enrollment rates, engagement levels, utilization and contract renewals, all of which are outside our direct control. Accordingly, the success of our platform depends on our ability to attract new enterprise customers, retain and expand existing customer relationships, demonstrate clinical and economic value, and achieve sufficient enrollment and sustained utilization by members. We cannot assure that prospective customers will adopt our platform, that existing customers will renew or expand their contracts, or that eligible members will enroll in or continue to use our solutions at anticipated levels. If adoption, enrollment, engagement or renewal rates are lower than expected, or if customers reduce the scope of their agreements, our revenue growth may be adversely affected, and our business, financial condition and operating results could be materially and adversely impacted.

Our executive offices and corporate headquarters are located in Israel. In addition, most of our executive officers are residents of Israel, although the majority of our employees are located outside of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could harm our operations and results of operations. Following the October 7, 2023 attacks by Hamas terrorists in Israel's southern border, Israel declared war against Hamas and since then, Israel has been involved in military conflicts with Hamas, Hezbollah, a terrorist organization based in Lebanon, and Iran, both directly and through proxies like the Houthi movement in Yemen and armed groups in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has conducted limited military operations targeting the Syrian army, Iranian military assets and infrastructure linked to Hezbollah and other Iran-supported groups. Although certain a ceasefire agreement have been reached with Hamas and the level of hostilities has since decreased, the situation remains volatile, with the potential for escalation into a broader regional conflict involving additional terrorist organizations and possibly other countries, including as a result of instability arising from developments in Syria. On June 13, 2025, Israel launched a strike against Iran, aimed to disrupt Iran's capacity to coordinate or launch hostilities against Israel. Iran has retaliated in response, firing missiles and drones at Israeli military and civilian infrastructure. In February 2026, hostilities between Israel and Iran escalated again. In late February 2026, Israel, together with the United States, conducted a major joint military campaign of air and missile strikes against targets in Iran, which triggered a broad Iranian response and contributed to significant regional instability. The situation remains highly fluid, and we are unable to predict when, or on what terms, this escalation will be resolved. Further escalation, whether involving direct confrontation between Israel and Iran or through regional proxy groups, could result in additional mobilization of reserve personnel, further restrictions on movement or commerce, damage to infrastructure, supply chain interruptions, disruptions to global energy markets, and heightened cybersecurity threats. Any of the foregoing could materially and adversely affect our operations, financial condition, and results of operations, particularly if disruptions are prolonged or recur. It is possible that other terrorist organizations, including from within territory administered by the Palestinian National Authority, as well as other hostile countries, will join in or resume hostilities. Any hostilities involving Israel, or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. Since the multi-front conflict started on October 7, 2023, including the hostilities between Israel and Iran, our operations have not been materially adversely affected by this war. However, at this time, it is not possible to predict the intensity or duration of the war, nor can we predict how this war will ultimately affect Israel's economy in general and we continue to monitor the situation closely and examine the potential disruptions that could adversely affect our operations. Furthermore, certain of our employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military duty at any time. Many Israeli citizens who have served in the army are required to perform reserve duty until they reach the age of 40 or older, depending upon the nature of their military service. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business, financial condition and results of operations. None of our executive officers have been called up for active military duty. Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies, whether as a result of hostilities in the region or otherwise. Also, the Israeli government imposes restrictions on doing business with certain countries. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods and cooperation with Israeli-related entities based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to collaborate with other third parties. Any hostilities involving Israel, any interruption or curtailment of trade or scientific cooperation between Israel and its present partners, or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and operations. Moreover, we cannot predict how this war will ultimately affect Israel's economy in general, which may involve a downgrade in Israel's credit rating by rating agencies (such as the downgrade by Moody's of its credit rating of Israel from A1 to A2 in October 2023 and further downgrade to Baa1 with a negative outlook in September 2024, which followed by an upgrade of its outlook rating from "negative" to "stable", in January 2026). We may also be targeted by cyber terrorists specifically because we are an Israeli-related company.

Outside of the United States, we operate our business internationally, presently in Israel and India and offer our products in Europe,  Canada, and Mexico. The international operation of our business requires significant management attention, which could negatively affect our business if it diverts their attention from their other responsibilities. In the event that we are unable to manage the complications associated with international operations, our business prospects could be materially and adversely affected. In addition, ongoing geopolitical tensions and conflicts, including the Russia-Ukraine conflict and other regional conflicts, have resulted in sanctions, export controls, supply chain disruptions, and economic uncertainty in certain markets. For example, the United States, the European Union and other jurisdictions have imposed sanctions against certain Russian and Belarusian individuals and entities. Such geopolitical developments and related sanctions or trade restrictions may adversely affect economic and political stability in certain regions, including Europe, which could negatively impact our business, including our revenue, profitability, cash flows and operations. In addition, doing business with foreign customers subjects us to additional risks that we do not generally face in the United States. These risks and uncertainties include: - management, communication and integration problems resulting from cultural differences and geographic dispersion;- localization of products and services, including translation of foreign languages;- delivery, logistics and storage costs;- longer accounts receivable payment cycles and difficulties in collecting accounts receivable;- difficulties supporting international operations;- difficulties supporting customer services;- changes in economic and political conditions;- impact of trade protection measures;- complying with import or export licensing requirements;- exchange rate fluctuations;- competition from companies with international operations, including large international competitors and entrenched local companies;- potentially adverse tax consequences, including foreign tax systems and restrictions on the repatriation of earnings;- maintaining and servicing computer hardware in distant locations;- keeping current and complying with a wide variety of foreign laws and legal standards, including local labor laws;- securing or maintaining protection for our intellectual property; and - reduced or varied protection for intellectual property rights, including the ability to transfer such rights to third parties, in some countries. The occurrence of any or all of these risks could adversely affect our international business and, consequently, our results of operations and financial condition.

Because we expect to conduct a material portion of our business outside of the United States but report our financial results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. Specifically, the U.S. Dollar costs of our operations in Israel and India are influenced by any movements in the currency exchange rate of the New Israeli Shekel ("NIS") and Indian Rupee, respectively. Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currencies denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from our or the capital market's expectations.