16


UNITED STATES  SECURITIES AND EXCHANGE  COMMISSION  Washington,  D.C. 20549 FORM
10-Q (Mark One) ( X)  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE
SECURITIES  EXCHANGE  ACT OF 1934 For the  quarter  ended  JUNE 30,  2001 OR ( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 Or the transition period from ___________ to ______________



                           Commission File No. 0-10394
                              DATA I/O CORPORATION
             (Exact name of registrant as specified in its charter)

             Washington                                 91-0864123
  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
  incorporation or organization)

                            10525 Willows Road N.E.,
                           Redmond, Washington, 98052
               (Address of principal executive offices, Zip Code)

                                 (425) 881-6444
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No


7,613,754  shares of no par value  Common  Stock  issued and  outstanding  as of
August 3, 2001
<PAGE>

                              DATA I/O CORPORATION

                 FORM 10-Q For the Quarter Ended June 30, 2001

                                     INDEX

Part I - Financial Information                                             Page

     Item 1.    Financial Statements (unaudited)                             3

     Item 2.    Management's Discussion and Analysis of Financial           10
                Condition and Results of Operations

     Item 3.    Quantitative and Qualitative Disclosures About              14
                Market Risk

Part II - Other Information

     Item 1.    Legal Proceedings                                           14

     Item 2.    Changes in Securities and Use of Proceeds                   14

     Item 3.    Defaults Upon Senior Securities                             14

     Item 4.    Submission of Matters to a Vote of Security Holders         14

     Item 5.    Other Information                                           15

     Item 6.    Exhibits and Reports on Form 8-K                            15


Signatures                                                                  16





<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                                      DATA I/O CORPORATION

                                                   CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                                    Jun. 30,                Dec. 28,
                                                                                      2001                    2000
-----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)                                                  (unaudited)            Restated 1
<S>                                                                                <C>                   <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                         $2,892                 $3,133
     Marketable securities                                                              1,677                  1,944
     Trade accounts receivable, less allowance for
        doubtful accounts of $340 and $350                                              7,941                 10,627

     Inventories                                                                        7,180                  9,166
     Recoverable income taxes                                                              73                     91
     Other current assets                                                                 182                    444
                                                                                   -----------            -------------

        TOTAL CURRENT ASSETS                                                           19,945                 25,405

Property, plant and equipment - net                                                     2,293                  2,190
Other assets                                                                              626                  1,151

                                                                                   -----------            -------------
        TOTAL ASSETS                                                                  $22,864                $28,746
                                                                                   ===========            =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                                    $754                 $1,674
     Accrued compensation                                                               1,378                  2,073
     Deferred revenue                                                                   2,306                  2,637
     Other accrued liabilities                                                          1,967                  1,623
     Accrued costs of business restructuring                                              176                    117
     Income taxes payable                                                                 345                    489
                                                                                   -----------            -------------

        TOTAL CURRENT LIABILITIES                                                       6,926                  8,613

Deferred gain on sale of property                                                       1,930                  2,094
                                                                                   -----------            -------------

        TOTAL LIABILITIES                                                               8,856                 10,707

COMMITMENTS                                                                                 -                      -

STOCKHOLDERS' EQUITY:
     Preferred stock -
        Authorized, 5,000,000 shares, including
           200,000 shares of Series A Junior Participating
        Issued and outstanding, none                                                        -                      -
     Common stock, at stated value -
        Authorized, 30,000,000 shares
        Issued and outstanding, 7,560,167
           and 7,494,592 shares                                                        18,408                 18,292
     Accumulated Deficit                                                               (4,232)                  (163)
     Accumulated other comprehensive loss                                                (168)                   (90)
                                                                                   -----------            -------------
        TOTAL STOCKHOLDERS' EQUITY                                                     14,008                 18,039
                                                                                   -----------            -------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $22,864                $28,746
                                                                                   ===========            =============
See accompanying notes

1  The restatement is due to the Company's adoption of SAB 101

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                      DATA I/O CORPORATION

                                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                                          (UNAUDITED)

                                                                             Quarters Ended              Six Months Ended
------------------------------------------------------------------------ ------------------------ -- --------------------------
                                                                         June 30,      June 29,       June 30,       June 29,
                                                                           2001          2000           2001           2000
------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- -----------
(in thousands, except per share data)                                                  Restated 1                    Restated 1
<S>                                                                        <C>         <C>            <C>            <C>
Net sales                                                                  $6,487       $14,094       $14,370        $19,724
Cost of goods sold                                                          3,677         7,320         8,825         10,704
                                                                         ----------    ----------    -----------    -----------
Gross margin                                                                2,810         6,774         5,545          9,020

Operating expenses:
     Research and development                                               1,765         2,112         3,703          4,533
     Selling, general and administrative                                    2,450         3,057         5,446          5,582
     Net provision (reversal) for business restructuring                      460          (255)          460           (255)
                                                                         ----------    ----------    -----------    -----------
         Total operating expenses                                           4,675         4,914         9,609          9,860
                                                                         ----------    ----------    -----------    -----------

         Operating Income/(loss)                                           (1,865)        1,860        (4,064)          (840)

Non-operating income (expense):
     Interest income                                                           51           128           117            304
     Interest expense                                                          (3)          (11)          (10)           (20)
     Foreign currency exchange                                                (83)          (11)          (90)           (14)
                                                                         ----------    ----------    -----------    -----------
         Total non-operating income/(loss)                                    (35)          106            17            270

                                                                         ----------    ----------    -----------    -----------
         Income/(loss) from operations before income taxes
             and cumulative effect of accounting changes                   (1,900)        1,966        (4,047)          (570)

Income tax expense                                                             20            17            22             30
                                                                         ----------    ----------    -----------    -----------
Income/(loss) from operations and before cumulative
   effect of accounting changes                                            (1,920)        1,949        (4,069)          (600)

Cumulative effect of change in accounting principle                             -             -             -          2,531
                                                                         ----------    ----------    -----------    -----------

Net income/(loss)                                                         ($1,920)       $1,949       ($4,069)       ($3,131)
                                                                         ==========    ==========    ===========    ===========

Basic and diluted income/(loss) per share:
     From continuing operations                                            ($0.25)        $0.26        ($0.54)        ($0.08)
     From cumulative effect of change in accounting principle                0.00          0.00          0.00          (0.35)
                                                                         ----------    ----------    -----------    -----------
     Total basic and diluted income/(loss) per share                       ($0.25)        $0.26        ($0.54)        ($0.43)
                                                                         ==========    ==========    ===========    ===========

Weighted average shares outstanding                                         7,560         7,374         7,560          7,361
                                                                         ==========    ==========    ===========    ===========
Weighted average and potential shares outstanding                           7,560         7,628         7,560          7,361

See accompanying notes

1  The restatement is due to the Company's adoption of SAB 101
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                      DATA I/O CORPORATION

                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (UNAUDITED)

-------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Jun. 30,          Jun. 29,
For the six months ended                                                                           2001              2000
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)                                                                                                  Restated 1
<S>                                                                                             <C>              <C>
OPERATING ACTIVITIES:
   Loss from operations                                                                           ($4,069)         ($3,131)
   Adjustments to reconcile loss from operations to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                                                  1,192            1,060
     Net loss on dispositions                                                                          73                -
     Amortization of deferred gain on sale                                                           (164)            (166)

     Net change in:
        Deferred revenue                                                                             (331)           1,698
        Trade accounts receivable                                                                   2,736           (1,453)
        Inventories                                                                                 1,986           (3,716)
        Recoverable income taxes                                                                       18               54
        Other current assets                                                                          178              176
        Accrued cost of business restructuring                                                         63             (334)
        Accounts payable and accrued liabilities                                                   (1,428)             822
                                                                                                -----------      --------------
   Net cash provided by (used in) operating activities                                                254           (4,990)

INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                                                        (825)            (298)
   Purchases of marketable securities                                                              (2,106)          (2,339)
   Proceeds from sales of marketable securities                                                     2,369            5,924
                                                                                                -----------      --------------
     Cash provided by (used in) investing activities                                                 (562)           3,287

FINANCING ACTIVITIES:
   Sale of common stock                                                                               117               82
   Proceeds from exercise of stock options                                                              -               72
                                                                                                -----------      --------------
     Cash provided by financing activities                                                            117              154

Decrease in cash and cash equivalents                                                                (191)          (1,549)

Effects of exchange rate changes on cash                                                              (50)               -
Cash and cash equivalents at beginning of year                                                      3,133            3,597
                                                                                                -----------      --------------
Cash and cash equivalents at end of quarter                                                        $2,892           $2,048
                                                                                                ===========      ==============
 See accompanying notes

 1 The restatement is due to the Company's adoption of SAB 101.
</TABLE>
<PAGE>



                              DATA I/O CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 - FINANCIAL STATEMENT PREPARATION

The  financial  statements  as of June 30,  2001 and June 29,  2000,  have  been
prepared by the Company  pursuant to the rules and regulations of the Securities
and Exchange  Commission  ("SEC").  These  statements  are unaudited but, in the
opinion of management,  include all adjustments  (consisting of normal recurring
adjustments  and  accruals)  necessary  to present  fairly the  results  for the
periods presented.  The balance sheet at December 28, 2000 has been derived from
the audited financial  statements at that date. Certain information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with  accounting  principles  generally  accepted in the United States have been
condensed  or  omitted  pursuant  to such SEC rules and  regulations.  Operating
results for the six months ended June 30, 2001 are not necessarily indicative of
the results  that may be expected for the year ending  December 31, 2001.  These
financial  statements  should be read in  conjunction  with the  annual  audited
financial  statements and the accompanying  notes included in the Company's Form
10-K for the year ended December 28, 2000.


NOTE 2 - INVENTORIES

Inventories consisted of the following components (in thousands):

                                         June 30,                  Dec. 28,
                                          2001                      2000
                                     ---------------          ----------------
Raw material                             $4,431                    $4,526
Work-in-process                           1,706                     2,756
Finished goods                            1,043                     1,884
                                     ---------------           ----------------
                                         $7,180                    $9,166
                                     ===============           ================


NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following components (in
thousands):

                                         June 30,                  Dec. 28,
                                           2001                      2000
                                    ----------------          ----------------
Building improvements                      $226                      $205
Equipment                                12,615                    12,703
                                    ----------------          ----------------
                                         12,841                    12,908
Less accumulated depreciation            10,548                    10,718
                                    ----------------          ----------------
                                        $ 2,293                   $ 2,190
                                    ================          ================



<PAGE>


NOTE  4- BUSINESS RESTRUCTURING PROGRESS

In the second quarter of 2001, the Company  recorded a  restructuring  charge of
$460,000  associated with actions taken to reduce the Company's  breakeven point
and realign the company with growth activities.  This operational  repositioning
was  mandated by the impact which the current  economic  slowdown and decline in
capital  spending  across a high  number of  customer  groups has had on general
demand for programming equipment.

The Company's repositioning included the following four components:  a reduction
in the  Company's  global  workforce of  approximately  40 persons or 20% of the
workforce;  discontinuance  or reallocation of numerous  projects and activities
not essential to the Company's  long-term  goals;  streamlining of activities to
decrease  discretionary  marketing,  distribution and promotional expenses;  and
consolidation  of numerous  functions  across the  organization to create a team
which is more productive and able to respond faster to global customer needs. At
June 30, 2001 all second quarter  restructuring  expenses  associated with these
activities had been paid except approximately $97,000.

On July 12,  2001 the Company  announced  that it would take  further  strategic
actions to reduce its breakeven  point,  which  included the following  actions:
closure of a facility in Germany  and its  operations  moved to other  locations
within the Company;  the Company's  four product  families will be combined into
two business groups; service groups across the organization will be consolidated
to create a team more  responsive to global  customer  needs;  and certain other
expense  reductions will be targeted for the third quarter,  including a closure
of the company's Redmond facility for one week. Restructuring charges related to
these  actions are expected to total  approximately  $0.5  million.  The Company
expects these charges will be recorded in the third quarter.

During the third quarter and fourth quarters of 1998, the Company recorded total
restructuring charges of $4.4 million as the Company began the implementation of
a plan to restructure its Redmond and foreign  subsidiary  operations to a level
more in line with the lower sales it was  experiencing and related to activities
directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH
("SMS"). The remaining reserve at June 30, 2001 is $79,000.

<PAGE>

NOTE 5 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
<TABLE>
<CAPTION>
                                                                         Second Quarter                 First Six Months
                                                                  -----------------------------    ---------------------------
                                                                     2001             2000            2001            2000
                                                                  -----------     -------------    -----------     -----------
<S>                                                                 <C>           <C>                 <C>           <C>
                                                                                  Restated 1                        Restated 1
Numerator for basic and diluted earnings per share:
       Income (loss) from operations before cumulative
         effect of change in accounting principle                   ($1,920)            $1,949       ($4,069)          ($600)
        Cumulative effect of change in accounting principle               -                  -             -         ($2,531)
                                                                  -----------     -------------    -----------     -----------
               Net income (loss)                                    ($1,920)            $1,949       ($4,069)        ($3,131)
                                                                  ===========     =============    ===========     ===========

Denominator:
        Denominator for basic earnings per share -
         weighted-average shares                                      7,560              7,374         7,560           7,361
        Employee stock options (1)                                        -                254             -               -
                                                                  -----------     -------------    -----------     -----------
         Denominator for diluted earnings per share -
               adjusted weighted-average shares and
               assumed conversions of stock options                   7,560              7,628         7,560           7,361
                                                                  ===========     =============    ===========     ===========
Basic and diluted earnings (loss) per share
         From operations, after taxes before cumulative
         effect of change in accounting principle                   ($0.25)              $0.26        ($0.54)         ($0.08)
         From change in accounting principle                        ($0.00)              $0.00        ($0.00)         ($0.35)
                                                                  -----------     -------------    -----------     -----------
         Total basic and diluted earnings (loss) per share          ($0.25)              $0.26        ($0.54)         ($0.43)
                                                                  ===========     =============    ===========     ===========

(1) Excludes  15,464 and 44,361  employee stock options which were  antidilutive
for the second quarter and the six months ended June 30, 2001, respectively, and
251,498 which were antidilutive for the six months ended June 29, 2000.
</TABLE>


NOTE 6 - ACCOUNTING FOR INCOME TAXES

The Company's  effective tax rate for the first six months of 2001 differed from
the  statutory 34% tax rate  primarily due to operating  losses for which no tax
benefit was recorded. Tax valuation reserves increased by approximately $617,000
during  the  second  quarter.  As of June 30,  2001 the  Company  has  valuation
reserves of $8,524,000.


NOTE 7 - COMPREHENSIVE INCOME

During the second  quarter  and the first  sixth  months of 2001 and 2000 total
comprehensive income (loss) was comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                       For the Second Quarter                For the Six Months
                                                   -------------------------------    ----------------------------------
                                                         2001              2000             2001             2000
                                                   -------------    --------------    -------------    -----------------
                                                                       Restated 1                          Restated 1
<S>                                                    <C>            <C>                <C>              <C>
    Net income (loss)                                  ($1,920)           $1,949          ($4,069)         ($3,131)
    Foreign currency translation gain (loss)               (76)              (13)             (78)              12
                                                   -------------    --------------    -------------    -----------------
    Total comprehensive income (loss)                  ($1,996)           $1,936          ($4,147)         ($3,119)
                                                   =============    ==============    =============    =================
</TABLE>

1  The restatement is due to the Company's adoption of SAB 101.
<PAGE>

NOTE 8 - CHANGE IN FISCAL YEAR

Previously,  the Company  reported on a fifty-two,  fifty-three  week basis. The
last  reporting  period using this fiscal period was the year ended December 28,
2000. The Company's  Board of Directors  approved a resolution on March 12, 2001
to change the Company's reporting period to a calendar year and calendar quarter
basis  effective for the current  fiscal year.  The first quarter of 2001 covers
the period  December 29, 2000 to March 31, 2001.  The second  quarter covers the
period April 1, 2001 to June 30, 2001.

NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES

Assets and  liabilities of foreign  subsidiaries  are translated at the exchange
rate on the  balance  sheet  date.  Revenues,  costs  and  expenses  of  foreign
subsidiaries are translated at average rates of exchange  prevailing  during the
year.  Translation  adjustments  resulting  from this  process  are  charged  or
credited to stockholders'  equity,  net of taxes.  Realized and unrealized gains
and losses resulting from the effects of changes in exchange rates on assets and
liabilities  denominated  in foreign  currencies  are included in  non-operating
expense as foreign currency transaction gains and losses.

The Company utilizes forward foreign exchange  contracts to reduce the impact of
foreign currency exchange rate risks where natural hedging  strategies cannot be
effectively employed. All hedging instruments held by the Company are designated
as fair  value  hedges  and as of June 30,  2001  are  considered  to be  highly
effective.  Generally,  these  contracts have  maturities less than one year and
require the Company to exchange foreign currencies for U.S. dollars at maturity.
The change in fair value of open hedge contracts as of June 30, 2001 resulted in
a realized  gain of $110,000 and is included in accounts  payable on the balance
sheet.

NOTE 10 - REVENUE RECOGNITION

Sales of the Company's  semiconductor  programming  equipment products requiring
installation  by the Company that is other than  perfunctory  are recorded  when
installation   is  complete,   or  at  the  later  of  customer   acceptance  or
installation,  if an acceptance clause is specified in the sales terms.  Revenue
from other product sales is recognized at the time of shipment. Revenue from the
sale of service  and update  contracts  is  recorded  as  deferred  revenue  and
recognized on a straight-line basis over the contractual period.

The Company  previously  recognized  revenue from  product  sales at the time of
shipment,  or at customer  acceptance,  if an acceptance clause was specified in
the sales terms.  Effective December 31, 1999, the Company changed its method of
accounting for product sales requiring Company  installation,  when installation
is other than  perfunctory,  to recognize  such  revenues when  installation  is
complete,  or at  the  later  of  customer  acceptance  or  installation,  if an
acceptance  clause is  specified in the sales  terms.  The Company  believes the
change in accounting  principle is preferable based on guidance  provided in SEC
Staff Accounting  Bulletin No. 101 (SAB 101),  Revenue  Recognition in Financial
Statements.  The  cumulative  effect on prior years resulted in a charge to year
2000's income of $2,531,000 (or $0.34 per share, basic and diluted).

The net  quarterly  effect on  previously  reported  revenues for year 2000 was:
Quarter 1 ($972,000), Quarter 2 $3,966,000, and Quarter 3 $1,643,000.

<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

General


Forward-Looking Statements

This Quarterly Report on Form 10-Q includes  forward-looking  statements  within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. This Act
provides a "safe harbor" for  forward-looking  statements to encourage companies
to provide  prospective  information  about  themselves as long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results.  All statements other than statements of historical fact made
in this  Quarterly  Report  on Form  10-Q are  forward-looking.  In  particular,
statements herein regarding industry prospects;  future results of operations or
financial position; changes in gross margin percentages; integration of acquired
products and operations;  market acceptance of the Company's newly introduced or
upgraded  products;  development,  introduction  and  shipment of new  products;
expected  spending  levels;  and  any  other  guidance  on  future  periods  are
forward-looking  statements.  Forward-looking  statements  reflect  management's
current expectations and are inherently uncertain.  The Company's actual results
may  differ   significantly  from  management's   expectations.   The  following
discussions and  discussions  under the caption  "Business - Cautionary  Factors
That May Affect Future Results" in Item 1 in the Company's Annual report on Form
10-K for the year ended  December 28, 2000,  describe  some, but not all, of the
factors that could cause these differences.

<TABLE>
<CAPTION>
Results of Operations

 Net Sales
 -------------------------------------------------------------------------------------------------------------------------------
 (in thousands)

                                                        Second Quarter                            First Six Months
                                           -----------------------------------------  ------------------------------------------

 Net sales by product line                      2001         % Change       2000           2001        % Change        2000
 -----------------------------------------------------------------------------------  ------------------------------------------
                                                                         Restated 1                                 Restated 1

<S>                                            <C>           <C>            <C>           <C>            <C>         <C>
 Non-automated programming systems              $3,630       (20.7%)        $4,579         $8,320        (6.6%)       $8,910

 Automated programming systems                   2,857       (70.0%)         9,515          6,050       (44.1%)       10,814

                                           -----------------------------------------  ------------- -----------------------------

 Total programming systems                      $6,487       (53.9%)       $14,094        $14,370       (27.1%)      $19,724
                                           =========================================  ==========================================


                                                        Second Quarter                            First Six Months
                                           -----------------------------------------  ------------------------------------------

 Net sales by location                           2001        % Change        2000          2001        % Change        2000
 -----------------------------------------------------------------------------------  ------------------------------------------

                                                                         Restated 1                                 Restated 1

 United States                                 $2,358       (44.0%)         $4,211         $5,278       (23.1%)       $6,859

    % of total                                  36.3%                        29.9%          36.7%                      34.8%

 International                                 $4,129       (58.2%)         $9,883         $9,092       (29.3%)      $12,865

    % of total                                  63.7%                        70.1%          63.3%                      65.2%

 -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The restatement is due to the Company's adoption of SAB 101.
<PAGE>

Revenues for the second  quarter of 2001  decreased $7.6 million or 54% compared
to the restated second quarter of 2000. The Company adopted SAB 101 in the first
quarter of 2000,  resulting  in  recognition  of an  additional  $4.0 million in
revenue  during the  second  quarter of 2000.  Without  the SAB 101  adjustment,
revenues  were down by $3.6  million or 36% for the quarter and $2.4 million for
the first six months.

The  Company  has  experienced  a decline  in sales  during the first and second
quarters of 2001 from the second, third and fourth quarters of 2000. The decline
is  attributed  to the Company  experiencing  a reduction in the orders for both
automated and non-automated  programming equipment. The Company believes this to
be primarily due to a general  economic  slowing in the wireless  communications
industry,  among contract  manufacturers and in other sectors of the electronics
industry.

<TABLE>
<CAPTION>

Gross Margin

                                                     Second Quarter                         First Six Months
                                           ---------------------------------------------------------------------------

 (in thousands)                                  2001                2000               2001               2000
----------------------------------------------------------------------------------------------------------------------

                                                                   Restated                              Restated
<S>                                            <C>                  <C>                <C>               <C>
Gross Margin                                    $2,810              $6,774             $5,545             $9,020

Percentage of net sales                          43.3%               48.1%              38.6%              45.7%
----------------------------------------------------------------------------------------------------------------------
</TABLE>

Gross margin dollars  decreased 59% on a 54% revenue  decrease during the second
quarter  2001  versus the same  quarter  in 2000.  The gross  margin  percentage
decreased  from 48.1% to 43.3%.  The  adoption of SAB 101  increased  the margin
dollars in the second  quarter of 2000 by $2.2 million and  increased  the gross
margin percentage from 45.4% to 48.1%.

The gross margin  percentage  tends to suffer as sales  decrease  because of the
fixed costs in the manufacturing process.  Because of the steps that the Company
has taken to reduce  costs and  implement  lean  manufacturing  techniques,  the
Company  expects  the  gross  margin  percentage  to  improve  as sales  volumes
increase.

<TABLE>
<CAPTION>
Research and Development

                                                     Second Quarter                         First Six Months
                                           ---------------------------------------------------------------------------

 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                <C>               <C>
 Research and development                       $1,765              $2,112              $3,703            $4,533

 Percentage of net sales                         27.2%               15.0%               25.8%             23.0%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The decrease in research and  development  (R&D)  spending for the first half of
2001 as compared to the first half of 2000  reflects  lower  headcount and lower
development  spending.  R&D spending was very high in the first half of 2000 due
to PP100 and ProLINE RoadRunner development activities.  During 2001 the Company
plans to  continue  spending at its current  rate to develop  new  products  and
technology.

The R&D spending as a percentage  of Net Sales is higher for the second  quarter
and for the first six months due to the decrease in revenues from year to year.

<TABLE>
<CAPTION>
<PAGE>

Selling, General and Administrative

                                                     Second Quarter                         First Six Months
                                           ---------------------------------------------------------------------------

                                                 2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                  <C>             <C>
                                                                   Restated                              Restated

 Selling, general & administrative              $2,450              $3,057              $5,446            $5,582

 Percentage of net sales                         37.8%               21.7%               37.9%             28.3%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Selling,  General and  Administrative  (SG&A) expenses decreased $0.6 million in
the second  quarter of 2001 versus 2000 and $0.1  million for the first 6 months
of 2001 versus last year.  Tight internal  spending  controls,  coupled with the
benefits of the restructuring activities undertaken during the first part of the
second quarter,  has led to a significant  reduction in SG&A spending.  Spending
was  lowered in the second  quarter  to bring  expenses  in line with the income
levels the Company was achieving.

<TABLE>
<CAPTION>

Interest

                                                     Second Quarter                         First Six Months
                                           ---------------------------------------------------------------------------

 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>               <C>
 Interest income                                  $51                $128                $117              $304

 Interest expense                                 ($3)               ($11)               ($10)             ($20)
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The  decrease in interest  income for the second  quarter of 2001 as compared to
the second quarter of 2000,  and for the first 6 months,  is due to the decrease
in cash,  cash  equivalents  and  marketable  securities,  due  primarily to the
funding of operating losses during the past year.

<TABLE>
<CAPTION>
Income Taxes

                                                     Second Quarter                         First Six Months
                                           ---------------------------------------------------------------------------

 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>               <C>
 Income tax expense from  operations              $20                $17                  $22               $30
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>


Tax expense  recorded  for both the second  quarter and first six months of 2001
was due to foreign  taxes.  Tax valuation  reserves  increased by  approximately
$617,000  during the quarter.  The Company has valuation  reserves of $8,524,000
and $7,714,000 as of June 30, 2001 and June 29, 2000 respectively.

<PAGE>


Financial Condition
<TABLE>
<CAPTION>

Liquidity and Capital Resources
                                                                    Jun. 30,                                  Dec. 28,
(in thousands)                                                        2001                Change                2000
------------------------------------------------------------- --------------------- -------------------- -------------------
<S>                                                                 <C>                  <C>                  <C>

Working capital                                                     $13,019              ($3,773)             $16,792
------------------------------------------------------------- --------------------- -------------------- -------------------
</TABLE>

Working capital  decreased  during the first six months of 2001 primarily due to
funding of the losses for the period.  Cash,  cash  equivalents  and  marketable
securities  decreased  approximately  $0.5 million during the period,  inventory
decreased $2.0 million, and accounts receivable decreased $2.7 million. Accounts
payable has decreased $0.9 million  during the first 6 months,  primarily due to
the low level of inventory purchases.

The  Company  estimates  that  capital  expenditures  for  property,  plant  and
equipment  during  the  remainder  of 2001  will be  between  $500,000  and $1.0
million.  The  Company  believes  that cash,  cash  equivalents  and  marketable
securities  will be sufficient to meet current and  anticipated  future  capital
expenditures.  Although the Company expects that such expenditures will be made,
it has purchase commitments for only a small portion of this amount.

At June 30, 2001, the Company had no debt and the Company's material  short-term
unused  sources of liquidity  consisted of  approximately  $4.6 million in cash,
cash equivalents and marketable securities.

Share Repurchase Program

Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800  shares  (approximately  15.2%) of its outstanding
Common Stock.  These purchases may be executed  through open market purchases at
prevailing  market prices,  through block  purchases or in privately  negotiated
transactions,  and may commence or be  discontinued  at any time. As of June 30,
2001, the Company has repurchased 1,016,200 shares under this repurchase program
at a total cost of approximately  $7.1 million.  The Company has not repurchased
shares  under this plan since the second  quarter of 1997  although it still has
the authority to do so.

Restructuring

In the second quarter of 2001, the Company  recorded a  restructuring  charge of
$460,000 to reduce the  Company's  breakeven  point and realign the Company with
growth  activities.  This operational  repositioning  was mandated by the impact
which the current  economic  slowdown and decline in capital  spending  across a
high  number of  customer  groups  has had on  general  demand  for  programming
equipment.

The Company's repositioning included the following four components:  a reduction
in the  Company's  global  workforce of  approximately  40 persons or 20% of the
workforce;  discontinuance  or reallocation of numerous  projects and activities
not essential to the company's  long-term  goals;  streamlining of activities to
decrease  discretionary  marketing,  distribution and promotional expenses;  and
consolidation  of numerous  functions  across the  organization to create a team
which is more productive and able to respond faster to global customer needs. At
June 30, 2001 all restructuring  expenses had been incurred except approximately
$97,000.

On July 12,  2001 the Company  announced  that it would take  further  strategic
actions to reduce its breakeven  point,  which  included the following  actions:
closure of a facility in Germany  and its  operations  moved to other  locations
within the Company;  the company's  four product  families will be combined into
two business groups; service groups across the organization will be consolidated
to create a team more  responsive to global  customer  needs;  and certain other
expense  reductions will be targeted for the third quarter,  including a closure
of the company's Redmond facility for one week.  Restructuring charges for these
actions are expected to total  approximately  $0.5 million.  The Company expects
these charges will be recorded in the third quarter.

<PAGE>


General


European Monetary Conversion

On January  1, 1999,  the  European  Economic  and  Monetary  Union (the  "EMU")
introduced  the  Euro,  which  became a  functional  legal  currency  of the EMU
countries. From 1999 to 2001 business in the EMU member states has been and will
be  conducted  in both the  existing  national  currency,  such as the  Franc or
Deutsche Mark, and the Euro.

The  Company has taken  certain  steps to ensure  that its  financial  and other
software systems are capable of processing  transactions  and properly  handling
EMU  currencies,  including  the Euro.  The Company will continue to assess what
further impact the EMU formation will have on both its internal  systems and its
products  sold.  The  costs  related  to  addressing  this  issue  have not been
determined,  however,  management believes that this issue and its related costs
will not have a material  adverse  effect on the Company's  business,  financial
condition and operating results.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company has  experienced  no material  changes in market  risk.  The Company
currently uses only foreign currency hedge derivative instruments, which are not
material as of June 30, 2001.  However,  the Company is exposed to interest rate
risks.  The  Company  generally  invests  in  high-grade  commercial  paper with
original  maturity dates of twelve months or less and conservative  money market
funds  to  minimize  its  exposure  to  interest  rate  risk  on its  marketable
securities,  which are classified as  available-for-sale as of June 30, 2001 and
December 28, 2000.

PART II - OTHER INFORMATION



Item 1.           Legal Proceedings

                  None


Item 2.           Changes in Securities and Use of Proceeds

                  None


Item 3.           Defaults Upon Senior Securities

                  None


Item 4.           Submission of Matters to a Vote of Security Holders

                  At the Annual Meeting of Shareholders held on May 16, 2001,
                  there were present in person or by proxy the holders of
                  7,255,421 (95.97%) shares of Common Stock of the Corporation
                  thereby constituting a quorum.  Following are the matters
                  ratified and the voting results:

                  (a)  Election of a Board of Directors consisting of the
                  following seven (7) directors:

                  Name                         Votes For        Votes Withheld

                  Keith L. Barnes              6,721,497             533,924
                  Glen F. Ceiley               6,720,113             535,308
                  Daniel A. DiLeo              6,719,155             536,266
                  Paul A. Gary                 6,722,240             533,181
                  Frederick R. Hume            6,721,597             533,824
                  Edward D. Lazowska           6,721,240             534,181
                  Steven M. Quist              6,693,955             561,466

                  (b)  Approval to amend the  Company's  1982  Employee  Stock
                  Purchase Plan, to increase  the  number of shares  reserved
                  under the Plan by an additional 300,000  shares. The amendment
                  passed  by  the  following vote  counts: 6,553,940 votes for;
                  682,704 against; 18,777 abstained.


Item 5.           Other Information

                  None

Item 6.           Exhibits and Reports on Form 8-K

                  (a) Exhibits

                  None

                  (b) Reports on Form 8-K

                  None



<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.



                                                DATA I/O CORPORATION
                                                (REGISTRANT)
DATED:   August 9, 2001



                                                By://S//Joel S. Hatlen
                                                Joel S. Hatlen
                                                Vice President - Finance
                                                Chief Financial Officer
                                                Secretary and Treasurer