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 September 30, 2003

                                       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
 incorporation or organization)                              Identification No.)



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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes No X

7,972,514  shares of no par value of the  Registrant's  Common Stock were issued
and outstanding as of November 1, 2003.
<PAGE>


                              DATA I/O CORPORATION

                                    FORM 10-Q
                    For the Quarter Ended September 30, 2003

                                      INDEX


Part I - Financial Information                                            Page

     Item 1.    Financial Statements (unaudited)                            3

     Item 2.    Management's Discussion and Analysis of
                Financial Condition and Results of Operations               9

     Item 3.    Quantitative and Qualitative Disclosures
                About Market Risk                                          12

     Item 4.    Controls and Procedures                                    14

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                                          14

     Item 6.    Exhibits and Reports on Form 8-K                           14

     Signatures                                                            18


<PAGE>


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                        DATA I/O CORPORATION

                                     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                        Sept. 30,                      Dec. 31,
                                                                                          2003                           2002
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                            <C>
(in thousands, except share data)                                                      (unaudited)
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                            $4,279                       $4,383
     Marketable securities                                                                 1,830                        1,076
     Trade accounts receivable, less allowance for
        doubtful accounts of $196 and $187                                                 5,519                        4,328

     Inventories                                                                           4,173                        4,476
     Other current assets                                                                    176                          509
                                                                                   ---------------------           ----------------
         TOTAL CURRENT ASSETS                                                             15,977                       14,772

Property and equipment - net                                                               1,160                        1,508
Other assets                                                                                  27                           87
                                                                                   ---------------------           ----------------
        TOTAL ASSETS                                                                     $17,164                      $16,367
                                                                                   =====================           ================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                                     $1,230                       $1,200
     Accrued compensation                                                                    899                          826
     Deferred revenue                                                                      1,518                        1,613
     Other accrued liabilities                                                             1,414                        1,714
     Income taxes payable                                                                    377                          294
                                                                                   ---------------------           ----------------
            TOTAL CURRENT LIABILITIES                                                      5,438                        5,647

Deferred gain on sale of property                                                          1,188                        1,435
                                                                                   ---------------------           ----------------
            TOTAL LIABILITIES                                                              6,626                        7,082

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, 7,963,545
           and 7,767,630 shares                                                           18,760                       18,638
     Accumulated deficit                                                                  (8,309)                      (9,279)
     Accumulated other comprehensive income (loss)                                            87                          (74)
                                                                                   ---------------------           ----------------
        TOTAL STOCKHOLDERS' EQUITY                                                        10,538                        9,285
                                                                                   ---------------------           ----------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $17,164                      $16,367
                                                                                   =====================           ================


See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>


                              DATA I/O CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                  Quarters Ended                     Nine Months Ended
----------------------------------------------------------- ------------------------------ -- --------------------------------
                                                               Sept. 30,        Sept. 30,         Sept. 30,         Sept. 30,
                                                                 2003             2002              2003              2002
----------------------------------------------------------- -------------- -- ------------ -- ------------ -- ----------------
<S>                                                           <C>               <C>               <C>              <C>
(in thousands, except per share data)

Net sales                                                        $6,360          $6,443           $18,092          $16,629
Cost of goods sold                                                3,032           3,172             8,028            8,851
                                                            --------------    ------------    ------------    ----------------
Gross margin                                                      3,328           3,271            10,064            7,778

Operating expenses:
     Research and development                                     1,294           1,430             3,534            4,136
     Selling, general and administrative                          1,823           2,109             5,551            6,376
     Net provision (reversal) for business restructuring              -             497               (27)             497
                                                            --------------    ------------    ------------    ----------------
           Total operating expenses                               3,117           4,036             9,058           11,009
                                                            --------------    ------------    ------------    ----------------
         Operating  income (loss)                                   211            (765)            1,006           (3,231)

Non-operating income (expense):
     Interest income                                                 20              20                73               69
     Interest expense                                                (4)             (4)              (16)             (12)
     Foreign currency exchange                                      (22)           (121)             (103)            (179)
                                                            --------------    ------------    ------------    ----------------
             Total non-operating income (expense)                    (6)           (105)              (46)            (122)
                                                            --------------    ------------    ------------    ----------------
        Income (loss) from operations before income taxes           205            (870)              960           (3,353)

Income tax expense (benefit)                                       (114)            (37)              (10)               4
                                                            --------------    ------------    ------------    ----------------

Net  income (loss)                                                $ 319          ($ 833)             $970          ($3,357)
                                                            ==============    ============    ============    ================

Basic and diluted earnings (loss) per share                       $0.04          ($0.11)            $0.12           ($0.44)
                                                            ==============    ============    ============    ================

Weighted average shares outstanding                               7,937           7,733             7,888            7,682
                                                            ==============    ============    ============    ================

Weighted average and potential shares outstanding                 8,243           7,733             8,026            7,682
                                                            ==============    ============    ============    ================

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>


                                                  DATA I/O CORPORATION

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Sept. 30,         Sept. 30,
For the nine months ended                                                                           2003              2002
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>               <C>
(in  thousands)
OPERATING ACTIVITIES:
    Net income (loss) from operations                                                                 $970          ($3,357)
    Adjustments to reconcile net income (loss) from operations to net cash
    provided by (used in) operating activities:
       Depreciation and amortization                                                                   563              783
       Net loss on dispositions                                                                        201              233
       Amortization of deferred gain on sale                                                          (247)            (247)
       Net change in:
         Deferred revenue                                                                              (94)               7
         Trade accounts receivable                                                                  (1,233)             335
         Inventories                                                                                   293            1,658
         Other current assets                                                                          340              (22)
         Accrued costs of business restructuring                                                      (188)              69
         Accounts payable and accrued liabilities                                                       80             (436)
                                                                                                 -----------      --------------
    Net cash provided by (used in) operating activities                                                685             (977)

INVESTING ACTIVITIES:
    Purchases of property and equipment                                                               (356)            (600)
    Net from purchase and sale of marketable securities                                               (755)           2,148
                                                                                                 -----------      --------------
       Net cash provided by (used in) investing activities                                          (1,111)           1,548

FINANCING ACTIVITIES:
    Sale of common stock                                                                               119              137
    Proceeds from exercise of stock options                                                              3                -
                                                                                                 -----------      --------------
       Net cash provided by (used in) financing activities                                             122              137

                                                                                                 -----------      --------------
Increase/(decrease) in cash and cash equivalents                                                      (304)             708

Effects of exchange rate changes on cash                                                               200               75
Cash and cash equivalents at beginning of year                                                       4,383            2,656
                                                                                                 -----------      --------------
Cash and cash equivalents at end of quarter                                                         $4,279           $3,439
                                                                                                 ===========      ==============

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>



                              DATA I/O CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - FINANCIAL STATEMENT PREPARATION

Data  I/O  prepared  the  financial  statements  as of  September  30,  2003 and
September 30, 2002, according 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 31, 2002 has been derived from
the audited  financial  statements  at that date.  We have  condensed or omitted
certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with accounting  principles generally accepted
in the United  States of America  according  to such SEC rules and  regulations.
Operating  results  for  the  nine  months  ended  September  30,  2003  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2003. 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 31, 2002.

Stock-Based Compensation

Data I/O has stock-based  employee  compensation plans. We apply APB Opinion 25,
Accounting  for Stock  Issued  to  Employees,  and  related  Interpretations  in
accounting  for our plans.  Stock expense for the third quarter of 2003 and 2002
would have been the result of options  issued with an  exercise  price below the
underlying  stock's market price. The following table  illustrates the effect on
net income  (loss) and net income  (loss) per share if Data I/O had  applied the
fair  value  recognition  provisions  of  FASB  Statement  123,  Accounting  for
Stock-Based Compensation.

Data I/O's pro forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
<S>                                                                    <C>                                <C>
                                                                        Quarters Ended                     Nine Months Ended
                                                                 ------------------------------   ----------------------------------
                                                                   Sept. 30,        Sept. 30,         Sept. 30,         Sept. 30,
                                                                      2003             2002              2003              2002
                                                                 ---------------   -----------    --------------    ----------------
Net income (loss) - as reported                                      $319              ($833)            $970           ($3,357)

Deduct:   Total  stock-based   employee   compensation  expense
determined  under fair value based  method for awards  granted,
modified, or settled, net of related tax effects                      (68)              (102)            (239)             (287)
                                                                 ---------------    -----------    --------------   ----------------
Net income (loss) - pro forma                                        $251              ($935)            $731           ($3,644)
                                                                 ===============    ===========    ==============   ================

Basic and diluted income (loss) per share - as reported             $0.04             ($0.11)           $0.12            ($0.44)
Basic and diluted income (loss) per share - pro forma               $0.03             ($0.12)           $0.09            ($0.47)
</TABLE>

NOTE 2 - INVENTORIES

Inventories consisted of the following components (in thousands):

                                          Sept. 30,               Dec. 31,
                                            2003                    2002
                                      ----------------      ----------------
     Raw material                          $2,001                  $2,308
     Work-in-process                          945                     875
     Finished goods                         1,227                   1,293
                                      ----------------      ----------------
                                           $4,173                  $4,476
                                      ================      ================

At the  end of  the  quarter  inventories  reflected  increased  work-in-process
related to an  increase  in orders in  backlog.  During  the  quarter we did not
significantly change the net carrying values of our inventory.

NOTE 3 - PROPERTY AND EQUIPMENT

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

                                        Sept. 30,                 Dec. 31.
                                           2003                     2002
                                     ----------------        ----------------
     Leasehold improvements             $    245                $     239
     Equipment                            11,825                   12,132
                                     ----------------          ----------------
                                          12,070                   12,371
     Less accumulated depreciation        10,910                   10,863
                                     ----------------          ----------------
     Property and equipment - net        $ 1,160                  $ 1,508
                                     ================          ================

NOTE 4 - BUSINESS RESTRUCTURING PROGRESS

The economic slowdown of the past few years significantly affected our business.
During 2001 and 2002, we recorded  restructuring charges associated with actions
taken to  reduce  our  breakeven  point  and  realign  Data I/O with our  market
opportunities.  We required this operational repositioning because of the impact
of the  economic  slowdown  and the  decline in capital  spending  across a high
number of customer groups on general demand for programming equipment.

During the first quarter of 2003, we completed  most of the  previously  accrued
restructure actions.  These payments were $27,000 less than anticipated from the
original restructuring related charges that totaled $1.8 million during 2001 and
2002. Accordingly,  included in the results for the first quarter was a reversal
of these previously over-accrued restructure charges. At September 30, 2003, all
restructuring  expenses  associated with the activities  detailed above had been
paid, except approximately $16,000.

An analysis of the restructuring activity is as follows (in thousands):
<TABLE>
<CAPTION>

                                                          Reserve                       2003           Reserve
                                                         Balance at        2003       Payments/       Balance at
 Description                                           Dec. 31, 2002       Adj.      Write-offs    Sept. 30, 2003
 --------------                                       ----------------- ----------- ------------- ------------------
<S>                                                   <C>                  <C>       <C>            <C>
 Downsizing U.S. Operations:
    Employee severance                                    $ 169           ($18)        ($146)            $ 5
    Redmond facility consolidation                           10              -            (5)              5
    Consulting and legal expenses                            25            ( 9)          (10)              6
                                                      ----------------- ----------- ------------- ------------------
 Total                                                    $ 204           ($27)        ($161)            $16
                                                      ================= =========== ============= ==================
</TABLE>

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>

                                                                For the third quarter         For the first nine months
                                                             ---------------------------- --- ---------------------------
                                                                2003             2002             2003            2002
                                                             ------------    ------------     ----------    -------------
<S>                                                            <C>              <C>              <C>             <C>
Numerator for basic and diluted earnings (loss) per share:
       Net income (loss)                                         $319            ($833)            $970         ($3,357)
                                                             ------------    ------------     ----------    -------------

Denominator:
        Denominator for basic earnings per share -
         weighted-average shares                                7,937            7,733            7,888           7,682
        Employee stock options (1)                                306                -              138               -
                                                             ------------    ------------     ----------    -------------

         Denominator for diluted earnings per share -
                  adjusted weighted-average shares and
                  assumed conversions of stock options          8,243            7,733            8,026           7,682
                                                             ------------    -------------    ----------    -------------
Basic and diluted earnings (loss) per share
         Total basic and diluted earnings (loss) per share      $0.04           ($0.11)           $0.12          ($0.44)
                                                             ============    =============    ==========    =============
</TABLE>

(1)  At September 30, 2003 and 2002 there were  1,339,462 and 1,222,438  shares,
     respectively,  of outstanding options potentially issuable as common stock.
     Because of the net loss for the nine months ended  September  30, 2002,  we
     did not include  potentially  issuable  common stock in the  calculation of
     diluted  loss per share  because this would be  anti-dilutive.  For options
     having an exercise price  exceeding the market value of the common stock on
     September  30, 2003, we included the dilutive  effect of those  outstanding
     options,  potentially  issuable  as  common  stock  on  that  date,  in the
     calculation of diluted income per share.

NOTE 6 - ACCOUNTING FOR INCOME TAXES

The Company's effective tax rate for the first nine months of 2003 differed from
the statutory 34% tax rate  primarily due to  utilization  of net operating loss
carryforwards.  The benefit recorded related to foreign taxes. The tax valuation
allowance decreased by approximately  $14,000 during the quarter ended September
30, 2003.  As of September  30, 2003,  the Company has a valuation  allowance of
$10,030,000.

NOTE 7 - COMPREHENSIVE INCOME

During the third quarter of 2003 and 2002 total comprehensive  income (loss) was
comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                For the third quarter           For the first nine months
                                                              ---------------------------    --------------------------------
<S>                                                             <C>             <C>             <C>             <C>
                                                                  2003            2002             2003              2002
                                                              ------------    -----------    ---------------     ------------

        Net income (loss)                                         $319           ($833)            $970            ($3,357)
        Foreign currency translation gain (loss)                    16             (21)             163                 58
                                                              ------------    -----------    ---------------     ------------
        Total comprehensive income (loss)                         $335           ($854)          $1,133            ($3,299)
                                                              ============    ===========    ===============     ============
</TABLE>

NOTE 8 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES

Data I/O  translates  assets  and  liabilities  of foreign  subsidiaries  at the
exchange  rate on the  balance  sheet date.  We  translate  revenues,  costs and
expenses of foreign  subsidiaries at average rates of exchange prevailing during
the  year.  We  charge or credit  translation  adjustments  resulting  from this
process to stockholders'  equity in other  comprehensive  income,  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.

Data I/O accounts for its hedging  activities in  accordance  with SFAS No. 133,
Accounting for Derivatives and Hedging  Activities.  This statement  establishes
accounting  and reporting  standards  for  derivative  instruments  and requires
recognition  of  derivatives  as  assets  or  liabilities  in the  statement  of
financial position and measurement of those instruments at fair value.

Data I/O 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 Data I/O are fair value
hedges.  Generally,  these  contracts  have  maturities  less  than one year and
require it to exchange  foreign  currencies  for U.S.  dollars at maturity.  The
change in fair value of the open hedge  contracts as of September 30, 2003 is an
unrealized  loss of $24,674 and is  included in accounts  payable on the balance
sheet.

Data I/O does not hold or issue  derivative  financial  instruments  for trading
purposes.  The purpose of our hedging  activities is to reduce the risk that the
valuation of the underlying  assets,  liabilities and firm  commitments  will be
adversely  affected by changes in exchange rates.  Our derivative  activities do
not create foreign currency exchange rate risk because fluctuations in the value
of the instruments  used for hedging  purposes are offset by fluctuations in the
value of the underlying exposures being hedged.

NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force reached a consensus  opinion on
EITF 00-21,  "Revenue  Arrangements with Multiple  Deliverables."  The consensus
provides that revenue arrangements with multiple  deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the  arrangement  should be allocated to the  separate  units of  accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance  conditions.  Applicable  revenue  recognition
criteria  should be considered  separately for each separate unit of accounting.
EITF 00-21 is effective for revenue  arrangements entered into in fiscal periods
beginning  after  June 15,  2003.  Entities  may elect to report the change as a
cumulative  effect  adjustment  in  accordance  with APB Opinion 20,  Accounting
Changes. Data I/O has adopted the provisions of the statement,  which has had no
material impact.

In May of 2003,  FASB  issued  Statement  149,  which  amends  Statement  133 by
clarifying various  derivatives  related issues and provides for more consistent
reporting of derivatives.  Statement 149 is effective for contracts entered into
or  modified  after  June  30,  2003,  with  some  exceptions,  and for  hedging
relationships  designated  after  June  30,  2003.  Data  I/O  has  adopted  the
provisions of the statement, which has had no material impact.

In May 2003,  FASB issued  Statement  150,  "Accounting  for  Certain  Financial
Instruments with Characteristics of both Liabilities and Equity."  Statement 150
requires that certain financial instruments,  which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. Statement 150
is effective for all financial  instruments  entered into or modified  after May
31, 2003.  The Company  adopted  Statement 150 on June 1, 2003.  The adoption of
Statement  150 did not have any  effect  on the  Company's  financial  position,
results of operations, or cash flows.

On January  17,  2003,  the FASB  issued  Interpretation  46,  Consolidation  of
Variable Interest Entities (FIN 46). FIN 46 interprets ARB No. 51,  Consolidated
Financial Statements,  as amended by FASB Statement No. 94, Consolidation of All
Majority-Owned  Subsidiaries,  which requires the  preparation  of  consolidated
financial  statements when one entity has a controlling  financial interest in a
second  entity.  FIN 46 specifies  disclosures  that are required for  financial
statements  issued after January 31, 2003 but prior to the effective date of the
Interpretation  for entities  created  before  February 1, 2003 and interests in
those entities  acquired  before that date, as well as disclosures  that will be
required  for  financial  statements  of primary  beneficiaries  and others with
variable  interests in variable  interest  entities  issued after the  effective
date. The Company believes its adoption of this new accounting standard will not
have a material  impact on the  Company's  results of  operations  or  financial
position, as the Company does not have variable interest entities.


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 or trends;  expected level of
expense;  future results of operations or financial position;  anticipated gross
margin;  integration of acquired  products and operations;  market acceptance of
our  newly  introduced  or  upgraded  products;  development,  introduction  and
shipment  of new  products;  and  any  other  guidance  on  future  periods  are
forward-looking  statements.  Forward-looking  statements  reflect  management's
current  expectations and are inherently  uncertain.  Although Data I/O believes
that  the  expectations  reflected  in  these  forward-looking   statements  are
reasonable, we cannot guarantee future results, levels of activity, performance,
achievements, or other future events. Moreover, neither Data I/O nor anyone else
assumes   responsibility   for  the   accuracy   and   completeness   of   these
forward-looking  statements.  Data I/O is under no duty to  update  any of these
forward-looking  statements after the date of this report. The reader should not
place  undue  reliance  on  these  forward-looking   statements.  The  following
discussions and the discussions in the section  entitled  "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 31, 2002,  and in Exhibit 99.1 of this
report  describe  some,  but not all,  of the  factors  that could  cause  these
differences.

CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally  accepted in the United  States  requires  that we make  estimates and
judgments,  which affect the reported amounts of assets,  liabilities,  revenues
and expenses,  and related disclosures of contingent assets and liabilities.  On
an on-going basis,  we evaluate our estimates,  including those related to sales
returns, bad debts, inventories,  investments,  intangible assets, income taxes,
warranty obligations,  restructuring charges,  contingencies such as litigation,
and contract terms that have multiple elements and other complexities typical in
the  telecommunications  equipment industry. We base our estimates on historical
experience  and other  assumptions  that we  believe  are  reasonable  under the
circumstances.  Actual results may differ from these  estimates  under different
assumptions or conditions.

We  believe  the  following  critical   accounting   policies  affect  the  more
significant  judgments and estimates  used in the  preparation  of our financial
statements.

Revenue Recognition:  Sales of our semiconductor  programming equipment products
requiring  installation  by us 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.  We
recognize  revenue from other product  sales at the time of shipment.  We record
revenue from the sale of service and update contracts as deferred revenue and we
recognize it on a  straight-line  basis over the  contractual  period,  which is
typically one year. We establish a reserve for sales returns based on historical
trends in product  returns and  estimates  for new items.  If the actual  future
returns differ from historical levels, our revenue could be adversely affected.

Allowance for Doubtful  Accounts:  We base the  allowance for doubtful  accounts
receivable on our assessment of the collectibility of specific customer accounts
and the aging of accounts  receivable.  If there is a  deterioration  of a major
customer's  credit  worthiness  or actual  defaults  are higher than  historical
experience,  our  estimates  of the  recoverability  of amounts  due us could be
adversely affected.

Inventory  Provisions:  We base inventory  purchases and commitments upon future
demand  forecasts  and historic  usage.  If there is a  significant  decrease in
demand for our  products  or there is a higher  risk of  inventory  obsolescence
because of rapidly  changing  technology  and customer  requirements,  we may be
required to increase our inventory  provision  adjustments  and our gross margin
could be adversely affected.

Warranty  Accruals:  We accrue for warranty costs based on the expected material
and labor  costs to  fulfill  our  warranty  obligations.  If we  experience  an
increase in warranty  claims,  which are higher than our historical  experience,
our gross margin could be adversely affected.

Deferred  Taxes:  We have incurred tax losses in each of the last four years and
have net  operating  loss and tax credit  carryforwards  that begin  expiring in
2020.  We have  provided a full  valuation  allowance  against our  deferred tax
assets,  given the uncertainty as to their  realization.  In future years, these
benefits are available to reduce or eliminate taxes on future taxable income.

Results of Operations

Net Sales
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
 (in thousands)

                                                       Third Quarter                         First Nine Months
                                              ----------------------------------    ------------------------------------
 Net sales by product line                         2003   % Change      2002              2003      % Change      2002
 -------------------------------------------------------------------------------    ------------------------------------
<S>                                             <C>         <C>       <C>               <C>        <C>          <C>
 Non-automated programming systems                $2,396    (21.7%)    $3,059            $7,705     (10.5%)      $8,607

 Automated programming systems                     3,964     17.1%      3,384            10,387      29.5%        8,022
                                              ----------------------------------    ------------------------------------
 Total programming systems                        $6,360     (1.3%)    $6,443           $18,092       8.8%      $16,629
                                              ==================================    ====================================

                                                       Third Quarter                        First Nine Months
                                              ----------------------------------    ------------------------------------

 Net sales by location                             2003    % Change    2002              2003      % Change       2002
 -------------------------------------------------------------------------------    ------------------------------------

 United States                                    $2,040     (0.8%)    $2,057            $5,391      (9.6%)      $5,964

    % of total                                     32.1%     31.9%      29.8%             35.9%

 International                                    $4,320     (1.5%)    $4,386           $12,702      19.1%      $10,665

    % of total                                     67.9%                68.1%             70.2%                   64.1%

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

Revenues for the third quarter of 2003 were basically flat compared to the third
quarter of 2002. Backlog decreased by approximately $0.6 million to $1.3 million
at September 30, 2003.  Revenue for the quarter from automated systems and their
related  aftermarket sales increased over the third quarter of 2002.  Offsetting
this increase was a decline in non-automated programming systems aftermarket and
software as well as fewer sales of a low cost  programmer  product  line that we
formerly  distributed.  The vendor of this product line went out of business and
our distribution  relationship  with this vendor ceased during the first quarter
of 2003.  These  products  represented  $251,000  in revenue  for the year 2002.
Finally,  the impact of the  weakened  US dollar  favorably  impacted us both by
making  products  less  expensive  when  sold  overseas  in US  Dollars  and  by
Euro-based sales that translated into higher US Dollar reported sales.

Data I/O  continues  to  experience  a trend in its sales mix towards  increased
international sales and believes that, with the economic situation in the United
States and with the  electronics  industry trend toward  offshore and outsourced
manufacturing, this trend is likely to continue.

Gross Margin
<TABLE>
<CAPTION>

                                                        Third Quarter                           First Nine Months
                                     -------------------------------------------     ---------------------------------------
 (in thousands)                                 2003                   2002                  2003                2002
----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                     <C>                  <C>                  <C>
Gross Margin                                  $3,328                  $3,271               $10,064              $7,778


Percentage of net sales                        52.3%                   50.8%                 55.6%               46.8%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Gross  margins  increased in dollars and as a percentage  of sales for the third
quarter of 2003  compared  with the same period of 2002.  Overall  gross margins
increased primarily due to cost reductions resulting from the restructuring. The
gross margin  percentage  at 52.3% was lower than  expected due to the sales mix
including a larger amount of lower margin  configured PS systems and fewer sales
of software and  aftermarket  products,  which tend to have a higher margin,  as
well as the reduction in inventories  causing an unfavorable  labor and overhead
variance.  Looking forward, we believe our expected sales mix should result in a
mid-50's gross margin percentage.

Research and Development
<TABLE>
<CAPTION>
                                                        Third Quarter                           First Nine Months
                                  ----------------------------------------------      -------------------------------------
  (in thousands)                                 2003                   2002                 2003                 2002
 --------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                     <C>                 <C>                   <C>
 Research and development                      $1,294                 $1,430               $3,534               $4,136

 Percentage of net sales                        20.3%                  22.2%                19.5%                24.9%
 --------------------------------------------------------------------------------------------------------------------------
</TABLE>

Research and development ("R&D") spending for the third quarter 2003 as compared
to the third quarter 2002 was less in dollars and as a percentage of sales. This
decrease in spending was primarily related to the restructuring actions taken in
the past year reducing personnel costs,  offset in part by higher contracted R&D
costs in connection  with the recently  introduced  TF-30  automated tray feeder
option for the PS 300.  This  general  level of third  quarter  R&D  spending is
expected to continue in the fourth quarter.

Selling, General and Administrative
<TABLE>
<CAPTION>

                                                        Third Quarter                           First Nine Months
                                  ----------------------------------------------    ---------------------------------------
                                                 2003                   2002                 2003                 2002
 --------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                    <C>                  <C>                  <C>
 Selling, general & administrative             $1,823                 $2,109               $5,551               $6,376

 Percentage of net sales                        28.7%                  32.7%                30.7%                38.3%
 --------------------------------------------------------------------------------------------------------------------------
</TABLE>

Selling,  general and administrative  ("SG&A") expenses for the third quarter of
2003 declined compared with the same period in 2002, primarily due to Data I/O's
reduced costs from the prior year's restructuring activities,  offset in part by
increased incentive  compensation.  Data I/O's management incentive compensation
and employee  performance  bonus plans are earned based upon various measures of
quarterly profit and annual growth in profit that will be an incremental expense
for any profits in 2003,  as compared to our fiscal year 2002, in which we had a
net loss.

Interest
<TABLE>
<CAPTION>

                                                        Third Quarter                           First Nine Months
                                          --------------------------------------     --------------------------------------
 (in thousands)                                  2003                    2002                  2003                 2002
 --------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                     <C>                   <C>                  <C>
 Interest income                                  $20                     $20                   $73                  $69

 Interest expense                                 ($4)                    ($4)                 ($16)                ($12)
 --------------------------------------------------------------------------------------------------------------------------
</TABLE>

Income Taxes
<TABLE>
<CAPTION>

                                                        Third Quarter                           First Nine Months
                                          --------------------------------------      -------------------------------------
 (in thousands)                                  2003                    2002                  2003                 2002
 --------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                     <C>                   <C>                  <C>
 Income tax expense (benefit)                   ($114)                   ($37)                 ($10)                  $4
 --------------------------------------------------------------------------------------------------------------------------
</TABLE>

Tax benefit recorded for the third quarter of 2003 was due to foreign taxes. Tax
valuation reserves decreased by approximately  $14,000 during the quarter.  Data
I/O has  valuation  reserves of  $10,030,000  as of September  30, 2003 that are
primarily related to U.S. based tax assets.

Financial Condition

Liquidity and Capital Resources
<TABLE>
<CAPTION>

                                                                   Sept. 30,                                     Dec. 31,
(in thousands)                                                        2003                 Change                  2002
------------------------------------------------------------- --------------------- -------------------- -------------------
<S>                                                                <C>                    <C>                     <C>
Working capital                                                     $10,539                $1,414                  $9,125
------------------------------------------------------------- --------------------- -------------------- -------------------
</TABLE>

Working capital  increased during the first nine months of 2003 primarily due to
cash provided by operations.  Cash, cash  equivalents and marketable  securities
increased  approximately  $0.6 million during this period,  inventory  decreased
$0.3 million,  and accounts  receivable  increased $1.2 million,  while accounts
payable and accrued  liabilities  decreased  by $0.2  million.  Our  increase in
accounts  receivable  relates to sales occurring later in the quarter and slower
paying foreign  customers.  We have continued to focus on reducing the amount of
inventory  relative to our business  level,  especially  through a focus on lean
manufacturing processes.  Should our business grow significantly,  we anticipate
that  we will  need  to  utilize  existing  liquidity  to  carry  the  increased
receivables  and inventory  expected to be associated  with sales growth.  As of
September 30, 2003, Data I/O had no debt outstanding.

Data I/O estimates that capital  expenditures for property,  plant and equipment
during the remainder of 2003 will be between  $200,000 and  $400,000,  excluding
expenditures for strategic purposes. Data I/O's future capital requirements will
depend on a number of factors  including;  decisions  to invest in new  systems,
computers,  software and technology  equipment;  costs associated with R&D; cost
related  to the  launch  of new  products;  and the  potential  use of funds for
strategic  purposes.  We expect to fund capital  expenditures  from existing and
internally generated funds or we may lease capital equipment. We believe that we
have sufficient  working capital  available under our operating plan to fund our
operations and capital requirements for at least 12 months.

Data I/O renewed a foreign line of credit for 50,000 Euros in the first quarter,
and maintains credit facilities for purchasing card and credit card purchases.

General

Restructuring

The economic slowdown of the past few years significantly affected our business.
During 2001 and 2002, we recorded  restructuring charges associated with actions
taken to  reduce  our  breakeven  point  and  realign  Data I/O with our  market
opportunities.  We required this operational repositioning because of the impact
of the  economic  slowdown  and the  decline in capital  spending  across a high
number of customer groups on general demand for programming equipment.

During  the first  nine  months of 2003,  we  completed  most of the  previously
accrued restructure  actions.  These payments were $27,000 less than anticipated
from the original restructuring related charges that totaled $1.8 million during
2001 and 2002. Accordingly, included in the results for the first nine months of
2003 is a reversal of these  previously  over-accrued  restructure  charges.  At
September 30, 2003, all  restructuring  expenses  associated with the activities
detailed above had been paid, except approximately  $16,000, which was primarily
associated with severance, facility, consulting and legal fees.

New Accounting Pronouncements

In November 2002, the Emerging Issues Task Force reached a consensus  opinion on
EITF 00-21,  "Revenue  Arrangements with Multiple  Deliverables."  The consensus
provides that revenue arrangements with multiple  deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the  arrangement  should be allocated to the  separate  units of  accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance  conditions.  Applicable  revenue  recognition
criteria  should be considered  separately for each separate unit of accounting.
EITF 00-21 is effective for revenue  arrangements entered into in fiscal periods
beginning  after  June 15,  2003.  Entities  may elect to report the change as a
cumulative  effect  adjustment  in  accordance  with APB Opinion 20,  Accounting
Changes. Data I/O has adopted the provisions of the statement,  which has had no
material impact.

In May of  2003  FASB  issued  Statement  149,  which  amends  Statement  133 by
clarifying  various  derivative  related issues and provides for more consistent
reporting of derivatives.  Statement 149 is effective for contracts entered into
or  modified  after  June  30,  2003,  with  some  exceptions,  and for  hedging
relationships  designated  after  June  30,  2003.  Data  I/O  has  adopted  the
provisions of the statement, which has had no material impact. In May 2003, FASB
issued  Statement  150,  "Accounting  for  Certain  Financial  Instruments  with
Characteristics  of both  Liabilities  and Equity".  Statement 150 requires that
certain financial instruments,  which under previous guidance were accounted for
as equity, must now be accounted for as liabilities.  Statement 150 is effective
for all financial  instruments  entered into or modified after May 31, 2003. The
Company adopted Statement 150 on June 1, 2003. The adoption of Statement 150 did
not have any effect on the Company's financial position,  results of operations,
or cash flows.

On January  17,  2003,  the FASB  issued  Interpretation  46,  Consolidation  of
Variable Interest Entities (FIN 46). FIN 46 interprets ARB No. 51,  Consolidated
Financial Statements,  as amended by FASB Statement No. 94, Consolidation of All
Majority-Owned  Subsidiaries,  which requires the  preparation  of  consolidated
financial  statements when one entity has a controlling  financial interest in a
second  entity.  FIN 46 specifies  disclosures  that are required for  financial
statements  issued after January 31, 2003 but prior to the effective date of the
Interpretation  for entities  created  before  February 1, 2003 and interests in
those entities  acquired  before that date, as well as disclosures  that will be
required  for  financial  statements  of primary  beneficiaries  and others with
variable  interests in variable  interest  entities  issued after the  effective
date. The Company believes its adoption of this new accounting standard will not
have a material  impact on the  Company's  results of  operations  or  financial
position, as the Company does not have variable interest entities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial  market  risks,  including  fluctuations  in foreign
exchange rates and interest rates.

INTEREST RATE RISK

We invest our cash in a variety of short-term financial  instruments,  including
government  bonds,  commercial  paper and money  market  instruments,  which are
classified as available-for-sale. Our investments are made in accordance with an
investment  policy  approved  by  our  board  of  directors.  Our  portfolio  is
diversified and consists  primarily of investment  grade  securities to minimize
credit risk. Cash balances in foreign  currencies are operating balances and are
invested in demand or short-term deposits of the local operating bank.

Investments  in both fixed rate and floating rate interest  earning  instruments
carry a degree of interest rate risk.  Fixed rate securities may have their fair
market  value  adversely  impacted  because of a rise in interest  rates,  while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors,  our future investment income may fall short
of expectations  because of changes in interest rates or we may suffer losses in
principal if forced to sell  securities that have seen a decline in market value
because of changes in interest  rates.  We do not attempt to reduce or eliminate
our  exposure to interest  rate risk  through  the use of  derivative  financial
instruments due to the short-term nature of the investments.

The table below provides information about our marketable securities,  including
principal  cash  flows  and the  related  weighted  average  interest  rates (in
thousands):
<TABLE>
<CAPTION>

                                 Principal           Estimated Fair         Principal           Estimated Fair
                                 Cash Flows             Value at           Cash Flows              Value at
                                  For 2003           Sept. 30, 2003         From 2003         December 31, 2002
                               ---------------     -------------------    --------------    -----------------------
<S>                               <C>                  <C>                  <C>                   <C>
     Corporate Bonds                    -                      -            $   734                $   734
                                                                             2.936%
     Euro-dollar bonds             $  330                   $330                  -                    342
                                   2.100%
     Tax Advantaged
     Auction Securities             1,000                  1,000                  -
                                   1.069%
     Taxable Auction
     Securities                       500                    500                  -                      -
                                   1.115%
                               ---------------     -------------------    --------------    -----------------------
     Total portfolio value         $1,830                 $1,830            $   734                 $1,076
</TABLE>

FOREIGN CURRENCY RISK

We have operations in Germany,  Canada, and China and, therefore, we are subject
to risks typical of an  international  business  including,  but not limited to,
differing  economic  conditions,  changes in political  climate,  differing  tax
structures,  other  regulations  and  restrictions  and  foreign  exchange  rate
volatility.  Accordingly,  our  future  results  could be  materially  adversely
affected by changes in these or other factors.

Our sales and corresponding  receivables are substantially in U.S. dollars other
than sales made in our subsidiaries in Germany,  Canada, and China.  Through our
operations  in Germany,  Canada,  and China,  we incur  certain  product  costs;
research and development;  customer service and support costs; selling,  general
and administrative  expenses in local currencies.  We are exposed, in the normal
course of  business,  to foreign  currency  risks on these  expenditures  and on
related foreign currency  denominated  monetary assets and liabilities.  We have
evaluated  our  exposure to these risks and  believe  that our only  significant
exposure to foreign  currencies  at the  present  time is  primarily  related to
Euro-based  receivables.  We use forward contracts to hedge and thereby minimize
the currency risks associated with certain transactions denominated in Euros.

If our actual currency  requirement or timing in the period  forecasted  differs
materially from the notional amount of our forward  contracts and/or the natural
balancing of receivables and payables in foreign  currencies  during a period of
currency  volatility  or if we do not continue to manage our exposure to foreign
currency  through  forward   contracts  or  other  means,  we  could  experience
unanticipated  foreign  currency  gains or  losses.  In  addition,  our  foreign
currency  risk   management   policy  subjects  us  to  risks  relating  to  the
creditworthiness  of the  commercial  banks  with  which we enter  into  forward
contracts.  If one of these banks cannot honor its obligations,  we may suffer a
loss. We also invest in our international  operations,  which will likely result
in increased future operating expenses denominated in those local currencies. In
the future,  our  exposure to foreign  currency  risks from these other  foreign
currencies may increase and if not managed  appropriately,  we could  experience
unanticipated foreign currency gains and losses.

The  purpose of our foreign  currency  risk  management  policy is to reduce the
effect of exchange rate  fluctuation  on our results of  operations.  Therefore,
while our foreign  currency  risk  management  policy may reduce our exposure to
losses  resulting from unfavorable  changes in currency  exchange rates, it also
reduces or eliminates our ability to profit from  favorable  changes in currency
exchange rates.

At September  30, 2003,  we had six forward  contracts to sell Euros in exchange
for $684,119  with rates  ranging  from 1.0752 to 1.1479 and a weighted  average
rate of 1.126,  all  scheduled to be due within the next quarter with a value at
maturity of $683,701.

Item 4. Controls and Procedures

Our management,  with the participation of our Chief Executive Officer and Chief
Financial  Officer,  evaluated the effectiveness of our disclosure  controls and
procedures (as defined in Rule  13a-15(e)  under the Exchange Act) as of the end
of the period  covered by this report  (the  "Evaluation  Date").  Based on this
evaluation,  as of the Evaluation  Date, our Chief  Executive  Officer and Chief
Financial  Officer have concluded  that our  disclosure  controls and procedures
were effective in timely alerting them to the material  information  relating to
Data I/O  required to be included in the reports  that Data I/O files or submits
under the Exchange Act.

There were no changes in internal  control over financial  reporting  during the
period covered by this report that have materially  affected,  or are reasonably
likely to materially affect, this control over financial reporting.

Our  management,  including  the Chief  Executive  Officer  and Chief  Financial
Officer, does not expect that its disclosure controls and procedures or internal
control over financial reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated,  can provide only reasonable,
not  absolute,  assurance  that the  objectives  of the control  system are met.
Further,  the design of a control  system  must  reflect the fact that there are
resource  constraints,  and the benefits of controls must be considered relative
to their costs.  Because of the inherent  limitations in all control systems, no
evaluation of controls can provide  absolute  assurance  that all control issues
and  instances  of fraud,  if any,  within  Data I/O have been  detected.  These
inherent limitations include the realities that judgments in decision-making can
be faulty,  and that  breakdowns  can occur  because of simple error or mistake.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons,  by collusion of two or more people,  or by management  override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions;  over time, control may become inadequate because of changes
in conditions,  or the degree of compliance  with the policies or procedures may
deteriorate.  Because of the inherent  limitations in a  cost-effective  control
system, misstatements due to error or fraud may occur and not be detected.

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

         None

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         (a) Exhibits

The  following  list is a subset  of the list of  exhibits  described  below and
contains all compensatory plans, contracts or arrangements in which any director
or  executive  officer  of the  Company is a  participant,  unless the method of
allocation of benefits  thereunder is the same for management and non-management
participants:

(1) Amended and Restated 1982 Employee Stock Purchase Plan.  See Exhibit 10.7,
    10.23, and 10.24.

(2) Retirement Plan and Trust Agreement. See Exhibit 10.2, 10.3, 10.4, 10.11,
    10.14, 10.15, and 10.16.

(3) Summary of Management Incentive Compensation Plan. See Exhibit 10.12.

(4) Amended and Restated 1983 Stock Appreciation Rights Plan.  See Exhibit 10.1.

(5) Amended and Restated 1986 Stock Option Plan.  See Exhibit 10.18.

(6) Form of Change in Control Agreements. See Exhibit 10.5.

(7) 1996 Director Fee Plan.  See Exhibit 10.6 and 10.17.

(8) Letter Agreement with Frederick R. Hume. See Exhibit 10.20.

(9) Amended and Restated 2000 Stock Compensation Incentive Plan.
    See Exhibit 10.23.

          3    Articles of Incorporation:

               3.1  The  Company's  restated  Articles  of  Incorporation  filed
                    November 2, 1987  (Incorporated  by reference to Exhibit 3.1
                    of the  Company's  1987 Annual Report on Form 10-K (File No.
                    0-10394)).

               3.2  The  Company's  Bylaws as amended  and  restated as of March
                    2001.  (Incorporated  by  reference  to the  Company's  2001
                    Annual Report on Form 10-K (File No. 0-10394)).

               3.3  Certificate of Designation, Preferences and Rights of Series
                    A Junior  Participating  Preferred  Stock  (Incorporated  by
                    reference  to  Exhibit  1  of  the  Company's   Registration
                    Statement  on Form  8-A  filed  March  13,  1998  (File  No.
                    0-10394)).

          4    Instruments Defining the Rights of Security Holders,
               Including Indentures:

               4.1  Rights  Agreement,  dated as of April 4, 1998,  between Data
                    I/O Corporation and ChaseMellon Shareholder Services, L.L.C.
                    as Rights Agent, which includes:  as Exhibit A thereto,  the
                    Form of Right  Certificate;  and, as Exhibit B thereto,  the
                    Summary of Rights to Purchase Series A Junior  Participating
                    Preferred Stock  (Incorporated by reference to the Company's
                    Current Report on Form 8-K filed on March 13, 1998).

               4.2  Rights Agreement,  dated as of March 31, 1988,  between Data
                    I/O  Corporation  and First Jersey  National Bank, as Rights
                    Agent,  as amended by Amendment  No. 1 thereto,  dated as of
                    May 28, 1992 and Amendment  No. 2 thereto,  dated as of July
                    16, 1997  (Incorporated by reference to the Company's Report
                    on Form 8-K filed on March 13, 1998).

               4.3  Amendment  No. 1, dated as of February 10,  1999,  to Rights
                    Agreement,  dated  as of  April 4,  1998,  between  Data I/O
                    Corporation and ChaseMellon Shareholder Services,  L.L.C. as
                    Rights  Agent  (Incorporated  by reference to Exhibit 4.1 of
                    the Company's Form 8-A/A dated February 10, 1999).

        10   Material Contracts:

               10.1 Amended and  Restated  1983 Stock  Appreciation  Rights Plan
                    dated February 3, 1993 (Incorporated by reference to Exhibit
                    10.23 of the Company's 1992 Annual Report on Form 10-K (File
                    No. 0-10394)).

               10.2 Amended and Restated  Retirement  Plan and Trust  Agreement.
                    (Incorporated by reference to Exhibit 10.26 of the Company's
                    1993 Annual Report on Form 10-K (File No. 0-10394)).

               10.3 First Amendment to the Data I/O Tax Deferred Retirement Plan
                    (Incorporated by reference to Exhibit 10.21 of the Company's
                    1994 Annual Report on Form 10-K (File No. 0-10394)).

               10.4 Second  Amendment  to the Data I/O Tax  Deferred  Retirement
                    Plan  (Incorporated  by  reference  to Exhibit  10.26 of the
                    Company's   1995  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

               10.5 Form  of  Change  in  Control  Agreements  (Incorporated  by
                    reference  to Exhibit  10.20 of the  Company's  1994  Annual
                    Report on Form 10-K (File No. 0-10394)).

               10.6 Data I/O Corporation 1996 Director Fee Plan (Incorporated by
                    reference  to Exhibit  10.27 of the  Company's  1995  Annual
                    Report on Form 10K (File No. 0-10394)).

               10.7 Data I/O  Corporation  1982  Employee  Stock  Purchase  Plan
                    Amended and  Restated  December  11, 1996  (Incorporated  by
                    reference  to  Exhibit  10.1 to the  Company's  Registration
                    Statement of Form S-8 (File No. 333-20657, filed January 29,
                    1997)).

               10.8 Purchase  and  Sale  Agreement  dated  as of  July  9,  1996
                    (Relating to the sale of Data I/O Corporation's headquarters
                    property in Redmond,  Washington consisting of approximately
                    79 acres of land and an  approximately  96,000  square  foot
                    building.  (Portions  of  this  exhibit  have  been  omitted
                    pursuant   to  an   application   for  an   order   granting
                    confidential  treatment.  The  omitted  portions  have  been
                    separately  filed  with  the  Commission)  (Incorporated  by
                    reference  to Exhibit  10.32 of the  Company's  1996  Annual
                    Report on Form 10-K (File No. 0-10394)).

               10.9 Letter dated as of December 20, 1996,  First  Amendment  and
                    extension of the Closing  Date under that  certain  Purchase
                    and Sale  Agreement  dated as of July 9, 1996.  (Portions of
                    this exhibit have been  omitted  pursuant to an  application
                    for an order granting  confidential  treatment.  The omitted
                    portions  have been  separately  filed with the  Commission)
                    (Incorporated by reference to Exhibit 10.33 of the Company's
                    1996 Annual Report on Form 10-K (File No. 0-10394)).

              10.10 Letter dated as of February 17, 1997,  Second  Amendment and
                    extension of the Closing  Date under that  certain  Purchase
                    and Sale  Agreement  dated as of July 9, 1996.  (Portions of
                    this exhibit have been  omitted  pursuant to an  application
                    for an order granting  confidential  treatment.  The omitted
                    portions  have been  separately  filed with the  Commission)
                    (Incorporated by reference to Exhibit 10.34 of the Company's
                    1996 Annual Report on Form 10-K (File No. 0-10394)).

              10.11 Third  Amendment  to the  Data I/O Tax  Deferred  Retirement
                    Plan  (Incorporated  by  reference  to Exhibit  10.35 of the
                    Company's   1996  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.12 Amended and Restated Management Incentive  Compensation Plan
                    dated January 1, 1997  (Incorporated by reference to Exhibit
                    10.25 of the Company's 1997 Annual Report on Form 10-K (File
                    No. 0-10394)).

              10.13 Amended and Restated  Performance  Bonus Plan dated  January
                    1, 1997  (Incorporated  by reference to Exhibit 10.26 of the
                    Company's   1997  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.14 Fourth  Amendment  to the Data I/O Tax  Deferred  Retirement
                    Plan  (Incorporated  by  reference  to Exhibit  10.27 of the
                    Company's   1997  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.15 Fifth  Amendment  to the  Data I/O Tax  Deferred  Retirement
                    Plan  (Incorporated  by  reference  to Exhibit  10.28 of the
                    Company's   1997  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.16 Sixth Amendment to the Data I/O Tax Deferred Retirement Plan
                    (Incorporated by reference to Exhibit 10.29 of the Company's
                    1997 Annual Report on Form 10-K (File No. 0-10394)).

              10.17 Amended and Restated Data I/O Corporation  1996 Director Fee
                    Plan  (Incorporated  by  reference  to Exhibit  10.32 of the
                    Company's   1997  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.18 Amended and  Restated  1986 Stock  Option Plan dated May 12,
                    1998  (Incorporated  by  reference  to Exhibit  10.37 of the
                    Company's   1998  Annual  Report  on  Form  10-K  (File  No.
                    0-10394)).

              10.19 Sublease   dated   December   22,  1999   between  Data  I/O
                    Corporation and Imandi.com,  Inc. (Incorporated by reference
                    to Exhibit 10.34 of the Company's 1999 Annual Report on Form
                    10-K (File No. 0-10394)).

              10.20 Letter  Agreement  with Fred R. Hume dated January 29, 1999.
                    (Incorporated by reference to Exhibit 10.35 of the Company's
                    1999 Annual Report on Form 10-K (File 0-10394)).

              10.21 Letter   Agreement  dated  May  28,  1999,  among  Data  I/O
                    Corporation,  JTAG Technologies  B.V., and JTAG Holding B.V.
                    (Incorporated by reference to Exhibit 10.36 of the Company's
                    1999 Annual Report on Form 10-K (File No. 0-10394)).

              10.22 Amended and Restated 2000 Stock Compensation  Incentive Plan
                    dated  May  19,  2000.  (Incorporated  by  reference  to the
                    Company's 2000 Proxy Statement dated March 27, 2000.)

              10.23 Amended and  Restated  1982  Employee  Stock  Purchase  Plan
                    dated  May  16,  2001  (Incorporated  by  reference  to  the
                    Company's 2001 Proxy Statement dated March 28, 2001.)

              10.24 Amended and  Restated  1982  Employee  Stock  Purchase  Plan
                    dated April 17, 2003  (Incorporated  by reference to Exhibit
                    4.1 to the  Company's  Registration  Statement  of Form  S-8
                    (File No. 333-107543, filed August 1, 2003))

          31  Certification - Section 302:

              31.1  Chief Executive Officer Certification               19

              31.2  Chief Financial Officer Certification               20

          32  Certification - Section 906:

              32.1  Chief Executive Officer Certification               21
              32.2  Chief Financial Officer Certification               22


         99   Other Exhibits
              99.1  Risk Factors                                        22


 (b) Reports on Form 8-K

On July 30, 2003,  Data I/O furnished a copy of a press release  announcing Data
I/O's  second  quarter  results  on a Form 8-K under  Item 12.  The  information
furnished  in the Form 8-K  pursuant to Item 12 shall not be deemed  filed under
the Securities Exchange Act of 1934, as amended.

<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:   November 13, 2003


                                   By://S//Joel S. Hatlen
                                      Joel S. Hatlen
                                      Vice President - Finance
                                      Chief Financial Officer
                                      Secretary and Treasurer
                      (Principal Financial Officer and Duly Authorized Officer)




                                   By://S//Frederick R. Hume
                                      Frederick R. Hume
                                      President
                                      Chief Executive Officer
                      (Principal Executive Officer and Duly Authorized Officer)

<PAGE>


Exhibit 31.1

Section 302 Certification I, Frederick R. Hume, certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer(s) and I are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures and presented in  this report our  conclusions   about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the period covered by this report based on such evaluation; and

     c)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control of financial  reporting,  to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control over a financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date November 13, 2003          /s/ FREDERICK R. HUME
                                Frederick R. Hume
                                President and Chief Executive Officer
                                (Principal Executive Officer)



<PAGE>

Exhibit 31.1

Section 302  Certification  I, Joel S. Hatlen,  certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer(s) and I are  responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;
     b)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures and presented in  this report our  conclusions   about
          the effectiveness of the disclosure controls and procedures, as of the
          end of the period covered by this report based on such evaluation; and
     c)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control of financial  reporting,  to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control over a financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date November 13, 2003           /s/ JOEL S. HATLEN
                                 Joel S. Hatlen
                                 Vice President and Chief Financial Officer
                                 (Principal Financial Officer)


<PAGE>

Exhibit 32.1

Certification by Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly  Report of Data I/O Corporation (the "Company")
on Form  10-Q  for the  period  ended  September  30,  2003 as  filed  with  the
Securities  and  Exchange  Commission  on the date  hereof  (the  "Report"),  I,
Frederick  R. Hume,  Chief  Executive  Officer  of the  Company,  certify,  that
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The  information  contained in the Report fairly  presents,  in all material
respects, the financial condition and results of operations of the Company.


/s/ Frederick R. Hume
Frederick R. Hume
Chief Executive Officer
(Principal Executive Officer)
November 13, 2003

<PAGE>

Exhibit 32.2

Certification by Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly  Report of Data I/O Corporation (the "Company")
on Form  10-Q  for the  period  ended  September  30,  2003 as  filed  with  the
Securities and Exchange Commission on the date hereof (the "Report"), I, Joel S.
Hatlen,  Chief Financial  Officer of the Company,  certify,  that pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002, that:

(1) Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The  information  contained in the Report fairly  presents,  in all material
respects, the financial condition and results of operations of the Company.


/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
(Principal Financial Officer)
November 13, 2003

<PAGE>



Exhibit 99.1

Cautionary Factors That May Affect Future Results

Data I/O's  disclosure  and  analysis in this  Quarterly  Report  contains  some
forward-looking  statements.  Forward-looking  statements  include  our  current
expectations  or  forecasts  of future  events.  The reader can  identify  these
statements by the fact that they do not relate strictly to historical or current
facts.  In  particular,  these  include  statements  relating to future  action,
prospective products, new technologies, future performance or results of current
and anticipated  products,  sales efforts,  expenses,  outsourcing of functions,
outcome of contingencies, and financial results.

Any or all of the forward-looking  statements in this Quarterly Report or in any
other public  statement  made may turn out to be wrong.  They can be affected by
inaccurate   assumptions   we  might  make  and  known  or  unknown   risks  and
uncertainties.  Many factors -- for  example,  product  competition  and product
development  -- will be  important  in  determining  future  results.  Moreover,
neither  Data I/O nor anyone else  assumes  responsibility  for the accuracy and
completeness  of these  forward-looking  statements.  Actual future  results may
materially vary.

We undertake no obligation  to publicly  update any  forward-looking  statements
after the date of this Quarterly Report, whether as a result of new information,
future events or otherwise.  The reader should not place undue  reliance on such
forward-looking  statements.  The reader is  advised,  however,  to consult  any
future  disclosures Data I/O makes on related subjects in our 10-Q, 8-K and 10-K
reports to the SEC and press  releases.  Also,  note that Data I/O  provides the
following cautionary discussion of risks,  uncertainties and possible inaccurate
assumptions  relevant to our  business.  These are  factors  that we think could
cause  Data  I/O's  actual  results  to  differ  materially  from  expected  and
historical results. Other factors besides those listed here could also adversely
affect  Data  I/O.  This  discussion  is  permitted  by the  Private  Securities
Litigation Reform Act of 1995.

RISK FACTORS

Development, Introduction and Shipment of New Products

Data I/O  currently is developing  new  engineering  and  automated  programming
systems.  Significant technological,  supplier,  manufacturing or other problems
may delay the development, introduction or production of these products.

For example, we may encounter these problems:

o technical problems in the development of a new programming system platform or
  the robotics for new automated handing systems

o inability to hire qualified personnel

o delays or failures to perform by third parties involved in our development
  projects

Delays in the development,  completion and shipment of new products,  or failure
of  customers  to accept  new  products,  may  result  in a decline  in sales or
additional costs in 2003 and beyond.

Variability in Quarterly Operating Results

Data I/O's operating  results tend to vary from quarter to quarter.  Our revenue
in each quarter  substantially depends upon orders received within that quarter.
Conversely,  our  expenditures  are based on  investment  plans and estimates of
future revenues. We may, therefore,  be unable to quickly reduce our spending if
our revenues decline in a given quarter. As a result, operating results for that
quarter  will  suffer.  Our  results of  operations  for any one quarter are not
necessarily indicative of results for any future periods.

Other  factors,  which may cause our quarterly  operating  results to fluctuate,
include:

o increased competition

o timing of new product announcements

o product releases and pricing changes by us or our competitors

o market acceptance or delays in the introduction of new products

o production constraints

o labor or material shortages

o the timing of significant orders

o war or terrorism

o health issues (such as SARS)

o customers' budgets

o adverse movements in exchange rates, interest rates or tax rates

o cyclical nature of demand for our customers' products

o general economic conditions in the countries where we sell products

Due  to all of the  foregoing  factors,  it is  possible  that  in  some  future
quarters,  our  operating  results  will be below  expectations  of analysts and
investors.

Rapid Technological Change

Product technology in Data I/O's industry evolves rapidly, making timely product
innovation  essential to success in the marketplace.  Introducing  products with
improved  technologies or features may render our existing products obsolete and
unmarketable.  Technological  advances that may  negatively  impact our business
include:

o new device package types, densities, and  technologies  requiring hardware and
  software changes in order to be programmed by our products

o electronics  equipment  manufacturing practices, such  as  widespread  use  of
  in-circuit programming

o customer  software  platform  preferences  different  from  those on which our
  products operate

o more rigid industry standards, which would decrease the value-added element of
 our products and support services

If we cannot  develop  products  in a timely  manner  in  response  to  industry
changes,  or if our products do not perform  well,  our  business and  financial
condition will be adversely affected. Also, our new products may contain defects
or errors  that give rise to product  liability  claims  against us or cause our
products to fail to gain market  acceptance.  Our future success  depends on our
ability to successfully  compete with other  technology  firms in attracting and
retaining key technical personnel.

Economic and Market Conditions

Our business is highly  impacted by capital  spending  plans and other  economic
cycles  that  affect  the  users  and  manufacturers  of  semiconductors.  These
industries  are highly  cyclical and are  characterized  by rapid  technological
change,  short product life cycles,  fluctuations in manufacturing  capacity and
pricing and gross margin  pressures.  As we  experienced in 2002, our operations
may in the future reflect  substantial  fluctuations from  period-to-period as a
consequence of these industry patterns,  general economic  conditions  affecting
the timing of orders from major customers,  and other factors  affecting capital
spending. These factors could have a material adverse effect on our business and
financial condition.

History of Losses

We have  incurred  net losses in each of our last three  fiscal  years.  We have
decreased our operating  expenses in recent  periods  through the  restructuring
plans that we  initiated  during our prior  fiscal  year.  We will  continue  to
examine our level of operating  expense based upon our projected  revenues.  Any
planned  increases in operating  expenses may result in larger  losses in future
periods if projected  revenues  are not  achieved.  As a result,  we may need to
generate  greater   revenues  than  we  have  recently   generated  to  maintain
profitability.  However,  we cannot  provide  assurance  that our revenues  will
increase and our strategy may not be successful, resulting in future losses.

Affects of Restructuring Activities

Beginning in the prior fiscal year and  continuing  in the past fiscal year,  we
reduced our workforce  from 224 to 125 employees at the end of 2002.  There have
been and may continue to be  substantial  costs  associated  with this workforce
reduction  related  to  severance  and  other  employee-related  costs  and  our
restructuring  plan may  yield  unanticipated  consequences,  such as  increased
burden on our  administrative,  operational,  and  financial  resources  and has
increased the  responsibilities for our management  personnel.  As a result, our
ability to respond to unexpected challenges may be impaired and we may be unable
to take advantage of new opportunities.

In addition,  many of the  employees  that were  terminated  possessed  specific
knowledge or expertise,  and that  knowledge or expertise may prove to have been
important to our operations.  In that case, their absence may create significant
difficulties. Further, the reduction in workforce may reduce employee morale and
may create concern among current and potential  employees  about job security at
Data I/O,  which may lead to difficulty in hiring and retaining  employees,  and
divert management's attention. In addition, the headcount reductions may subject
us to the risk of  litigation,  which  could  result in  substantial  cost.  Any
failure by us to properly manage this rapid change in workforce could impair our
ability to efficiently  manage our business,  to maintain and develop  important
relationships with third-parties,  and to attract and retain customers. It could
also cause us to incur higher  operating cost and delays in the execution of our
business plan or in the reporting or tracking of our financial results.

Need for Additional Funding

Our  past  revenues  have  been  and our  future  revenues  may  continue  to be
insufficient  to support the expense of our  operations and any expansion of our
business. We may therefore need additional equity or debt capital to finance our
operations.  If we are unable to generate  sufficient cash flows from operations
or to obtain funds through  additional debt or equity financing,  we may have to
reduce some or all of our development and sales and marketing  efforts and limit
the expansion of our business.

We believe our existing cash and cash equivalents will be sufficient to meet our
working capital  requirements  for at least the next twelve months.  Thereafter,
depending on the  development of our business,  we may need to raise  additional
cash for working capital or other expenses. We may also encounter  opportunities
for  acquisitions or other business  initiatives  that require  significant cash
commitments,  or  unanticipated  problems  or  expenses  that could  result in a
requirement for additional cash before that time.

Therefore,  we may seek  additional  funding  through  public or private debt or
equity  financing or from other sources.  We have no commitments  for additional
financing,  and we may experience  difficulty in obtaining  funding on favorable
terms,  if at all. Any financing we obtain may contain  covenants  that restrict
our freedom to operate our business or may require us to issue  securities  that
have rights, preferences or privileges senior to our Common Stock and may dilute
your ownership interest.

Competition

Technological  advances have reduced the barriers of entry into the  programming
systems  markets.  We expect  competition to increase from both  established and
emerging  companies.  If we fail to compete  successfully  against  current  and
future sources of competition,  our profitability and financial performance will
be adversely impacted.

Dependence on Semiconductor Manufacturers

We work  closely  with  most  semiconductor  manufacturers  to  ensure  that our
programming   systems  comply  with  their  requirements.   In  addition,   many
semiconductor  manufacturers  recommend our programming systems for use by users
of their programmable devices. These working relationships enable us to keep our
programming systems product line up to date and provide end-users with broad and
current  programmable device support.  Our business may be adversely affected if
our relationships with semiconductor manufacturers deteriorate.

Dependence on Suppliers

Certain parts used in our products are currently  available from either a single
supplier or from a limited number of suppliers. If we cannot develop alternative
sources of these components,  if sales of parts are discontinued by the supplier
or we experience  deterioration in our relationship with these suppliers,  there
may be delays or reductions  in product  introductions  or shipments,  which may
materially adversely affect our operating results.

Because we rely on a small number of suppliers for certain parts, we are subject
to  possible  price  increases  by these  suppliers.  Also,  we may be unable to
accurately forecast our production schedule. If we under estimate our production
schedule,  suppliers may be unable to meet our demand for components. This delay
in the supply of key components may  materially  adversely  affect our business.
Over  estimation  of  demand  will lead to excess  inventories  that may  become
obsolete.

The non-automated  programming  system products we acquired when we acquired SMS
in  November  1998  are  currently  manufactured  to  our  specifications  by  a
third-party  foreign  contract  manufacturer.  We may not be able  to  obtain  a
sufficient  quantity of these  products if and when needed,  which may result in
lost sales.
<PAGE>

Reliance on Third-Party Distribution Channels

Data  I/O  has  an   internal   sales  force  and  also   utilizes   third-party
representatives,  and distributors.  Therefore, the financial stability of these
distributors is important. Highly skilled professional engineers use most of our
products.  To be effective,  third-party  distributors must possess  significant
technical,  marketing  and sales  resources  and must devote their  resources to
sales  efforts,  customer  education,   training  and  support.  These  required
qualities limit the number of potential third-party  distributors.  Our business
will suffer if we cannot  attract and retain a  sufficient  number of  qualified
third-party distributors to market our products.

International Operations

International sales represented 64% of our net revenue for the fiscal year ended
December  31, 2002.  We expect that  international  sales will  continue to be a
significant portion of our net revenue. International sales may fluctuate due to
various factors, including:

o migration of manufacturing to low cost geographies

o unexpected changes in regulatory requirements

o tariffs and taxes

o difficulties in staffing and managing foreign operations

o longer average payment cycles and difficulty in collecting accounts receivable

o fluctuations in foreign currency exchange rates

o impact of the Euro

o compliance with applicable export licensing requirements

o product safety and other certification requirements

o political and economic instability

o local competitors focused on their local market

The European  Community and European  Free Trade  Association  have  established
certain electronic emission and product safety requirements ("CE"). Although our
products  currently  meet  these  requirements,  failure  to obtain  either a CE
certification  or a waiver for any product may  prevent us from  marketing  that
product in Europe.

We operate subsidiaries in Germany, China and Canada. Our business and financial
condition  is  sensitive to currency  exchange  rates or any other  restrictions
imposed on their currencies. Currency exchange fluctuations in Canada, China and
Germany may adversely affect our investment in our subsidiaries.

Protection of Intellectual Property

Data I/O also relies on patents,  copyrights,  trade  secrets and  trademarks to
protect our intellectual  property, as well as product development and marketing
skill to establish  and protect our market  position.  We attempt to protect our
rights in proprietary  software products,  including TaskLink and other software
products,  by  retaining  the  title  to  and  copyright  of  the  software  and
documentation,  by including  appropriate  contractual  restrictions  on use and
disclosure  in  our  licenses,   and  by  requiring  our  employees  to  execute
non-disclosure agreements. Our software products are typically shipped in sealed
packages,  or on CDs, on which notices are prominently  displayed  informing the
end-user  that,  by  breaking  the  seal of the  packaging,  or  installing  the
software,  the end-user agrees to be bound by the license agreement contained in
the  package or product.  The  license  agreement  includes  limitations  on the
end-user's  authorized use of the product, as well as restrictions on disclosure
and  transferability.  The  legal and  practical  enforceability  and  extent of
liability for violations of license  agreements that purport to become effective
upon opening of a sealed package or installation of the product are unclear.  We
are  not  aware  of any  situation  where a  license  agreement  restricting  an
end-user's authorized use of a licensed product resulted in enforcement action.

Because of the rapidly  changing  technology  in the  semiconductor,  electronic
equipment  and  software  industries,  portions of our products  might  possibly
infringe upon existing patents or copyrights, and we may, therefore, be required
to obtain  licenses or  discontinue  the use of the  infringing  technology.  We
believe that any exposure we may have regarding possible  infringement claims is
a reasonable  business  risk  similar to that assumed by other  companies in the
electronic   equipment   and  software   industries.   However,   any  claim  of
infringement,  with or  without  merit,  could  be  costly  and a  diversion  of
management's attention,  and an adverse determination could adversely affect our
reputation,  preclude  us from  offering  certain  products,  and  subject us to
substantial liability.

Acquisitions

We may pursue  acquisitions  of  complementary  technologies,  product  lines or
businesses. Future acquisitions may include risks, such as:

o burdening management and our operating teams during the integration of the
  acquired entity

o diverting management's attention from other business concerns

o failing to successfully integrate the acquired products

o lack of acceptance of the acquired products by our sales channels or customers

o entering markets where we have no or limited prior experience

o potential loss of key employees of the acquired company

o additional burden of support for an acquired programmer architecture

Future acquisitions may also impact Data I/O's financial position.  For example,
we may use significant  cash or incur  additional  debt,  which would weaken our
balance sheet. We may also capitalize  goodwill and intangible  assets acquired,
the impairment of which would reduce our profitability. We cannot guarantee that
future  acquisitions will improve our business or operating results.

Dependence on Key Personnel

We have  employees  located in the U.S.,  Germany,  Canada  and  China.  We also
utilize  independent  contractors for specialty work,  primarily in research and
development,  and utilize  temporary  workers to adjust  capacity to fluctuating
demand.  Many of our employees are highly skilled and our continued success will
depend in part upon our  ability to attract and retain  employees  who can be in
great demand within the industry.  None of our  employees are  represented  by a
collective  bargaining  unit and we believe  relations  with our  employees  are
favorable  though  no  assurance  can be made  that this will be the case in the
future.  Refer to the section  captioned  "Affects of Restructuring  Activities"
above.

Potential Volatility of Stock Price

The stock prices of technology  companies tend to fluctuate  significantly,  and
many experienced  significant  reductions in value during the past few years. We
believe factors such as  announcements  of new products by us or our competitors
and quarterly variations in financial results may cause the market price of Data
I/O's Common Stock to fluctuate substantially.  In addition,  overall volatility
in the stock market,  particularly in the technology  company  sector,  is often
unrelated  to  the  operating   performance   of  companies.   If  these  market
fluctuations continue in the future, they may adversely affect the price of Data
I/O's Common Stock.