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 March 31, 2005

                                       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


8,202,178  shares of no par value of the  Registrant's  Common Stock were issued
and outstanding as of May 12, 2005.

<PAGE>


                              DATA I/O CORPORATION

                                    FORM 10-Q
                      For the Quarter Ended March 31, 2005

                                      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                                        14

     Item 4.    Controls and Procedures                                  15

Part II - Other Information

     Item 1.    Legal Proceedings                                        15

     Item 2.    Changes in Securities and Use of Proceeds                15

     Item 3.    Defaults Upon Senior Securities                          15

     Item 4.    Submission of Matters to a Vote of Security Holders      16

     Item 5.    Other Information                                        16

     Item 6.    Exhibits                                                 16

Signatures                                                               19


<PAGE>


PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

                              DATA I/O CORPORATION

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

                                                                                          Mar. 31,                    Dec. 31,
                                                                                           2005                        2004
                                                                                   ------------------------------------------------
<S>                                                                                    <C>                            <C>
(in thousands, except share data)                                                      (unaudited)
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                            $3,801                       $5,534
     Marketable securities                                                                 1,330                        1,037
     Trade accounts receivable, less allowance for
        doubtful accounts of $179 and $155                                                 5,366                        4,489
     Inventories                                                                           3,807                        4,139
     Other current assets                                                                    495                          652
                                                                                   ---------------------           ----------------

        TOTAL CURRENT ASSETS                                                              14,799                       15,851

Property and equipment - net                                                               1,880                        1,970
Other assets                                                                                  23                           26
                                                                                   ---------------------           ----------------
        TOTAL ASSETS                                                                     $16,702                      $17,847
                                                                                   =====================           ================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                                     $1,270                       $1,688
     Accrued compensation                                                                    840                          991
     Deferred revenue                                                                      1,297                        1,706
     Other accrued liabilities                                                             1,083                        1,126
     Accrued costs of business restructuring                                                  18                           86
     Income taxes payable                                                                      3                            4
                                                                                   ---------------------           ----------------
        TOTAL CURRENT LIABILITIES                                                          4,511                        5,601

Deferred gain on sale of property                                                            679                          776
                                                                                   ---------------------           ----------------
        TOTAL LIABILITIES                                                                  5,190                        6,377

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, 8,199,678
           and 8,064,696 shares                                                           19,092                       19,001
     Accumulated deficit                                                                  (7,979)                      (8,018)
     Accumulated other comprehensive income                                                  399                          487
                                                                                   ---------------------           ----------------
        TOTAL STOCKHOLDERS' EQUITY                                                        11,512                       11,470
                                                                                   ---------------------           ----------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $16,702                      $17,847
                                                                                   =====================           ================

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


<PAGE>



                              DATA I/O CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

Mar. 31, Mar 31,
For the three months ended                                                                   2005                     2004
-------------------------------------------------------------------------------------- ------------------     ---------------------
(in thousands, except per share data)
<S>                                                                                         <C>                     <C>
Net sales                                                                                   $6,737                  $6,834
Cost of goods sold                                                                           2,723                   3,121
                                                                                       ------------------     ---------------------
Gross margin                                                                                 4,014                   3,713

Operating expenses:
     Research and development                                                                1,337                   1,204
       Selling, general and administrative                                                   2,631                   2,172
                                                                                       ------------------     ---------------------
         Total operating expenses                                                            3,968                   3,376
                                                                                       ------------------     ---------------------
         Operating  income                                                                      46                     337

Non-operating income (expense):
     Interest income                                                                            23                      35
     Interest expense                                                                           (3)                     (1)
     Foreign currency exchange                                                                 (21)                    (14)
                                                                                       ------------------     ---------------------
         Total non-operating income (expense)                                                   (1)                     20
                                                                                       ------------------     ---------------------
         Income before income taxes                                                             45                     357

Income tax expense                                                                               6                      61
                                                                                       ------------------     ---------------------

Net income                                                                                     $39                    $296
                                                                                       ==================     =====================

Basic and diluted earnings per share                                                         $0.00                   $0.04
                                                                                       ==================     =====================

Weighted average shares outstanding                                                          8,154                   7,998
                                                                                       ==================     =====================
Weighted average and potential shares outstanding                                            8,550                   8,414
                                                                                       ==================     =====================

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

<PAGE>

                              DATA I/O CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Mar 31,            Mar 31,
For the three months ended                                                                         2005               2004
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>                <C>
(in  thousands)
OPERATING ACTIVITIES:
    Net income                                                                                         $39             $296
    Adjustments to reconcile net income to net cash provided by
     (used in) operating activities:
       Depreciation and amortization                                                                   262              192
       Write-off of assets                                                                               9                -
       Equipment transferred to cost of goods sold                                                     162               54
       Amortization of deferred gain on sale                                                           (97)             (82)
       Net change in:
         Deferred revenue                                                                             (427)             (19)
         Trade accounts receivable                                                                    (941)            (571)
         Inventories                                                                                   166              548
         Other current assets                                                                          145               18
         Accrued costs of business restructuring                                                       (68)               -
         Accounts payable and accrued liabilities                                                     (697)            (598)
                                                                                                 -----------      --------------
       Net cash provided by (used in) operating activities                                          (1,447)            (162)

INVESTING ACTIVITIES:
    Purchases of property and equipment                                                               (287)            (554)
    Purchases of marketable securities                                                                (290)            (876)
    Proceeds from sales of marketable securities                                                         -              861
                                                                                                 -----------      --------------
       Net cash provided by (used in) investing activities                                            (577)            (569)

FINANCING ACTIVITIES:
    Sale of common stock                                                                                70               81
    Proceeds from exercise of stock options                                                             22                8
                                                                                                 -----------      --------------
       Net cash provided by (used in) financing activities                                              92               89

                                                                                                 -----------      --------------
Increase/(decrease) in cash and cash equivalents                                                    (1,932)            (642)

Effects of exchange rate changes on cash                                                               199              (32)
Cash and cash equivalents at beginning of year                                                       5,534            4,380
                                                                                                 -----------      --------------
Cash and cash equivalents at end of quarter                                                         $3,801           $3,706
                                                                                                 ===========      ==============

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 March 31, 2005 and March 31,
2004,  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,  2004 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 three months ended March 31, 2005 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2005. 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, 2004.

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.  The following  table  illustrates  the effect on net
income and earnings 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>


                                                                                        Mar. 31,              Mar. 31,
                                                                                          2005                  2004
                                                                                    ----------------      --------------
<S>                                                                                     <C>                   <C>
Net income - as reported                                                                   $39                  $296

Deduct:  Total stock-based  employee  compensation  expense  determined under fair
value based method for awards granted,  modified,  or settled,  net of related tax
effects                                                                                    (91)                  (68)
                                                                                    ----------------      --------------
Net income (loss) - pro forma                                                             ($52)                 $228
                                                                                    ================      ==============

Basic and diluted income per share - as reported                                         $0.00                 $0.04
Basic and diluted income (loss) per share - pro forma                                   ($0.01)                $0.03
</TABLE>


NOTE 2 - RECLASSIFICATIONS

Certain  prior  period  balances  have  been  reclassified  to  conform  to  the
presentation used in the current period.


NOTE 3 - INVENTORIES

Inventories consisted of the following components (in thousands):

                                              Mar. 31,              Dec. 31,
                                                2005                  2004
                                         ------------------    ----------------
     Raw material                             $2,198                $2,381
     Work-in-process                             969                   899
     Finished goods                              640                   859
                                         ------------------    ----------------
                                              $3,807                $4,139
                                         ==================    ================

We continued to reduce the overall level of inventory based upon the level of
sales we have been experiencing and are forecasting. During the quarter, we did
not significantly change the net carrying values of our inventory.


<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT

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

                                             Mar. 31,               Dec. 31,
                                               2005                   2004
                                         ------------------    ----------------
     Leasehold improvements                    $291                   $291
     Equipment                               10,155                 10,065
                                         ------------------    ----------------
                                             10,446                 10,356
     Less accumulated depreciation            8,566                  8,386
                                         ------------------    ----------------
     Property and equipment - net            $1,880                 $1,970
                                         ==================    ================


NOTE 5 - BUSINESS RESTRUCTURING PROGRESS

During 2004, we took restructuring related charges of $562,000 primarily related
to  severance  and a small  office  closure.  These  actions were taken to lower
production and operating  costs to reduce the level of revenue  required for our
net income breakeven  point,  particularly in view of the reduced margins in the
second quarter of 2004; the continued need to control costs in North America and
Europe;  and the need to build  staff  serving  China  and  Eastern  Europe.  At
December 31, 2004, $86,000 remained accrued as restructure charges.

During  the first  quarter  of 2005,  we paid out  approximately  $68,000 of the
remaining 2004 previously accrued  restructure  charges as outlined above. As of
March 31,  2005,  restructuring  charges of $18,000  remain  accrued,  which are
expected to be paid in 2005.


NOTE 6 - OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following components (in thousands):

                                             Mar. 31,            Dec. 31,
                                               2005                2004
                                        -------------------   -----------------
     Product warranty liability                $490                 $494
     Sales return reserve                       225                  250
     Other                                      368                  382
                                        -------------------   -----------------
     Other accrued liabilities               $1,083               $1,126
                                        ===================   =================

The  changes  in Data  I/O's  product  warranty  liability  are as  follows  (in
thousands):

                                             Mar. 31,
                                               2005
                                        ------------------

        Liability, beginning balance            $494
        Net expenses                             199
        Warranty claims                         (199)
        Accrual revisions                         (4)
                                        ------------------
        Liability, ending balance               $490
                                        ==================

NOTE 7 - 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 first quarter
                                                                                ----------------------------
                                                                                   2005            2004
                                                                                -----------    -------------
<S>                                                                                <C>             <C>
Numerator for basic and diluted earnings per share:
       Net income                                                                   $39            $296
                                                                                -----------    -------------

Denominator:
        Denominator for basic earnings per share -
         weighted-average shares                                                  8,154           7,998
        Employee stock options                                                      396             416
                                                                                -----------    -------------
         Denominator for diluted earnings per share -
                  adjusted weighted-average shares and
                  assumed conversions of stock options                            8,550           8,414
                                                                                -----------    -------------
Basic and diluted earnings per share
         Total basic and diluted earnings per share                               $0.00           $0.04
                                                                                ===========    =============
</TABLE>

At March 31, 2005 and 2004 there were 1,163,072 and 1,325,522,  respectively, of
outstanding options potentially issueable as common stock.


NOTE 8 - ACCOUNTING FOR INCOME TAXES

Taxes  due for the  first  quarter  of 2005  relate  to  foreign  and  state tax
obligations. The Company's effective tax rate for the first three months of 2005
differed  from the statutory 34% tax rate  primarily due to  utilization  of net
operating  loss   carryforwards.   The  tax  valuation  allowance  decreased  by
approximately  $4,000  during the quarter  ended March 31, 2005. As of March 31,
2005, the Company has a valuation allowance of $9,803,000.


NOTE 9 - COMPREHENSIVE INCOME

During the first quarter of 2005 and 2004 total comprehensive  income (loss) was
comprised of the following (in thousands):


                                                     For the first quarter
                                                 ------------------------------
                                                    2005               2004
                                                 -------------    -------------
   Net income                                        $39              $296
   Foreign currency translation loss                 (91)              (56)
   Unrealized gain on marketable securities            3                 -
                                                 -------------    -------------
   Total comprehensive income (loss)                ($49)             $240
                                                 =============    =============


NOTE 10 - 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 other comprehensive income (a component of stockholders' equity), net
of taxes. Realized and unrealized gains and losses resulting from the effects of
changes in  exchange  rates on assets  and  liabilities  denominated  in foreign
currencies are included in non-operating expense as foreign currency transaction
gains and losses.

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 us are fair value hedges.
Generally,  these contracts have maturities less than one year and require us to
exchange  foreign  currencies for U.S.  dollars at maturity.  The change in fair
value of the open hedge  contracts as of March 31, 2005 is an unrealized loss of
$2,000 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 11 - RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R,  "Share-Based  Payments."  SFAS
No. 123R requires  employee  stock  options and rights to purchase  shares under
stock  participation  plans to be accounted for under the fair value method, and
eliminates  the ability to account  for these  instruments  under the  intrinsic
value method  prescribed  by APB Opinion No. 25, and allowed  under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option  pricing
model for estimating fair value,  which is amortized to expense over the service
periods.  As amended on April 14, 2005,  the  requirements  of SFAS No. 123R are
effective  for  fiscal  years  beginning  after  June  15,  2005.  The  Company,
therefore, is required to adopt SFAS No. 123R on January 1, 2006. In March 2005,
the SEC issued SAB 107,  "Share-Based  Payments,"  which  gives  guidance on the
application  of FAS 123R.  The  adoption  of SFAS No. 123R is expected to have a
significant  effect on the  consolidated  financial  statements of Data I/O. See
Note 1 for the pro forma impact on net earnings  (loss) and earnings  (loss) per
share from  calculating  stock-related  compensation  costs under the fair value
alternative of SFAS No. 123.  However,  the calculation of compensation cost for
share-based  payment  transactions after the effective date of SFAS No. 123R and
under SAB 107 may be different from the calculation of  compensation  cost under
SFAS No. 123. Such potential  differences  have not yet been  quantified.  Also,
past  usage of option  plans  and  stock  purchase  plans  may not  reflect  our
practices in future periods.

In March  2005,  the  Securities  and  Exchange  Commission  announced  that the
compliance date for non-accelerated  filers and foreign private issuers pursuant
to Section 404 of the  Sarbanes-Oxley  Act has been  extended.  Under the latest
extension,  a company  that is not  required  to file its annual  and  quarterly
reports on an accelerated  basis must begin to comply with the  requirements for
the  assessment and the reporting on internal  control over financial  reporting
for its first fiscal year ending on or after July 15,  2006.  This is a one-year
extension from the previously  established  July 15, 2005 compliance  date. Data
I/O  expects  that it will  continue to be a  non-accelerated  filer and that it
will,  therefore,  be required to comply with Section 404 of the  Sarbanes-Oxley
Act as of December 31, 2006.


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;  changes in 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 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, 2004,  and in Exhibit 99.1 of this report  describe  some,  but not
all, of the factors that could cause these differences.

OVERVIEW

Our goal is to continue to focus on managing the business to achieve  profitable
operations,  while  developing  and  enhancing  products  to drive  revenue  and
earnings  growth.  Our  challenge  continues to be  operating  in the  uncertain
economic  environment,  while  positioning  Data  I/O to  take  advantage  of an
anticipated recovery in capital spending.  We expect that demand for programming
capacity should improve, in part based on third party forecasted  increased 2005
unit  sales  for the  semiconductor  industry,  which  should  provide  improved
business opportunities for Data I/O.

We are  continuing  our  efforts  to  balance  increasing  costs  and  strategic
investments  in our  business  with the level of demand and mix of  business  we
expect.  We are focusing our research and  development  efforts in our strategic
growth markets, namely new programming technology, in-system programming ("ISP")
ImageWriter technology,  and automated programming systems for the manufacturing
environment,  particularly  extending  the  capabilities  and  support  for  our
FlashCORE  architecture and the  ProLINE-RoadRunner  and PS families.  To better
support our customers in their geographic areas and time zones, we are investing
in tools and device support operations in Germany, India and Shanghai, China.

Our  customer  focus  has  been  on  strategic  high  volume  manufacturers  and
programming centers and supporting NAND Flash and  microcontrollers on our newer
products  to  gain  new   accounts   and  break  into  new   markets,   such  as
microcontrollers  for the automotive  market.  We are finalizing the operational
set up for our new  subsidiaries  in China and  Brazil.  We  expanded  our China
operations  to take  advantage of the growth of  manufacturing  in China and are
establishing  a service  operation in Brazil.  We also  increased our efforts to
recapture the Japanese market and are  considering  establishing a subsidiary in
Japan. We continue our efforts to partner with the  semiconductor  manufacturers
to better serve our mutual customers.

BUSINESS RESTRUCTURING PROGRESS

During 2004,  we accrued  restructuring  charges that  totaled  $562,000  with a
remaining  balance of $86,000 at December 31, 2004.  The  restructuring  charges
related  primarily to severance and a small office  closure.  These actions were
taken to lower  production  and  operating  costs to reduce the level of revenue
required for our net income breakeven point, particularly in view of our reduced
margins  during 2004;  the continued  need to control costs in North America and
Europe; and the need to build staff serving China and Eastern Europe. During the
first  quarter of 2005,  approximately  $68,000  was paid out and no  additional
amounts were  accrued.  The balance at March 31, 2005 is $18,000.  The remaining
balance is expected to be paid out in 2005.

CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally  accepted  in the  United  States  of  America  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,  Data I/O  evaluates  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.
Installation that is considered  perfunctory  includes any installation that can
be performed by other parties,  such as distributors,  other vendors, or in most
cases customers themselves.  This takes into account the complexity,  skill, and
training needed as well as customer  expectations  regarding  installation.  The
revenue  related to these  products is  recognized  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  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.

Tax Valuation  Allowances:  Given the  uncertainty  created by our loss history,
Data I/O expects to continue to limit the recognition of net deferred tax assets
and maintain the tax valuation allowances.  We expect, therefore, that reversals
of the tax valuation allowance will take place for the next few years only as we
are able to take  advantage of the  underlying  tax loss or other  attributes in
carry forward. The transfer pricing and expense or cost sharing arrangements are
complex  areas  where  judgments,  such  as  the  determination  of  arms-length
arrangements, can be subject to challenges by different tax jurisdictions.
<PAGE>

Results of Operations
<TABLE>
<CAPTION>
NET SALES
---------------------------------------------------------------------------------------------------------------------
 (in thousands)
                                                                                  First Quarter
                                                              -------------------------------------------------------
 Net sales by product line                                         2005              % Change          2004
 --------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>
 Automated programming systems                                     $4,017           (5.5%)            $4,252

 Non-automated programming systems                                  2,720            5.3%              2,582
                                                              -------------------------------------------------------
 Total programming systems                                         $6,737           (1.4%)            $6,834
                                                              =======================================================


                                                                                 First Quarter
                                                              -------------------------------------------------------
 Net sales by location                                              2005             % Change          2004
 --------------------------------------------------------------------------------------------------------------------
 United States                                                    $2,236            60.9%              $1,390

    % of total                                                     33.2%                                20.3%

 International                                                    $4,501           (17.3%)             $5,444

    % of total                                                     66.8%                                79.7%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Revenues for the first quarter of 2005 increased  approximately  16% compared to
the fourth  quarter of 2004, but decreased by 1% from the first quarter of 2004.
The revenue  decrease  from the first  quarter of 2004 relates  primarily to the
decrease in sales to the wireless  handset  manufactures,  generally our largest
customer segment,  reflecting an overall decrease in capacity demand by wireless
handset  manufacturers.  We expect sales from the wireless  industry to increase
during the second quarter. Our revenue growth of approximately $925,000, or 16%,
from the fourth quarter of 2004  primarily  results from an increase in sales to
the automotive electronics  manufacturers.  During the first quarter of 2005, we
reduced our backlog of orders from $1.5 million to $781,000.

Domestic  sales  increased  approximately  61%,  in the  first  quarter  of 2005
compared to the first quarter of 2004,  primarily as a result of the increase in
automotive electronics sales, while international sales decreased  approximately
17% primarily as a result of the decrease in wireless handset segment sales. The
U.S.  dollar  continued to weaken in the first  quarter of 2005  compared to the
first  quarter of 2004,  and in  particular  against  the Euro,  offsetting  the
overall decrease in international  sales by $119,000.  The weakened U.S. dollar,
especially  compared  to the Euro,  is expected to continue to assist our export
sales.

In 2004, we introduced  the PS 588 and PS 288  FlashCORE  automated  programming
systems,  ImageWriter, our ISP solution, eDSS tool suite for device support, and
a version of our  ProLINE-RoadRunner  designed for Panasonic CM402 machines.  We
began shipping Beta units in 2004 of our  ImageWriter  and are in the process of
the full product launch including delivering demonstration units to the field in
the second  quarter of 2005. We expect these  products to increase our revenues;
however,  partially  offsetting this expected increase is the continued trend of
declining sales of our older non-automated product lines.

GROSS MARGIN
<TABLE>
<CAPTION>

                                                                                   First Quarter
                                                                -----------------------------------------------------
 (in thousands)                                                       2005                              2004
---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                               <C>
Gross Margin                                                         $4,014                            $3,713

Percentage of net sales                                               59.6%                             54.3%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Gross margins increased in both dollars and as a percentage of sales compared to
the first quarter of 2004. The overall gross margin increase  primarily  relates
to the  product  and  channel  mix, a  favorable  operations  overhead  spending
variance of $139,000,  and  favorable  domestic and  international  service cost
variances of $51,000 and $88,000, respectively. Improved aftermarket margins and
reduced labor and support costs, especially related to the restructuring actions
taken in the third quarter of 2004,  also  contributed  to the increase in gross
margins.  Gross margins were  unfavorably  impacted by lower sales volume and by
the export and currency  translation  effects of the weaker U.S. Dollar compared
to the Euro. We continue to forecast  margin  percentages at  approximately  the
current quarter's level.

RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>

                                                                              First Quarter
                                                                ------------------------------------------
 (in thousands)                                                       2005                    2004
 ---------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                     <C>
 Research and development                                            $1,337                  $1,204

 Percentage of net sales                                              19.8%                   17.6%
 ---------------------------------------------------------------------------------------------------------
</TABLE>

Research and development ("R&D") spending for the first quarter 2005 compared to
the first quarter 2004 increased in both dollars and a percentage of sales. This
increase  in spending  was  primarily  related to our new  product  initiatives,
particularly the ImageWriter,  our new in-system programming  solution,  and the
start of engineering operations in China.

SELLING, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
                                                                              First Quarter
                                                                ------------------------------------------
 (in thousands)                                                       2005                    2004
 ---------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                     <C>
 Selling, general & administrative                                   $2,631                  $2,172

 Percentage of net sales                                              39.1%                   31.8%
 ---------------------------------------------------------------------------------------------------------
</TABLE>

Selling,  general and administrative ("SG&A") expenses increased by $459,000, or
21%, for the first quarter of 2005  compared to the first  quarter of 2004.  The
increase  relates  primarily to the hiring of additional key personnel  totaling
$100,000,  higher  commission  costs of $76,000  and a  reduction  of  allocated
facility costs  totaling  $95,000.  In addition,  we incurred  internal  control
related  costs  associated  with the  Sarbanes  Oxley  requirements  of $38,000,
increased  marketing costs associated with our in system programming of $36,000,
higher  public  relation  costs of $26,000 and higher  travel and  entertainment
costs of  $20,000  as well as an  unfavorable  currency  translation  impact  of
$23,000. We also incurred an additional $15,000 in administration  costs related
to the new Shanghai office.

INTEREST
<TABLE>
<CAPTION>
                                                                              First Quarter
                                                                ------------------------------------------
 (in thousands)                                                       2005                    2004
 ---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                     <C>
 Interest income                                                       $23                    $35

 Interest expense                                                      ($3)                   ($1)
 ---------------------------------------------------------------------------------------------------------
</TABLE>

Interest  income  decreased  in the first  quarter of 2005  compared to the same
period in 2004 due to a decrease in funds  invested.  The marketable  securities
balance decreased approximately $1 million from March 31, 2004 compared to March
31, 2005.

INCOME TAXES
<TABLE>
<CAPTION>

                                                                              First Quarter
                                                                ------------------------------------------
 (in thousands)                                                       2005                    2004
 ---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                     <C>
 Income tax expense (benefit)                                          $6                     $61
 ---------------------------------------------------------------------------------------------------------
</TABLE>

Tax expense  recorded for the first quarter of 2005 was due to foreign and state
taxes. The tax effective rate differed from the statutory tax rate primarily due
to utilization of net operating loss carryforwards.  The tax valuation allowance
decreased by approximately  $4,000 during the quarter.  Data I/O has a valuation
allowance of $9,803,000 as of March 31, 2005.
<PAGE>

Financial Condition

LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
                                                                     Mar. 31,                                   Dec. 31,
(in thousands)                                                         2005               Change                2004
---------------------------------------------------------------- ------------------ -------------------- -------------------
<S>                                                                  <C>                  <C>                   <C>
Working capital                                                      $10,289                 $39                $10,250
---------------------------------------------------------------- ------------------ -------------------- -------------------
</TABLE>

At March 31,  2005,  Data I/O's  principal  sources of  liquidity  consisted  of
existing cash, cash equivalents and marketable  securities.  Our working capital
increased by $39,000 and our current  ratio  increased  from 2.8 at December 31,
2004 to 3.3 at March 31, 2005.

Our cash and cash equivalents decreased by $1.7 million during the first quarter
of 2005  primarily  due to the  increase in cash used for  operating  activities
totaling $1.4 million.  The $1.4 million of cash used for  operations  primarily
included a $697,000  decrease in accounts  payable  and accrued  liabilities,  a
$941,000  increase in accounts  receivable,  and a $427,000 decrease in deferred
revenue  partially  offset by a $166,000  decrease  in  inventory,  $162,000  of
demonstration  equipment  transferred  to cost of goods  sold,  and  $262,000 of
depreciation and amortization.  The increase in account  receivable results from
increased sales especially late in the quarter. The decrease in accounts payable
and accrued expenses results primarily from a timing difference of approximately
$200,000,  decrease in inventory purchases of approximately $300,000, the payout
of the 401(k) employer match of $133,000,  and the payment of $68,000 related to
the  restructure,  partially  offset by an  increase in  commissions  payable of
$107,000.

We used  $577,000 of cash in investing  activities  during the first  quarter of
2005, with $290,000 used to purchase marketable  securities and $287,000 used to
purchase property,  plant and equipment. We expect that we will continue to make
capital  expenditures  to support our  business and we  anticipate  that present
working capital will be sufficient to meet our operating  requirements.  Capital
expenditures  for property,  plant and  equipment  during 2005 are planned to be
approximately $1 million.  Although we expect to make such expenditures,  we had
no  significant  outstanding  purchase  commitments  at March 31,  2005.  We are
investigating  the acquisition of a new information  system during 2005 which is
excluded from the capital spending estimate.  Capital  expenditures are expected
to be funded by existing and internally generated funds or lease financing.

As  a  result  of  our  significant  product   development,   customer  support,
international  expansion  and selling and  marketing  efforts,  we have required
substantial working capital to fund our operations.  Over the last few years, we
restructured  our  operations to lower our costs and operating  expenditures  in
geographic regions and to lower the level of revenue required for our net income
breakeven  point,  to  preserve  our cash  position  and to focus on  profitable
operations.  We believe that we have sufficient  working capital available under
our operating plan to fund our operations  and capital  requirements  through at
least  December  31,  2005.  Any  substantial  inability  to achieve our current
business plan could have a material  adverse  impact on our financial  position,
liquidity,  or results of operations  and may require us to reduce  expenditures
and/or seek additional financing.

Aggregate Contractual Obligations and Commitments

We have purchase obligations for inventory and production costs as well as other
obligations such as capital  expenditures,  service  contracts,  marketing,  and
development  agreements.  Arrangements are considered purchase  obligations if a
contract specifies all significant terms,  including fixed or minimum quantities
to be purchased,  a pricing structure and approximate timing of the transaction.
Most arrangements are cancelable without a significant  penalty,  and with short
notice,  typically less than 90 days. Any amounts reflected on the balance sheet
as accounts  payable and accrued  liabilities are excluded from the below table.
We have no long-term debt. We have commitments  under  non-cancelable  operating
leases and other  agreements,  primarily  for  factory  and office  space,  with
initial or remaining terms of one year or more as follows:

As of March 31, (in thousands):

                                      Purchase                  Operating
                                     obligations                  leases
                                   ----------------          ----------------

     2005                              $1,402                    $1,168
     2006                                   7                     1,459
     2007                                   -                       188
     2008                                   -                       138
     2009 and thereafter                    -                       149
                                   ----------------          ----------------
     Total                             $1,409                    $3,102
                                   ================          ================
<PAGE>

RECENT ACCOUNTING PRONOUCEMENTS

In December 2004, the FASB issued SFAS No. 123R,  "Share-Based  Payments."  SFAS
No. 123R requires  employee  stock  options and rights to purchase  shares under
stock  participation  plans to be accounted for under the fair value method, and
eliminates  the ability to account  for these  instruments  under the  intrinsic
value method  prescribed  by APB Opinion No. 25, and allowed  under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option  pricing
model for estimating fair value,  which is amortized to expense over the service
periods.  The  requirements  of SFAS No.  123R are  effective  for  fiscal  year
beginning  after  June 15,  2005,  as amended on April 14,  2005.  The  Company,
therefore, is required to adopt SFAS No. 123R on January 1, 2006. In March 2005,
the SEC issued SAB 107,  "Share-Based  Payments,"  which  gives  guidance on the
application  of FAS 123R.  The  adoption  of SFAS No. 123R is expected to have a
significant  effect on the  consolidated  financial  statements of Data I/O. See
Note 1 for the pro forma impact on net earnings  (loss) and earnings  (loss) per
share from  calculating  stock-related  compensation  costs under the fair value
alternative of SFAS No. 123.  However,  the calculation of compensation cost for
share-based  payment  transactions after the effective date of SFAS No. 123R and
under SAB 107 may be different from the calculation of  compensation  cost under
SFAS No. 123. Such potential  differences  have not yet been  quantified.  Also,
past  usage of option  plans  and  stock  purchase  plans  may not  reflect  our
practices in future periods.

In March  2005,  the  Securities  and  Exchange  Commission  announced  that the
compliance date for non-accelerated  filers and foreign private issuers pursuant
to Section 404 of the  Sarbanes-Oxley  Act has been  extended.  Under the latest
extension,  a company  that is not  required  to file its annual  and  quarterly
reports on an accelerated  basis must begin to comply with the  requirements for
the  assessment and the reporting on internal  control over financial  reporting
for its first fiscal year ending on or after July 15,  2006.  This is a one-year
extension from the previously  established  July 15, 2005 compliance  date. Data
I/O  expects  that it will  continue to be a  non-accelerated  filer and that it
will,  therefore,  be required to comply with Section 404 of the  Sarbanes-Oxley
Act as of December 31, 2006.

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>
                                                                   Estimated Fair         Principal        Estimated Fair
                                                 Principal            Value at           Cash Flows           Value at
                                                Cash Flows         March 31, 2005       to March 31,        December 31,
                                                For Q2 2005                                  2005               2004
                                              ----------------    ------------------    --------------     ----------------
<S>                                             <C>                <C>                  <C>                <C>
          Corporate Bonds                           $780                $780                  $787              $787
                                                  1.559%                                    1.559%

          Taxable Auction Securities                 550                 550                   250               250
                                                  3.012%                                    2.352%

                                              ----------------    ------------------    --------------     ----------------
          Total portfolio value                   $1,330              $1,330                $1,037            $1,037
                                              ================    ==================    ==============     ================
</TABLE>

FOREIGN CURRENCY RISK
We have operations in Germany,  Canada,  and China and are setting up operations
in  Brazil.  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 and soon in Brazil,  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 March 31,  2005,  we had two forward  contracts to sell Euros in exchange for
$218,000 with rates ranging from 1.2929 to 1.2805 all scheduled to be due within
the next quarter and the value at that date of $216,100.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the  participation  of our management,  including
our Chief Executive Officer and Chief Financial Officer,  Data I/O evaluated the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures (as defined in Rule  13a-15(e) and Rule 15d-15(e)  under the Exchange
Act) as of the end of the period covered by this report (the "Evaluation Date").
Based upon that  evaluation,  the Chief  Executive  Officer and Chief  Financial
Officer  concluded that, as of the Evaluation Date, our disclosure  controls and
procedures  were effective in timely  alerting them to the material  information
relating to Data I/O (or its consolidated  subsidiaries) required to be included
in our periodic SEC filings and Form 8-K reports.

(b) Changes in internal controls.

There were no changes made in our internal controls during the period covered by
this report that have materially affected or are reasonably likely to materially
affect our internal control over financial reporting except as described below.

During the preparation of our 2004 year-end financial statements,  we identified
a calculation  error that had resulted in the  understatement  of  inter-company
expense  eliminations on foreign subsidiary  demonstration  inventory  equipment
depreciation,  with a corresponding  overstatement  of  demonstration  inventory
equipment  accumulated  depreciation.  While  we  believe  the  impacts  of this
calculation error are not material to any previously issued financial statement,
we  determined  that this  calculation  error was most  appropriately  corrected
through restatement of previously issued financial statements.  We have restated
the annual report on Form 10-K for the fiscal year ended December 31, 2003.

Process   changes  have  been   instituted   to   appropriately   eliminate  the
inter-company foreign subsidiary  demonstration inventory equipment depreciation
amounts.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         None

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of
         Equity Securities

         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

         (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 Data  I/O 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 10.18.

(2)  Amended and Restated Retirement Plan and Trust Agreement. See Exhibit 10.2,
     10.3, 10.4, 10.8, 10.11, 10.12, and 10.13.

(3)  Summary of Amended and Restated Management Incentive Compensation Plan. See
     Exhibit 10.9.

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

(5)  Amended and Restated 1986 Stock Option Plan.  See Exhibit 10.15.

(6)  Change in Control Agreements.  See Exhibit 10.22 and 10.23.

(7)  1996 Director Fee Plan. See Exhibit 10.14.

(8)  Letter Agreement with Frederick R. Hume. See Exhibit 10.17.

(9)  Amended and Restated 2000 Stock Compensation Incentive Plan.
     See Exhibit 10.19.

(10) Form of Option Agreement. See Exhibit 10.21.

(11) Data I/O Corporation Tax Deferral Retirement Plan. See Exhibit 10.20.

     3 Articles of Incorporation:

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

       3.2  Data  I/O's  Bylaws  as amended  and  restated as  of  October 2003
            (Incorporated  by reference to Data I/O's 2003 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 Data I/O'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 Data I/O'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 Agents, 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 Data I/O'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 Data I/O'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
              Data I/O'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 Data I/O'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 Data I/O'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 Data I/O's 1995
             Annual Report on Form 10-K (File No. 0-10394)).

       10.5  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 Data I/O's 1996 Annual Report on Form 10-K
             (File No. 0-10394)).

       10.6  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 Data I/O's 1996 Annual Report on Form 10-K
             (File No. 0-10394)).

       10.7  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 Data I/O's 1996 Annual Report on Form 10-K
             (File No. 0-10394)).

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

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

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

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

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

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

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

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

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

       10.17 Letter Agreement with Fred R. Hume dated January 29, 1999
             (Incorporated by reference to Exhibit 10.35 of Data I/O's 1999
             Annual Report on Form 10-K (File No. 0-10394)).

       10.18 Amended and Restated 1982 Employee Stock Purchase Plan dated
             May 16, 2003 (Incorporated by reference to Data I/O's 2003 Proxy
             Statement dated March 31, 2003).

       10.19 Amended and Restated 2000 Stock Compensation Incentive Plan dated
             May 20, 2004 (Incorporated by reference to Data I/O's 2004 Proxy
             Statement dated April 12, 2004).

       10.20 Data I/O Corporation Tax Deferred Retirement Plan, as amended
             (Incorporated by reference to Exhibit 10.20 of Data I/O's 2004
             Annual Report on Form 10-K (File No. 0-10394)).

       10.21 Form of Option Agreement (Incorporated by reference to Exhibit
             10.21 of Data I/O's 2004 Annual Report on Form 10-K (File No.
             0-10394)).

       10.22 Change in Control Agreement with Fred R. Hume dated April 22, 2004
             (Incorporated by reference to Exhibit 10.22 of Data I/O's 2004
             Annual Report on Form 10-K (File No. 0-10394)).

       10.23 Change in Control Agreement with Joel S. Hatlen dated
             April 22, 2004 (Incorporated by reference to Exhibit 10.23 of Data
             I/O's 2004 Annual Report on Form 10-K (File No. 0-10394)).

31   Certification - Section 302:
     31.1    Chief Executive Officer Certification                           20
     31.2    Chief Financial Officer Certification                           21

32   Certification - Section 906:
     32.1    Chief Executive Officer Certification                           22
     32.2    Chief Financial Officer Certification                           23

99   Other Exhibits
     99.1  Risk Factors                                                      24

<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:   May 13, 2005


                                  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  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 and I have disclosed,  based on
     our most recent evaluation of internal control over 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  May 13, 2005                       /s/FREDERICK R. HUME
                                         Frederick R. Hume
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)

<PAGE>

Exhibit 31.2

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  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 and I have disclosed,  based on
     our most recent evaluation of internal control over 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  May 13, 2005                  /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 March 31,  2005 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)
                                    May 13, 2005


<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 March 31,  2005 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)  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/ Joel S. Hatlen
                                    Joel S. Hatlen
                                    Chief Financial Officer
                                    (Principal Financial Officer)
                                    May 13, 2005

<PAGE>


Exhibit 99.1

Cautionary Factors That May Affect Future Results
--------------------------------------------------------------------------------

Data  I/O's  disclosure  and  analysis  in  this  Annual  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,  establishing foreign operations, future
performance  or results of current  and  anticipated  products,  sales  efforts,
expenses,  outsourcing  of  functions,  outcome  of  contingencies,   impact  of
regulatory requirements, restructure actions and financial results.

Any or all of the  forward-looking  statements  in this Annual  Report or in any
other public  statement  made may turn out to be wrong.  They can be affected by
inaccurate   assumptions   we  might  make,   or  known  or  unknown  risks  and
uncertainties can affect these forward-looking  statements.  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 Annual  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

DELAYS IN DEVELOPMENT, INTRODUCTION AND SHIPMENT OF NEW PRODUCTS MAY RESULT IN A
DECLINE IN SALES.

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 handling 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.

QUARTERLY  FLUCTUATIONS IN OUR OPERATING  RESULTS MAY ADVERSELY AFFECT OUR STOCK
PRICE.

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 the sales channel mix of direct vs. indirect distribution

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

o expenses and obtaining authorizations  in setting up new operations or
  locations

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.

FAILURE  TO  ADAPT  TO  TECHNOLOGY   TRENDS  IN  OUR  INDUSTRY  MAY  HINDER  OUR
COMPETITIVENESS AND FINANCIAL RESULTS.

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 may 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.

A DECLINE IN ECONOMIC  AND MARKET  CONDITIONS  MAY RESULT IN  DECREASED  CAPITAL
SPENDING BY OUR CUSTOMERS.

Our business is highly  impacted by capital  spending  plans and other  economic
cycles that affect the users and  manufacturers  of ICs.  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 recent years, 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.

WE HAVE A  HISTORY  OF RECENT  OPERATING  LOSSES  AND MAY BE UNABLE TO  GENERATE
ENOUGH REVENUE TO ACHIEVE AND MAINTAIN PROFITABILITY.

We have  incurred  net losses in two of our last  three  fiscal  years.  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  to achieve and
maintain  profitability.  However, we cannot provide assurance that our revenues
will  increase  and our  strategy  may not be  successful,  resulting  in future
losses.

OUR RECENT  RESTRUCTURING  ACTIVITIES  MAY HAVE A NEGATIVE  IMPACT ON OUR FUTURE
OPERATIONS.

Our restructuring plans may yield unanticipated consequences,  such as increased
burden on our administrative, operational, and financial resources and increased
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  as a part of our
restructuring  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,  particularly if our business
experiences  significant growth. Also, the reduction in workforce related to our
restructuring  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.

WE MAY NEED TO RAISE  ADDITIONAL  CAPITAL  AND OUR  FUTURE  ACCESS TO CAPITAL IS
UNCERTAIN.

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.

WE MAY FACE INCREASED  COMPETITION  AND MAY NOT BE ABLE TO COMPETE  SUCCESSFULLY
WITH CURRENT AND FUTURE COMPETITORS.

Technological  advances have reduced the barriers of entry into the  programming
systems  market.  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.

IF OUR RELATIONSHIP WITH SEMICONDUCTOR MANUFACTURERS DETERIORATES,  OUR BUSINESS
MAY BE ADVERSELY AFFECTED.

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 lines 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.

OUR  RELIANCE  ON A SMALL  NUMBER OF  SUPPLIERS  MAY RESULT IN A SHORTAGE OF KEY
COMPONENTS, WHICH MAY ADVERSELY AFFECT OUR BUSINESS.

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.

IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED THIRD-PARTY  DISTRIBUTORS,  OUR
BUSINESS MAY BE ADVERSELY AFFECTED.

Data  I/O  has  an   internal   sales  force  and  also   utilizes   third-party
representatives,  and distributors.  Therefore, the financial stability of these
representatives  and  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.
In addition,  global customers require  coordination between these various sales
channels and a lack of responsiveness or coordination could adversely affect our
business with these increasingly global customers.
<PAGE>

OUR  INTERNATIONAL  OPERATIONS  MAY  EXPOSE  US TO  ADDITIONAL  RISKS  THAT  MAY
ADVERSELY AFFECT OUR BUSINESS.

International sales represented 80% of our net revenue for the fiscal year ended
December 31, 2004 and 67% for the quarter  ended March 31, 2005.  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 changes in regulatory requirements

o tariffs and taxes

o difficulties in establishing, staffing and managing foreign operations

o longer average payment cycles and difficulty in collecting accounts receivable

o fluctuations in foreign currency exchange rates

o compliance with applicable export licensing requirements

o product safety and other certification requirements

o difficulties in integrating foreign and outsourced operations

o political and economic instability

The  European   Community  and  European  Free  Trade  Association   ("EU")  has
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.  The EU also has  directives  concerning  the
Reduction  of  Hazardous  Substances  ("RoHS")  and the  reduction  of  wasteful
consumption of natural  resources  including  waste of electrical and electronic
equipment  ("WEEE") which becomes  effective later in 2005 and 2006.  Failure to
meet the directives may prevent us from marketing certain products in Europe.

We operate  subsidiaries  in Germany,  China and Canada and soon in Brazil.  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, Brazil and Germany may adversely affect our investment in our
subsidiaries.

IF WE ARE UNABLE TO PROTECT  OUR  INTELLECTUAL  PROPERTY,  WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY OR OPERATE PROFITABLY.

Data I/O 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.

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.

WE MAY PURSUE BUSINESS ACQUISITIONS THAT COULD IMPAIR OUR FINANCIAL POSITION AND
PROFITABILITY.

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.

THE LOSS OF KEY EMPLOYEES MAY ADVERSELY AFFECT OUR OPERATIONS.

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 in our Brazilian  operation,  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 "Our recent
restructuring  activities may have a negative  impact on our future  operations"
above.

FAILURE TO COMPLY WITH REGULATORY  REQUIREMENTS  MAY ADVERSELY  AFFECT OUR STOCK
PRICE AND BUSINESS.

We are subject to numerous  governmental  and stock exchange  requirements  as a
public company,  which we believe we are in compliance with. The  Sarbanes-Oxley
Act of 2002, the Securities and Exchange Commission (SEC) and the Public Company
Oversight Accounting Board (PCOAB) have requirements that we may fail to meet by
required  deadlines or we may fall out of compliance  with, such as the internal
controls  assessment,  reporting and auditor attestation  required under Section
404 of the  Sarbanes-Oxley  Act of 2002 for which we are relying on not being an
accelerated filer. We are in the process of documenting and testing our internal
control  procedures in order to satisfy the  requirements  of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management  assessments of the
effectiveness of our internal controls over financial  reporting and a report by
our Independent  Auditors addressing these assessments.  The compliance date for
non-accelerated  filers has been  extended to the first fiscal year ending on or
after  July  15,  2006.  This  is  a  one-year  extension  from  the  previously
established  July 15, 2005 compliance date. Data I/O assumes it will continue to
have the status of a  non-accelerated  filer based on the aggregate market value
of the voting and non-voting  shares held as of June 30, 2005. During the course
of our  testing  we may  identify  deficiencies  which  we may  not be  able  to
remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002
for compliance with the requirements of Section 404. In addition,  if we fail to
achieve and maintain the adequacy of our internal  controls,  as such  standards
are modified,  supplemented  or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective  internal
controls  over  financial  reporting  in  accordance  with  Section  404  of the
Sarbanes-Oxley Act of 2002. Moreover, effective internal controls,  particularly
those related to revenue  recognition,  are necessary for us to produce reliable
financial  reports and are  important to help  prevent  financial  fraud.  If we
cannot provide  reliable  financial  reports or prevent fraud,  our business and
operating  results  could be  harmed,  investors  could lose  confidence  in our
reported  financial  information,  and the trading price of our stock could drop
significantly.  Our failure to meet regulatory requirements and exchange listing
standards may result in actions such as the delisting of our stock impacting our
stock's  liquidity;   SEC  enforcement   actions;   and  securities  claims  and
litigation.

OUR STOCK  PRICE MAY BE VOLATILE  AND, AS A RESULT,  YOU MAY LOSE SOME OR ALL OF
YOUR INVESTMENT.

The stock prices of technology  companies  tend to fluctuate  significantly.  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.

FAILURE TO SUCCESSFULLY  IMPLEMENT A NEW ENTERPRISE  RESOURCE  PLANNING  ("ERP")
SYSTEM MAY ADVERSELY AFFECT OUR OPERATIONS AND SALES.

We are currently  investigating  the  acquisition  and  implementation  of a new
worldwide  information  system.  Our operations  and financial  results could be
adversely affected if we are unable to implement the system without  significant
interruptions in accounting  systems,  order entry,  billing,  manufacturing and
other customer  support  functions.  In addition,  the costs associated with the
implementation  and training could exceed budgeted  amounts and adversely affect
our profitability.  System implementation delays could cause difficulties in our
complying  with  the  internal  controls   assessment,   reporting  and  auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.