UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q




                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



      For the quarter ended SEPTEMBER 28, 2000 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, Zip Code)


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



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


 7,430,807 shares of no par value Common Stock outstanding as of
 September 28, 2000


                                  Page 1 of 17
                            Exhibit Index on Page 16

<PAGE>

                              DATA I/O CORPORATION

                                    FORM 10-Q
                    For the Quarter Ended September 28, 2000

                                      INDEX


Part I - Financial Information                                           Page

     Item 1.    Financial Statements (unaudited)                           3

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

     Item 3.    Quantitative and Qualitative Disclosure
                about Market Risk                                         13

Part II - Other Information

     Item 1.    Legal Proceedings                                         14

     Item 2.    Changes in Securities                                     14

     Item 3.    Defaults Upon Senior Securities                           14

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

     Item 5.    Other Information                                         14

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



Signatures                                                                15

Exhibit Index                                                             16


                                     Page 2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

                              DATA I/O CORPORATION

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                                   Sept. 28,                Dec. 30,
                                                                                      2000                    1999
-----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)                                                  (unaudited)              (note 1)
<S>                                                                                <C>                      <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                         $2,232                 $3,597
     Marketable securities                                                              2,940                  9,614
     Trade accounts receivable, less allowance for
        doubtful accounts of $441 and $464                                              9,006                  5,548
     Inventories                                                                        9,932                  6,237
     Recoverable income taxes                                                              73                    205
     Other current assets                                                                 256                    545
                                                                                   -----------            -------------
        TOTAL CURRENT ASSETS                                                           24,439                 25,746

Property, plant and equipment - net                                                     2,110                  2,180
Other assets                                                                            1,416                  2,124
                                                                                   -----------            -------------
        TOTAL ASSETS                                                                  $27,965                $30,050
                                                                                   ===========            =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                                  $1,788                 $1,592
     Accrued compensation                                                               2,336                  2,080
     Deferred revenue                                                                   2,354                  2,626
     Other accrued liabilities                                                          2,037                  2,204
     Accrued costs of business restructuring                                              131                    493
     Income taxes payable                                                                 433                    572
                                                                                   -----------            -------------
        TOTAL CURRENT LIABILITIES                                                       9,079                  9,567

Deferred gain on sale of property                                                       2,177                  2,425
                                                                                   -----------            -------------
        TOTAL LIABILITIES                                                              11,256                 11,992

COMMITMENTS

STOCKHOLDERS' EQUITY:
     Preferred stock -
        Authorized, 5,000,000 shares, including
           200,000 shares of Series A Junior Participating
        Issued and outstanding, none                                                        -                      -
     Common stock, at stated value -
        Authorized, 30,000,000 shares
        Issued and outstanding, 7,430,807
           and 7,290,165 shares                                                        18,107                 17,813
     Retained earnings                                                                 (1,273)                   366
     Accumulated other comprehensive income (loss)                                       (125)                  (121)
                                                                                   -----------            -------------
        TOTAL STOCKHOLDERS' EQUITY                                                     16,709                 18,058
                                                                                   -----------            -------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $27,965                $30,050

See notes to consolidated financial statements.                                    ===========            =============

</TABLE>

                                     Page 3
<PAGE>

                              DATA I/O CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             Quarters Ended             Nine Months Ended
------------------------------------------------------------------------ ------------------------ -- -------------------------
                                                                         Sept. 28,     Sept. 30,     Sept. 28,      Sept. 30,
                                                                           2000          1999           2000          1999
------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ----------
(in thousands, except per share data)
<S>                                                                      <C>           <C>           <C>            <C>
Net sales                                                                 $11,338        $9,439       $28,068        $26,137
Cost of goods sold                                                          5,963         5,404        15,441         13,982
                                                                         ----------    ----------    -----------    ----------
Gross margin                                                                5,375         4,035        12,627         12,155

Operating expenses:
     Research and development                                               2,360         2,265         6,893          6,228
     Selling, general and administrative                                    2,360         2,494         7,945          8,492
     Provision for business restructuring                                                                (255)          (215)
                                                                         ----------    ----------    -----------    ----------
         Total operating expenses                                           4,720         4,759        14,583         14,505

                                                                         ----------    ----------    -----------    ----------
         Operating income (loss)                                              655          (724)       (1,956)        (2,350)

Non-operating income (expense):
     Interest income                                                           94           174           399            577
     Interest expense                                                          (3)           (8)          (25)           (28)
     Foreign currency exchange                                                (11)           10           (25)            12
     Net gain on dispositions                                                   -                                      1,199
                                                                         ----------    ----------    -----------    ----------
         Total non-operating income                                            80           176           349          1,760

     Income (loss) from continuing operations
                                                                         ----------    ----------    -----------    ----------
         before income taxes                                                  735          (548)       (1,607)          (590)

Income tax expense (benefit)                                                    4            (8)           33             15
                                                                         ----------    ----------    -----------    ----------
Income (loss) from continuing operations                                      731          (540)       (1,640)          (605)

Income from discontinued operations, net of taxes                               -                           -            831
                                                                         ----------    ----------    -----------    ----------

Net income (loss)                                                            $731         ($540)      ($1,640)          $226
                                                                         ==========    ==========    ===========    ==========

Basic and diluted earnings (loss) per share:
     From continuing operations                                             $0.10        ($0.07)       ($0.22)        ($0.08)
     From discontinued operations                                            0.00          0.00          0.00           0.11
                                                                         ----------    ----------    -----------    ----------
     Total basic and diluted earnings (loss) per share                      $0.10        ($0.07)       ($0.22)         $0.03
                                                                         ==========    ==========    ===========    ==========

Weighted average shares outstanding                                         7,431         7,270         7,378          7,243
                                                                         ==========    ==========    ===========    ==========
Weighted average and potential shares outstanding                           7,642         7,270         7,378          7,243
                                                                         ==========    ==========    ===========    ==========
See notes to consolidated financial statements.

</TABLE>

                                     Page 4
<PAGE>

                              DATA I/O CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                               Sept. 28,          Sept. 30,
For the nine months ended                                                                         2000              1999
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S>                                                                                            <C>                <C>
OPERATING ACTIVITIES:
     Loss from continuing operations                                                             ($1,640)           ($605)
     Adjustments to reconcile loss from continuing
       operations to net cash provided by (used in) operating activities:
       Depreciation and amortization                                                               1,603            1,597
       Net gain on dispositions                                                                        -           (1,199)
       Equity earnings from investee                                                                   -              (17)
       Deferred income taxes                                                                           -              404
       Deferred revenue                                                                             (272)            (521)
       Amortization of deferred gain on sale                                                        (248)            (247)
       Net change in:
          Trade accounts receivable                                                               (3,442)            (773)
          Inventories                                                                             (3,695)          (2,199)
          Recoverable income taxes                                                                   132            2,498
          Other current assets                                                                       289              658
          Business restructure                                                                      (362)          (1,715)
          Accounts payable and accrued liabilities                                                   152           (3,821)
                                                                                               -----------      --------------
     Cash used in operating activities of continuing operations                                   (7,483)          (5,940)
     Cash provided by operating activities of discontinued operations                                  -              831
                                                                                               -----------      --------------
     Net cash used in operating activities                                                        (7,483)          (5,109)

INVESTING ACTIVITIES:
     Additions to property, plant and equipment                                                     (850)            (977)
     Proceeds on sale of subsidiary                                                                    -               72
     Proceeds from sale of minority interest                                                           -            1,067
     Purchases of marketable securities                                                           (2,345)          (7,398)
     Proceeds from sales of marketable securities                                                  9,019           10,600
                                                                                               -----------      --------------
       Cash provided by investing activities                                                       5,824            3,364

FINANCING ACTIVITIES:
     Additions to (repayment of) notes payable                                                         -                6
     Sale of common stock                                                                            171              165
     Proceeds from exercise of stock options                                                         123                1
                                                                                               -----------      --------------
       Cash provided by in financing activities                                                      294              172

Increase (decrease) in cash and cash equivalents                                                  (1,365)          (1,573)

Effects of exchange rate changes on cash                                                               -              (92)
Cash and cash equivalents at beginning of year                                                     3,597            4,008
                                                                                               -----------      --------------
Cash and cash equivalents at end of period                                                        $2,232           $2,343
                                                                                               ===========      ==============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
     Interest                                                                                        $25             $112
     Income taxes                                                                                    $41             $104

See notes to consolidated financial statements.

</TABLE>

                                     Page 5
<PAGE>

                              DATA I/O CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 / FINANCIAL STATEMENT PREPARATION

The financial  statements as of September 28, 2000 and September 30, 1999,  have
been  prepared  by the  Company  pursuant  to the rules and  regulations  of the
Securities and Exchange Commission (SEC). These statements are unaudited but, in
the  opinion  of  management,  include  all  adjustments  (consisting  of normal
recurring  adjustments and accruals) necessary to present fairly the results for
the periods  presented.  The balance sheet at December 30, 1999 has been derived
from the audited  financial  statements at that date.  Certain  information  and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with accounting  principles  generally  accepted in the United States
have been  condensed  or  omitted  pursuant  to such SEC rules and  regulations.
Operating  results  for  the  nine  months  ended  September  28,  2000  are not
necessarily  indicative  of the results that may be expected for the year ending
December 28, 2000. 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 30, 1999.

In December 1999, the staff of the  Securities  and Exchange  Commission  issued
Staff Accounting Bulletin No. 101 ("SAB 101"),  Revenue Recognition in Financial
Statements.  SAB 101 was  amended  by SAB 101A and SAB 101B  which  delayed  the
implementation  date of SAB 101  for  calendar  year  end  reporting  companies,
including Data I/O  Corporation,  to the quarter  ending  December 28, 2000. The
Company is currently  evaluating  SAB 101 and is uncertain as to what impact SAB
101 will have on its  revenues  and  results of  operations  for the year ending
December  28,  2000,  and  subsequent  periods.  The  impact  of SAB 101 will be
reported as a change in accounting  principle in accordance  with FASB Statement
No. 3 and APB 20, and will be reflected in the  Company's  results of operations
for the year ended December 28, 2000.

NOTE 2 / INVENTORIES

Inventories consisted of the following components (in thousands):

                                          Sept. 28                  Dec. 30,
                                            2000                      1999
                                     ----------------          ----------------
                  Raw material            $5,450                    $2,567
                  Work-in-process          2,595                     1,665
                  Finished goods           1,887                     2,005
                                     ----------------          ----------------
                                          $9,932                    $6,237
                                     ================          ================

NOTE 3 / PROPERTY, PLANT AND EQUIPMENT

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

                                          Sept. 28,                 Dec. 30,
                                            2000                      1999
                                     ----------------          ----------------

Building and improvements              $    204                  $    179
                  Equipment              12,443                    12,030
                                     ---------------           ----------------
                                         12,647                    12,209
Less accumulated depreciation            10,537                    10,029
                                    ----------------           ----------------
                                        $ 2,110                   $ 2,180
                                    ================           ================

                                     Page 6
<PAGE>

NOTE 4 / DISCONTINUED OPERATIONS

In November 1997 the Company entered into a licensing agreement and an agreement
to sell  certain  assets  of its  Synario  Design  Automation  Division  to MINC
Washington  Incorporated.  This  transaction  discontinued  the  Synario  Design
Automation  Division  operations of the Company.  However,  the Company received
certain licensing revenues related to its Synario, ABEL and ECS products through
the second  quarter 1999,  and  recognized  net earnings of $831,000 from source
code sales and  training  and support  services  provided  during the first nine
months of 1999.  Operating results of this discontinued  division are classified
as discontinued operations in the financial statements.

NOTE 5 / BUSINESS RESTRUCTURING PROGRESS

During the third quarter of 1998, the Company recorded a restructuring charge of
$2.0 million as the Company began the  implementation  of a plan to  restructure
its Redmond and foreign  subsidiary  operations to a level more in line with the
lower sales it was experiencing.  During the fourth quarter of 1998, the Company
recorded further restructuring charges of $2.4 million related to the continuing
restructure of the Company's  Redmond  operations and foreign  subsidiaries  and
related  to  activities   directly  associated  with  the  fourth  quarter  1998
acquisition of SMS Holding GmbH ("SMS").  The acquisition of SMS created certain
redundancies in product offerings and in the operations of the combined company.
A  restructuring  plan was  implemented  after the  acquisition was completed to
eliminate such redundant operations and to phase out overlapping products.

The  total  number  of  employees  terminated  due to the  restructure  was  133
(approximately  39% of the total  workforce).  Employees  were  terminated  from
almost all areas of the Company. Total involuntary termination benefits paid and
charged against the restructure  reserve were approximately $2.0 million.  Total
facility  consolidation  and abandonment  costs incurred and charged against the
restructure  reserve  were  approximately  $307,000.  Other  exit costs paid and
charged against the restructure  reserve,  including legal and consulting  fees,
settlements with suppliers and fixed asset disposals,  were  approximately  $1.7
million.  The  Company's  activities  under  its  restructuring  plans  are  now
substantially complete.

The Company reversed  portions of the restructure  reserve at two separate times
as it became  apparent  that  certain  provisions  made at the time the original
restructure   reserve  was  established  in  1998  required   adjusting  as  the
restructuring  plan was  implemented.  During  the  second  quarter  of 1999 the
Company reversed $215,000 of restructure reserve due to the Company's settlement
of  certain  supplier  related  claims for less than had been  anticipated,  and
during the second quarter of 2000 the Company  reversed  $255,000 of restructure
reserve primarily due to charges related to facility  consolidations  being less
than had been  anticipated.  The  remaining  reserve at  September  28,  2000 of
$131,000  relates  primarily to facility  abandonment that will be paid out over
the next eight quarters.

                                     Page 7
<PAGE>


NOTE 6 / 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>

                                                                      Third Quarter                First Nine Months
                                                                ---------------------------    --------------------------
                                                                   2000            1999           2000           1999
                                                                -----------     -----------    -----------    -----------
<S>                                                                <C>             <C>            <C>            <C>
Numerator for basic and diluted earnings per share:
         Loss from continuing operations                              $731           ($540)       ($1,640)         ($605)
         Income from discontinued operations                             -                              -            831
                                                                -----------     -----------    -----------    -----------
         Net income (loss)                                            $731           ($540)       ($1,640)          $226
                                                                ===========     ===========    ===========    ===========
Denominator:
         Denominator for basic earnings per share -
                  weighted-average shares                            7,431           7,270          7,378          7,243
         Employee stock options (1)                                    211               -              -              -
                                                                -----------     -----------    -----------    -----------
         Denominator for diluted earnings per share -
                  adjusted weighted-average shares and
                  assumed conversions                                7,642           7,270          7,378          7,243
                                                                ===========     ===========    ===========    ===========
Basic earnings (loss) per share
         From continuing operations                                  $0.10          ($0.07)        ($0.22)        ($0.08)
         From discontinued operations                                 0.00           $0.00           0.00           0.11
                                                                -----------     -----------    -----------    -----------
         Total basic earnings (loss) per share                       $0.10          ($0.07)        ($0.22)         $0.03
                                                                ===========     ===========    ===========    ===========
Diluted earnings (loss) per share
         From continuing operations                                  $0.10          ($0.07)        ($0.22)        ($0.08)
         From discontinued operations                                 0.00           $0.00           0.00           0.11
                                                                -----------     -----------    -----------    -----------
         Total diluted earnings (loss) per share                     $0.10          ($0.07)        ($0.22)         $0.03
                                                                ===========     ===========    ===========    ===========

(1)     Excludes 251,498 employee stock options which were antidilutive for the
        nine months ended  September 28, 2000, and 13,346 and 14,873 which were
        antidilutive for the third quarter and the nine months ended
        September 30, 1999, respectively.

</TABLE>

NOTE 7 / ACCOUNTING FOR INCOME TAXES

The Company's effective tax rate for the first nine months of 2000 differed from
the statutory 34% tax rate primarily due to the ability to reverse tax valuation
allowances as operating income was recorded. Tax valuation reserves decreased by
approximately  $284,000 during the quarter. As of September 28, 2000 the Company
has valuation reserves of $7,430,000.

NOTE 8 / COMPREHENSIVE INCOME

During the third quarter and the first nine months of 2000 and 1999 total
comprehensive income (loss) was comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                       For the Third Quarter                 For the Nine Months
                                                   -------------------------------    ----------------------------------
                                                       2000             1999              2000                1999
                                                   -------------    --------------    -----------------  ---------------
<S>                                                    <C>              <C>              <C>                  <C>

    Net income (loss)                                     $731            ($540)          ($1,640)            $226
    Foreign currency translation gain (loss)                 8                                 (4)              21
                                                   -------------    --------------    -------------      ---------------
    Total comprehensive income (loss)                     $739            ($540)          ($1,636)            $247
                                                   =============    ==============    =============      ===============

</TABLE>
                                     Page 8
<PAGE>

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

General

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes  forward-looking  statements  within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. This Act
provides a "safe harbor" for  forward-looking  statements to encourage companies
to provide  prospective  information  about  themselves as long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results.  All statements other than statements of historical fact made
in this  Quarterly  Report  on Form 10-Q are  forward  looking.  In  particular,
statements herein regarding industry prospects;  future results of operations or
financial  position;  integration of acquired  products and  operations;  market
acceptance of the Company's 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.  The Company's
actual results may differ  significantly  from  management's  expectations.  The
following  discussions and discussions  under the caption "Business - Cautionary
Factors That May Affect Future Results" in Item 1 in the Company's Annual report
on Form 10-K for the year ended  December 30, 1999,  describe some, but not all,
of the factors that could cause these differences.

Results of Continuing Operations

For all periods  presented,  results of operations reflect the classification of
the Company's Synario Design Automation Division as discontinued operations (see
"Discontinued Operations").

Net Sales

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
 (in thousands)
                                                        Third Quarter                             First Nine Months
                                           -----------------------------------------  ------------------------------------------

 Net sales by product line                      2000         % Change       1999           2000         % Change        1999
 -----------------------------------------------------------------------------------  ------------------------------------------
<S>                                             <C>          <C>            <C>            <C>          <C>             <C>
 Non-automated programming systems              $4,143       (22.2%)        $5,325         $13,053      (18.3%)         $15,984

 Automated programming systems                   7,195        74.9%          4,114          15,015       47.9%           10,153

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

 Total programming systems                     $11,338        20.1%         $9,439         $28,068        7.4%          $26,137
                                           =========================================  ==========================================

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

 Net sales by location                          2000          % Change      1999           2000         % Change        1999
 -----------------------------------------------------------------------------------  ------------------------------------------

 United States                                  $4,473         12.5%        $3,976         $11,276        (0.0%)        $11,281

    % of total                                   39.5%                       42.1%           40.2%                        43.1%

 International                                  $6,865         25.7%        $5,463         $16,792        13.0%         $14,856

    % of total                                   60.5%                       57.9%           59.8%                        56.9%

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

The  increase  in sales  for the third  quarter  2000 was  primarily  due to the
increased  shipments  of the  PP100  and the  first  shipments  of the  ProLINE-
RoadRunner.  The higher  orders for the PP100  products are due primarily to the
Company's new FlashTOP  product that was introduced in February  2000.  Sales of
the Company's legacy  non-automated  programming  systems decreased in the third
quarter  of  2000  compared  with  the  third  quarter  of 1999  largely  due to
                                     Page 9
<PAGE>
discontinued  products and aftermarket for older products.  Partially offsetting
this were  increased  sales of the Company's  Sprint  non-automated  programming
system   products.   The Company  expects  the  trend  of  increasing  sales  of
manufacturing  products to continue,  both in dollars and as a percentage of the
sales mix,  particularly  related  to its newer  automated  programming  systems
products.

The Company has  realized a negative  impact from foreign  currency  translation
during 2000 due  primarily  to the Euro or German Mark to U.S.  Dollar  exchange
rate.  The net impact of exchange rate changes on sales revenue during the first
nine  months  of 2000  was  approximately  $700,000.  When the  U.S.  Dollar  is
stronger,  sales  of  the  Company's  products  denominated  in  local  currency
translate into less U.S.  Dollars.  However,  partially  offsetting the negative
revenue translation impact is the positive  translation impact of local currency
costs and expenses.

Gross Margin
<TABLE>
<CAPTION>
                                                      Third Quarter                        First Nine Months
                                           ---------------------------------------------------------------------------
(in thousands)                                  2000                1999               2000               1999
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                <C>                <C>
Gross Margin                                    $5,375              $4,035             $12,627            $12,155

Percentage of net sales                          47.4%              42.8%               45.0%              46.5%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross margin improved both in dollars and as a percentage of sales for the third
quarter  of 2000  compared  to the third  quarter of 1999 due  primarily  to the
increase in sales volume and to a shift in mix to higher sales of newer,  higher
margin products. For the same reasons, if the increase in sales volume and shift
in mix continues,  the company  expects that it will achieve a 2 to 3 percentage
point higher gross margin percentage during the next quarter.

Research and Development
<TABLE>
<CAPTION>
                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------
 (in thousands)                                  2000                1999                2000              1999
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>               <C>
 Research and development                       $2,360              $2,265              $6,893            $6,228

 Percentage of net sales                         20.8%              24.0%               24.6%              23.8%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The increase in research and development  spending for the third quarter of 2000
as compared to the third quarter of 1999 is primarily due to increased personnel
costs and materials used in new projects.  Spending in research and  development
is expected to continue at  approximately  the third  quarter  level  during the
remainder of 2000 as the Company continues to invest in new product development,
new technologies and enhanced device support.

Selling, General and Administrative
<TABLE>
<CAPTION>
                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------
                                                 2000                1999                2000              1999
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>               <C>
 Selling, general & administrative              $2,360              $2,494              $7,945            $8,492

 Percentage of net sales                         20.8%              26.4%               28.3%              32.5%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The lower  amount of selling,  general and  administrative  expenditures  in the
third quarter and first nine months of 2000 as compared with the same periods of
1999 is due  primarily to lower  spending due to reduction in  incentives  cost,
temporarily  lower headcount and sublease offset to rent expense,  some items of
which  are  permanent  savings  and some of  which  are a result  of  delays  in
expenditures.  During the third quarter the company began  implementing plans to
sell mostly direct in the United States,  Mexico and China where  previously the
Company had sold mostly through representatives and distributors.

                                     Page 10
<PAGE>


<TABLE>
<CAPTION>
                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------
<S>                                             <C>                  <C>                 <C>               <C>
 (in thousands)                                  2000                1999                2000              1999
 ---------------------------------------------------------------------------------------------------------------------

 Interest income                                   $94               $174                $399              $577

 Interest expense                                  ($3)               ($8)               ($25)              ($28)
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The decrease in interest income for both the third quarter and first nine months
of 2000 as compared to the same  periods of 1999 is due to the decrease in cash,
cash equivalents and marketable securities,  which were primarily to the funding
of operating losses inventories and receivables during the past five quarters.

Net Gain on Dispositions - Sale of Japan Subsidiary

In connection with the Company's restructuring, during the first quarter of 1999
the Company sold its Japan sales subsidiary to Synchro-Work Corporation,  one of
its   sub-distributors  in  Japan,  for  total  consideration  of  approximately
$100,000.  The sale resulted in a gain before taxes of approximately  $1,113,000
primarily due to previously  unrecognized  accumulated currency translation.  In
connection with this sale, the Company and Synchro-Work  also entered into a new
distribution agreement for sales into Japan.

Income Taxes

<TABLE>
<CAPTION>
                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------

 (in thousands)                                  2000                1999                2000              1999
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                  <C>                 <C>               <C>
 Income tax expense (benefit) from

      continuing operations                       $4                 ($8)                $33                $15

 Effective tax rate                              0.5%                1.5%               (2.1%)            (2.5%)
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Tax expense  recorded  for both the third  quarter and first nine months of 2000
was due to foreign taxes. The Company's effective tax rate for the third quarter
of 2000 differed  from the  statutory 34% tax rate  primarily due the ability to
reverse tax valuation  allowances  as operating  income was recorded and for the
first nine months due to operating losses for which no tax benefit was recorded.
Tax valuation reserves  decreased by approximately  $284,000 during the quarter.
As of September 28, 2000 the Company has valuation reserves of $7,430,000.

Net Income and Earnings Per Share

<TABLE>
<CAPTION>
                                                        Third Quarter                       First Nine Months
                                               -----------------------------------------------------------------------
(in thousands, except per share data)
                                                    2000              1999               2000               1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>                 <C>                <C>
Income (loss) from continuing operations            $731             ($540)            ($1,640)            ($605)
Percentage of net sales                             6.4%             (5.7%)             (5.8%)             (2.3%)
Basic and diluted earnings (loss) per share
     from continuing operations                    $0.10            ($0.07)             ($0.22)           ($0.03)
----------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company  recognized  net income  from  continuing  operations  for the third
quarter of 2000 as compared to the loss from  continuing  operations  recognized
for the third  quarter of 1999 due  primarily  to higher  sales volume and gross
margin improvement.

                                    Page 11
<PAGE>

Business Restructuring Progress

During the third quarter of 1998, the Company recorded a restructuring charge of
$2.0 million as the Company began the  implementation  of a plan to  restructure
its Redmond and foreign  subsidiary  operations to a level more in line with the
lower sales it was experiencing.  During the fourth quarter of 1998, the Company
recorded further restructuring charges of $2.4 million related to the continuing
restructure of the Company's  Redmond  operations and foreign  subsidiaries  and
related  to  activities   directly  associated  with  the  fourth  quarter  1998
acquisition of SMS Holding GmbH ("SMS").  The acquisition of SMS created certain
redundancies in product offerings and in the operations of the combined company.
A  restructuring  plan was  implemented  after the  acquisition was completed to
eliminate such redundant operations and to phase out overlapping products.

The  total  number  of  employees  terminated  due to the  restructure  was  133
(approximately  39% of the total  workforce).  Employees  were  terminated  from
almost all areas of the Company. Total involuntary termination benefits paid and
charged against the restructure  reserve were approximately $2.0 million.  Total
facility  consolidation  and abandonment  costs incurred and charged against the
restructure  reserve  were  approximately  $307,000.  Other  exit costs paid and
charged against the restructure  reserve,  including legal and consulting  fees,
settlements with suppliers and fixed asset disposals,  were  approximately  $1.7
million.  The  Company's  activities  under  its  restructuring  plans  are  now
substantially complete.

The Company reversed  portions of the restructure  reserve at two separate times
as it became  apparent  that  certain  provisions  made at the time the original
restructure   reserve  was  established  in  1998  required   adjusting  as  the
restructuring  plan was  implemented.  During  the  second  quarter  of 1999 the
Company reversed $215,000 of restructure reserve due to the Company's settlement
of  certain  supplier  related  claims for less than had been  anticipated,  and
during the second quarter of 2000 the Company  reversed  $255,000 of restructure
reserve primarily due to charges related to facility  consolidations  being less
than had been  anticipated.  The  remaining  reserve at  September  28,  2000 of
$131,000  relates  primarily to facility  abandonment that will be paid out over
the next eight quarters.

Discontinued Operations

In November 1997 the Company entered into a licensing agreement and an agreement
to sell  certain  assets  of its  Synario  Design  Automation  Division  to MINC
Washington  Incorporated.  This  transaction  discontinued  the  Synario  Design
Automation  Division  operations of the Company.  However,  the Company received
certain licensing revenues related to its Synario, ABEL and ECS products through
the third quarter 1999, and recognized net earnings of $326,000 from source code
sales and training and support services  provided during the first quarter 1999.
Operating results of this  discontinued  division are classified as discontinued
operations in the financial statements.

Financial Condition

Liquidity and Capital Resources

<TABLE>
<CAPTION>
                                                                   Sept. 28,                                  Dec. 30,
(in thousands)                                                        2000                Change                1999
------------------------------------------------------------- --------------------- -------------------- -------------------
<S>                                                                <C>                    <C>                 <C>

Working capital                                                  $15,360                  ($819)              $16,179
Total debt                                                           $0                     $0                   $0
------------------------------------------------------------- --------------------- -------------------- -------------------
</TABLE>
Working capital  decreased during the first nine months of 2000 primarily due to
funding of the losses for the period.  Cash,  cash  equivalents  and  marketable
securities,  which decreased  approximately $8.0 million during the period, were
used to increase  inventory  by  approximately  $3.7  million as the Company has
ramped  up  production  of its  newly  introduced  products,  increase  accounts
receivable  by  approximately  $3.5  million due to the higher  sales,  and fund
losses from operations.

As of September  28, 2000,  the Company had no debt  outstanding.  No borrowings
were  outstanding  under the  approximately  $400,000 German  subsidiary line of
credit.  The Company did not renew its $4.0  million US line of credit line when
it expired in May 2000.

                                    Page 12
<PAGE>

The  Company  estimates  that  capital  expenditures  for  property,  plant  and
equipment during the remainder of 2000 will be less than $500,000.  Although the
Company  expects  to make the  planned  capital  expenditures,  it has  purchase
commitments for only a small portion of this amount.

At September  28, 2000,  the Company's  material  short-term  unused  sources of
liquidity  consisted of approximately $5.2 million in cash, cash equivalents and
marketable  securities and available borrowings of approximately  $400,000 under
its German  subsidiary  line of credit.  The Company  believes these sources and
cash flow from operations will be sufficient during 2000 to fund working capital
needs.

Share  repurchase  program

Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800  shares  (approximately  15.2%) of its outstanding
common stock.  These purchases may be executed  through open market purchases at
prevailing  market prices,  through block  purchases or in privately  negotiated
transactions,  and may commence or be  discontinued at any time. As of September
28, 2000, the Company has  repurchased  1,016,200  shares under this  repurchase
program at a total cost of  approximately  $7.1  million.  The  Company  has not
repurchased  shares under this plan since the third  quarter of 1997 although it
still has the authority to do so.

General

Impact of Year 2000

In prior years,  the Company  discussed  the nature and progress of its plans to
become Year 2000 ready.  In 1999,  the Company  completed  its  remediation  and
testing of systems.  As a result of those planning and  implementation  efforts,
the  Company   experienced  no  significant   disruptions  in  mission  critical
information technology and non-information technology systems and believes those
systems  successfully  responded  to the Year  2000  date  change.  The  Company
expensed  approximately  $300,000  through  December 30, 1999 in connection with
remediating  its  systems.  The  Company is not aware of any  material  problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the  products  and services of third  parties.  The Company will  continue to
monitor its mission  critical  computer  applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.

European monetary conversion

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

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

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

The Company currently  uses only foreign currency hedge  derivative  instruments
which, at a given date, are  not material.  However,  the Company is exposed  to
interest  rate risks.  The Company  generally  invests in  high-grade commercial
paper  with  original maturity  dates of twelve  months or less and conservative
conservative money  market funds to minimize its exposure to interest  rate risk
on its marketable securities,  which are classified as  available-for-sale.  The
Company  believes that the market risk arising from  holdings of  its  financial
instruments  is not  material.  The  Company's  had approximately  $2.9  million
in  marketable securities at September 28, 2000 and $9.6 million at December 30,
1999.

                                    Page 13
<PAGE>


PART II - OTHER INFORMATION



Item 1.           Legal Proceedings

                  None

Item 2.           Changes in 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

The Company has made changes in its management  organization  creating an Office
of  the  President.  This  consists  of  Frederick  Hume,  President  and  Chief
Executive,  Joel Hatlen,  Vice President and Chief  Financial  Officer,  and Jim
Rounds,  Vice President and Chief Technical Officer (formerly Vice President and
General Manager of Programming Systems).  The Company has organized teams around
four product lines (ProLine-RoadRunner,  Off-line automated programming systems,
UniSite  programming  systems, and Sprint  programming  systems)  and four sales
groups  (Americas, Europe, Asia and Programmers On-line).  Subsequent to the end
of  the  quarter  the  Company is changing the role of Mark Edelsward and Helmut
Adamski such that they will no longer be classified as executive officers.  Mark
Edelsward, formerly Vice President of Worldwide Sales, has the role of directing
strategic  alliances and Helmut  Adamski,  formerly  Vice  President and General
Manager of Device Support, has the role of semiconductor relations.

Item 6.           Exhibits and Reports on Form 8-K

(a)      Exhibits

                  None

(b)      Reports on Form 8-K

                  None

                                    Page 14
<PAGE>

                                   SIGNATURES


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



                              DATA I/O CORPORATION
                                  (REGISTRANT)
DATED:   November 10, 2000



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

                                    Page 15
<PAGE>

                                  EXHIBIT INDEX


Exhibit Number                       Title                          Page Number


         27           Financial Data Schedule which is submitted        17
                      electronically to the Securities and
                      Exchange Commission for information purposes
                      only and not filed.

                                    Page 16

<PAGE>