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 quarterly period ended September 30, 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)                         (Zip Code)


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



--------------------------------------------------------------------------------
     (Former name, former address and former fiscal year, if changed since
                                  last report


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]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes [ ]   No [X]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
stock, as of the last practicable date:

       8,275,421 shares of no par value of the Registrant's Common Stock
              were issued and outstanding as of November 10, 2005.

<PAGE>


                              DATA I/O CORPORATION

                                    FORM 10-Q
                    For the Quarter Ended September 30, 2005

                                      INDEX

                                                                            Page
                                                                            ----
Part I - Financial Information

     Item 1.    Financial Statements (unaudited) ..............................3

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

     Item 3.    Quantitative and Qualitative Disclosures About Market Risk ...16

     Item 4.    Controls and Procedures ......................................17

Part II - Other Information

     Item 1.    Legal Proceedings ............................................17

     Item 2.    Changes in Securities, Use of Proceeds and Issuer
                Purchases of Equity Securities ...............................17

     Item 3.    Defaults Upon Senior Securities ..............................17

     Item 4.    Submission of Matters to a Vote of Security Holders ..........17

     Item 5.    Other Information ............................................17

     Item 6.    Exhibits .....................................................18

Signatures ...................................................................21



                                       2
<PAGE>


PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

<TABLE>
                                               DATA I/O CORPORATION

                                            CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------------------------------
                                                                        Sept. 30,             Dec. 31,
                                                                          2005                  2004
--------------------------------------------------------------------------------------------------------
(in thousands, except share data)                                     (unaudited)
<S>                                                                    <C>                   <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                           $2,632                $5,534
     Marketable securities                                                1,200                 1,037
     Trade accounts receivable, less allowance for
        doubtful accounts of $203 and $155                                6,588                 4,489

     Inventories                                                          3,852                 4,139
     Other current assets                                                   291                   652
                                                                    --------------        --------------
        TOTAL CURRENT ASSETS                                             14,563                15,851

Property and equipment - net                                              2,321                 1,970
Other assets                                                                 18                    26
                                                                    --------------        --------------
        TOTAL ASSETS                                                    $16,902               $17,847
                                                                    ==============        ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                    $1,260                $1,688
     Accrued compensation                                                   963                   991
     Deferred revenue                                                     1,213                 1,706
     Other accrued liabilities                                            1,088                 1,126
     Accrued costs of business restructuring                                 25                    86
     Income taxes payable                                                    89                     4
                                                                    --------------        --------------
        TOTAL CURRENT LIABILITIES                                         4,638                 5,601

Deferred gain on sale of property                                           485                   776
                                                                    --------------        --------------
        TOTAL LIABILITIES                                                 5,123                 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, 8,265,471
           and 8,064,696 shares                                          19,218                19,001
     Accumulated deficit                                                 (7,799)               (8,018)
     Accumulated other comprehensive income                                 360                   487
                                                                    --------------        --------------
        TOTAL STOCKHOLDERS' EQUITY                                       11,779                11,470
                                                                    --------------        --------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $16,902               $17,847
                                                                    ==============        ==============
</TABLE>



See accompanying notes to consolidated financial statements.


                                       3

<PAGE>


<TABLE>
                                               DATA I/O CORPORATION

                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (UNAUDITED)



                                                          Three Months Ended                 Nine Months Ended
-------------------------------------------------------------------------------------------------------------------
                                                      Sept. 30,       Sept. 30,         Sept. 30,        Sept. 30,
                                                        2005            2004              2005             2004
<S>                                                     <C>             <C>             <C>               <C>
(in thousands, except per share data)

Net sales                                               $6,587          $7,765          $19,966           $21,495
Cost of goods sold                                       2,831           3,533            8,263            10,040
                                                      -----------     -----------      -----------       -----------
Gross margin                                             3,756           4,232           11,703            11,455

Operating expenses:
     Research and development                            1,218           1,262            3,905             3,642
     Selling, general and administrative                 2,411           2,405            7,421             6,700
     Net provision for business restructuring               17             432               73               502
                                                      -----------     -----------      -----------       -----------
         Total operating expenses                        3,646           4,099           11,399            10,844
                                                      -----------     -----------      -----------       -----------
         Operating  income                                 110             133              304               611

Non-operating income (expense):
     Interest income                                        37              14               81                42
     Interest expense                                       (4)             (6)             (16)              (13)
     Other income (expense)                                 --             (20)              --                 -
     Foreign currency exchange                             (21)            (27)             (44)              (45)
                                                      -----------     -----------      -----------       -----------
         Total non-operating income (expense)               12             (39)              21               (16)
                                                      -----------     -----------      -----------       -----------
        Income before income taxes                         122              94              325               595

Income tax expense  (benefit)                               (5)              1              106               103
                                                      -----------     -----------      -----------       -----------
Net income                                                $127             $93             $219              $492
                                                      ===========     ===========      ===========       ===========
Basic and diluted earnings per share                     $0.02           $0.01            $0.03             $0.06
                                                      ===========     ===========      ===========       ===========
Weighted average basic shares outstanding                8,244           8,046            8,200             8,019
                                                      ===========     ===========      ===========       ===========
Weighted average diluted shares outstanding              8,468           8,384            8,501             8,361
                                                      ===========     ===========      ===========       ===========
</TABLE>



See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


<TABLE>

                                      DATA I/O CORPORATION

                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (UNAUDITED)



-----------------------------------------------------------------------------------------------------
                                                                        Sept. 30,          Sept. 30,
                                                                           2005              2004
-----------------------------------------------------------------------------------------------------
(in thousands)
<S>                                                                      <C>                <C>
OPERATING ACTIVITIES:
    Net income                                                              $219              $492
    Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
       Depreciation and amortization                                         833               506
       Write-off of assets                                                    11                 2
       Equipment transferred to cost of goods sold                           491               629
       Amortization of deferred gain on sale                                (291)             (247)
       Net change in:
         Deferred revenue                                                   (532)              (77)
         Trade accounts receivable                                        (2,289)           (1,386)
         Inventories                                                          96             1,143
         Other current assets                                                339               116
         Accrued costs of business restructuring                             (62)              204
         Accounts payable and accrued liabilities                           (477)             (478)
                                                                        ----------        ----------
    Net cash provided by (used in) operating activities                   (1,662)              904

INVESTING ACTIVITIES:
    Purchases of property and equipment                                   (1,640)           (1,684)
    Purchase of other assets                                                   -               (30)
    Purchases of marketable securities                                    (1,250)             (933)
    Proceeds from sales of marketable securities                           1,092             1,985
                                                                        ----------        ----------
       Net cash provided by (used in) investing activities                (1,798)             (662)

FINANCING ACTIVITIES:
    Sale of common stock                                                     132               154
    Proceeds from exercise of stock options                                   85                24
                                                                        ----------        ----------
       Net cash provided by (used in) financing activities                   217               178
                                                                        ----------        ----------
Increase/(decrease) in cash and cash equivalents                          (3,243)              420

Effects of exchange rate changes on cash                                     341               136
Cash and cash equivalents at beginning of period                           5,534             4,380
                                                                        ----------        ----------
Cash and cash equivalents at end of period                                $2,632            $4,936
                                                                        ==========        ==========

</TABLE>


See accompanying notes to consolidated financial statements.




                                       5
<PAGE>


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


NOTE 1 - FINANCIAL STATEMENT PREPARATION

Data  I/O  prepared  the  financial  statements  as of  September  30,  2005 and
September 30, 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  nine  months  ended  September  30,  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.

During the third quarter,  Data I/O changed its method of accounting for revenue
recognition  in accordance  with the  provisions of SAB 104 which allows revenue
recognition for sales with multiple deliverables to be separated and the revenue
recognized upon shipment for those products delivered, which previously had been
recognized  upon  installation.  The  revenue  recognition  for the  undelivered
installation service remains deferred.

We made this change after we determined that our automated products have reached
a point of maturity and stability such that product acceptance can be assured by
testing at the factory  prior to shipment and each of the multiple  deliverables
has an established fair market value.  This change benefits Data I/O by reducing
late  quarter end expedite  fees,  premium  travel  costs and labor  charges for
installation  personnel.  It also benefits the customer relationship by reducing
installation  schedule  conflicts.  The table below  reflects the effect of this
change in accounting method.

Two  transactions  were  impacted by this change for the  periods  presented.  A
delivery in the second  quarter of 2004 that was not  installed  until the third
quarter  of 2004  resulted  in a change  in the pro  forma  third  quarter  2004
results, but had no impact on the nine-month period ending September 30, 2004. A
delivery in the third  quarter of 2005 that was not  installed  until the fourth
quarter of 2005  resulted  in the  change to the third  quarter  and  nine-month
period  ending  September  30,  2005  results.  The  effect of the  change is as
follows:


<TABLE>

(in thousands, except per share amounts)

                                                          Operating     Net     Earnings Per
                                                           Income      Income       Share
                                                        ---------------------------------------
<S>                                                      <C>          <C>         <C>
Quarter ending Sept. 30, 2004 before change in              $133         $93         $0.01
accounting method

Quarter ending Sept. 30, 2004 after change in
accounting method                                             $2        ($38)           --

Nine months ending Sept. 30, 2004 before change in
accounting method                                           $611        $492         $0.06

Nine months ending Sept. 30, 2004 after change in
accounting method                                           $611        $492         $0.06


Quarter ending Sept. 30, 2005 before change in
accounting method                                           ($23)        ($6)           --

Quarter ending Sept. 30, 2005 after change in
accounting method                                           $110        $127         $0.02

Nine months ending Sept. 30, 2005 before change in
accounting method                                           $171         $86         $0.01

Nine months ending Sept. 30, 2005 after change in
accounting method                                           $304        $219         $0.03
</TABLE>



                                       6
<PAGE>


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>
                                                                       Three Months Ended            Nine Months Ended
                                                                  Sept. 30,         Sept. 30,    Sept. 30,        Sept. 30,
                                                                    2005             2004          2005             2004
                                                                 ----------       ----------     ----------      ----------
<S>                                                                 <C>               <C>           <C>             <C>
Net income - as reported                                            $127              $93           $219            $492

Deduct:  Total stock-based employee compensation expense
determined under fair value based method for awards granted,
modified, or settled, net of related tax effects                    (109)            (105)          (291)           (268)
                                                                 ----------       ----------     ----------      ----------
Net income (loss) - pro forma                                        $18             ($12)          ($72)           $224
                                                                 ==========       ==========     ==========      ==========
Basic and diluted income per share - as reported                   $0.02            $0.01          $0.03           $0.06
Basic income (loss) per share - pro forma                          $0.00            $0.00         ($0.01)          $0.03
Diluted earnings (loss) per share - pro forma                      $0.00            $0.00         ($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):

                                             Sept. 30,            Dec. 31,
                                               2005                 2004
                                            -----------         -----------
       Raw material                            $2,110               $2,381
       Work-in-process                            910                  899
       Finished goods                             832                  859
                                            -----------         -----------
                                               $3,852               $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.


NOTE 4 - PROPERTY AND EQUIPMENT - NET

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

                                             Sept. 30,            Dec. 31,
                                               2005                 2004
                                            -----------         -----------
       Leasehold improvements                    $343                $291
       Equipment                               10,368              10,065
                                            -----------         -----------
                                               10,711              10,356
       Less accumulated depreciation            8,390               8,386
                                            -----------         -----------
                                               $2,321              $1,970
                                            ===========         ===========


                                       7
<PAGE>

NOTE 5 - BUSINESS RESTRUCTURING

For  fiscal  year  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 nine months of 2005, approximately $133,000 was paid out and an
additional  $72,000 was accrued ($17,000 in the third quarter and $55,000 in the
second quarter) for severance related charges.  The balance accrued at September
30, 2005 is $25,000 which is expected to be paid out in 2005.


NOTE 6 - OTHER ACCRUED LIABILITIES

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

                                             Sept. 30,            Dec. 31,
                                               2005                 2004
                                            -----------         -----------
     Product warranty liability                 $469                 $494
     Sales return reserve                        180                  250
     Other                                       439                  382
                                            -----------         -----------
                                              $1,088               $1,126
                                            ===========         ============


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

                                                          Sept. 30,
                                                            2005
                                                         ----------
        Liability, beginning balance                        $494
        Net expenses                                         572
        Warranty claims                                     (572)
        Accrual revisions                                    (25)
                                                         ----------
        Liability, ending balance                           $469
                                                         ==========


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>
                                                                      Three Months Ended            Nine Months Ended
                                                                           Sept. 30,                    Sept. 30,
                                                                   ----------------------       ----------------------
                                                                      2005        2004             2005        2004
                                                                   ----------  ----------       ----------  ----------
<S>                                                                   <C>           <C>             <C>          <C>
Numerator for basic and diluted earnings per share:
       Net income                                                     $127          $93             $219         $492
                                                                   ----------  ----------       ----------  ----------

Denominator:
        Denominator for basic earnings per share -
         weighted-average shares                                     8,244        8,046            8,200        8,019
        Employee stock options                                         224          338              301          342
                                                                   ----------  ----------       ----------  ----------
         Denominator for diluted earnings per share -
                  Adjusted weighted-average shares and
                  assumed conversions of stock options               8,468        8,384            8,501        8,361
                                                                   ----------  ----------       ----------  ----------
Basic and diluted earnings per share
         Total basic and diluted earnings per share                  $0.02        $0.01            $0.03        $0.06
                                                                   ==========  ==========       =========== ===========
</TABLE>


                                       8
<PAGE>


At  September  30,  2005 and 2004 there were  1,317,855  and  1,462,711  shares,
respectively, of outstanding options potentially issueable as common stock.

NOTE 8 - ACCOUNTING FOR INCOME TAXES

Tax benefit for the third  quarter of 2005 relates to a reduction in the current
year's  foreign tax  obligations.  Tax expense for the first nine months of 2005
relates to foreign and state tax obligations.  The Company's  effective tax rate
for the third  quarter and for the first nine months of 2005  differed  from the
statutory  34% tax  rate  primarily  due to the  tax  valuation  allowances  and
domestic net operating loss carryforwards. The tax valuation allowance decreased
by approximately $71,000 during the quarter ended September 30, 2005 and $26,000
for the first nine months of 2005. As of September  30, 2005,  the Company has a
valuation allowance of $9,782,000.

NOTE 9 - COMPREHENSIVE INCOME

Total comprehensive income (loss) was comprised of the following (in thousands):

<TABLE>
                                                        Three Months Ended            Nine Months Ended
                                                             Sept. 30,                    Sept. 30,
                                                     ----------------------       ----------------------
                                                        2005        2004             2005        2004
                                                     ----------  ----------       ----------  ----------
<S>                                                    <C>           <C>             <C>         <C>
   Net income                                           $127         $93             $219        $492
   Foreign currency translation gain/(loss)               49          94             (132)          5
   Unrealized gain on marketable securities                -           -                5           -
                                                     ----------  ----------       ----------  ----------
   Total comprehensive income/(loss)                    $176        $187              $92        $497
                                                     ==========  ==========       =========== ===========
</TABLE>


NOTE 10 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES

We translate 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.

We  account  for our  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.

We utilize  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 September 30, 2005 is an unrealized gain
of $2,453 and is included in accounts payable on the balance sheet.

We do 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.  In March 2005, the SEC issued SAB 107,  "Share-Based  Payments," which
gives  guidance on the  application  of SFAS No.  123R and extends the  required
adoption  date to January 1, 2006 for Data I/O. 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



                                       9
<PAGE>

been  quantified.  Also, past usage of option plans and stock purchase plans may
not reflect our practices in future periods.

In March 2005 and October 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, 2007.
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, 2007.

In May 2005, the FASB issued  Statement No. 154,  "Accounting  Changes and Error
Corrections." This Statement replaces APB Opinion No. 20, "Accounting  Changes,"
and FASB Statement No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements, and changes the requirements for the accounting for and reporting of
a change in accounting principle.  Statement No. 154 is effective for accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005.

In June 2005, the FASB issued staff position ("FSP") FSP FAS 143-1,  "Accounting
for  Electronic  Equipment  Waste  Obligations  Pursuant  to  a  European  Union
Directive." FSP FAS 143-1 provides guidance related to the costs associated with
historical  electrical and electronic  waste  equipment  ("WEEE"),  based on the
European  Union  Directive.  The  guidance  takes  effect the later of the first
reporting  period  ending after June 8, 2005,  or, for an  applicable  EU-member
country,  upon the  adoption  of a law that  complies  with the  Directive.  The
adoption of FSP FAS 143-1 has not had a significant  effect on our  consolidated
financial statements.


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;  effect of implementing a new information  system; and
any  other   guidance  on  future   periods  are   forward-looking   statements.
Forward-looking  statements reflect  management's  current  expectations and are
inherently  uncertain.  Although we believe 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 we nor anyone else assumes responsibility for the accuracy and
completeness of these forward-looking statements. We are 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 through new product development
to take advantage of market opportunities in our strategic market segments,  and
with our new programming technology,  in-system programming ("ISP") ImageWriter,
business and service operation.

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 the ISP 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 continue to invest in tools and device support  operations in Germany,
India and China.


                                       10
<PAGE>

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  increasing  our focus on
service  and  aftermarket  opportunities.   We  continue  to  expand  our  China
operations to take  advantage of the growth of  manufacturing  in China.  We are
also  increasing  our global sales efforts  related to the Japanese  market,  an
important  influence  for sales in China and the rest of Asia.  We continue  our
efforts to partner  with the  semiconductor  manufacturers  to better  serve our
mutual customers.

RESTRUCTURE ACTIONS

For fiscal year 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 nine months of 2005,  approximately  $133,000 was paid
out and an  additional  $72,000  was accrued  ($17,000 in the third  quarter and
$55,000 in the second  quarter)  for  severance  related  charges.  The  balance
accrued at  September  30,  2005 is $25,000  which 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 capital 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  were  previously
recorded when installation was 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. Beginning in the third quarter of 2005, Data I/O changed its method of
recognizing  revenue  for  products  requiring   installation  by  us  from  the
completion  of  installation  to the time of shipment.  This change in method of
accounting for revenue  recognition is in accordance  with the provisions of SAB
104 which allows revenue recognition for sales with multiple  deliverables to be
separated and the revenue recognized upon shipment for those products delivered,
which previously had been recognized upon installation.  The revenue recognition
for the undelivered installation service remains deferred.

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.


                                       11
<PAGE>

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.

Results of Operations

<TABLE>
NET SALES
-----------------------------------------------------------------------------------------------------------------------
(in thousands)


                                               Three Months Ended                              Nine Months Ended
                                    ------------------------------------------   --------------------------------------
                                       Sept. 30,                   Sept. 30,     Sept. 30,                     Sept. 30,
Net sales by product line                2005        % Change         2004          2005       % Change          2004
------------------------------------------------------------------------------   --------------------------------------
<S>                                     <C>          <C>             <C>          <C>            <C>            <C>
Automated programming systems           $3,528       (30.4%)         $5,071       $11,635        (15.8%)        $13,819
Non-automated programming systems       $3,059        13.5%          $2,694        $8,331          8.5%          $7,676
                                    ------------------------------------------   --------------------------------------
Total programming systems               $6,587       (15.2%)         $7,765       $19,966         (7.1%)        $21,495
                                    ==========================================   ======================================
</TABLE>



<TABLE>
                                               Three Months Ended                              Nine Months Ended
                                    ------------------------------------------   --------------------------------------
                                       Sept. 30,                   Sept. 30,     Sept. 30,                     Sept. 30,
Net sales by location                    2005        % Change         2004          2005       % Change          2004
------------------------------------------------------------------------------   --------------------------------------
<S>                                     <C>          <C>             <C>          <C>            <C>            <C>
United States                          $1,110         (25.0%)       $1,480         $4,848         10.7%        $4,378

   % of total                            16.9%                        19.1%          24.3%                       20.4%

International                          $5,477         (12.9%)       $6,285        $15,118        (11.7%)      $17,117

   % of total                            83.1%                        80.9%          75.7%                       79.6%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Revenues  for the third  quarter of 2005  decreased  approximately  15% from the
third quarter of 2004. The revenue decrease relates primarily to the decrease in
sales to the wireless  handset  manufacturers,  generally  our largest  customer
segment.  The third  quarter of 2004  reflected a strong  demand for  automation
capacity in the wireless segment,  which largely went away in the fourth quarter
of 2004 and  continued to be  relatively  weak for  shipments  through the third
quarter of 2005. The decrease in demand may also be partially  influenced by the
industry  consolidation,  causing a pause in equipment orders.  Overall,  orders
were $7.8  million  during the third  quarter of 2005,  which was similar to the
third  quarter of 2004.  However,  this was a significant  improvement  over the
order levels for the prior three quarters.  During the third quarter of 2005, we
increased our backlog of orders from $770,000 to $1,980,000.  We saw an increase
in the demand from the wireless customer group during the third quarter of 2005,
but it related  primarily to non automated and aftermarket  products rather than
automation  products.  We saw an upturn in our business from programming centers
late in the quarter,  which  accounts for a large part of the backlog  increase.
Finally, we made our first strategic sale of an automated  programming system to
a semiconductor manufacturer for factory programming.

Domestic  sales in the third  quarter  of 2005  declined  compared  to the third
quarter of 2004 by 25%.  This was offset in full by higher  sales in the rest of
the Americas and the Brazilian  programming  services  operation.  International
sales decreased  approximately 12.9% primarily due to weaker automation sales in
Asia,  and Japan in particular.  The U.S.  dollar  strengthened  slightly in the
third quarter of 2005  compared to the third quarter of 2004,  and in particular
against  the Euro,  with the  effect  of  increasing  the  overall  decrease  in
international  sales  by  $48,678.  Overall,  international  sales  were  83% of
revenues for the quarter.

The  revenue  decline  for the first nine  months of 2005  compared  to 2004 was
primarily  related to the  continued  overall  decrease  in  capacity  demand by
wireless handset  manufacturers  as noted earlier,  offset by improved sales, in
the automotive customer group.


                                       12
<PAGE>

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  of our  ImageWriter  200 in  2004,  began  regular
shipments of the ImageWriter 200 in the second quarter of 2005, and in September
introduced  the  ImageWriter  300. We expect  these  products  to  increase  our
revenues;  however, partially offsetting this expected increase is the continued
trend of declining sales of certain older non-automated product lines.


<TABLE>
GROSS MARGIN
                                        Three Months Ended                          Nine Months Ended
                               -------------------------------------------------------------------------

 (in thousands)                Sept. 30, 2005      Sept. 30, 2004      Sept. 30, 2005    Sept. 30, 2004
--------------------------------------------------------------------------------------------------------
<S>                                <C>                 <C>                 <C>               <C>
Gross Margin                       $3,756              $4,232              $11,703           $11,455

Percentage of net sales              57.0%               54.5%                58.6%             53.3%
--------------------------------------------------------------------------------------------------------
</TABLE>

Gross  margins  decreased in dollars due to the lower sales volume but increased
as a  percentage  of sales  compared to the third  quarter of 2004.  The overall
gross margin percentage  increase relates to the product and channel mix as well
as a favorable  average  selling price  variance of  approximately  $220,000 and
favorable inventory related variances of approximately  $200,000.  Finally,  the
restructuring  activities  in the third  quarter of 2004  lowered  our labor and
overhead  costs  in our  U.S.  and  Canada  operations.  We  expect  the  margin
percentages  for the  fourth  quarter to be in line with the  current  quarter's
level.

Gross  margin as a  percentage  of sales for the first  nine  months of 2005 has
increased over 2004 due to increased  product  average selling price and channel
mix as well as favorable inventory variances and savings related to the business
restructuring.

<TABLE>
RESEARCH AND DEVELOPMENT

                                        Three Months Ended                          Nine Months Ended
                               -------------------------------------------------------------------------

 (in thousands)                Sept. 30, 2005      Sept. 30, 2004      Sept. 30, 2005    Sept. 30, 2004
--------------------------------------------------------------------------------------------------------
<S>                                <C>                 <C>                 <C>               <C>
 Research and development        $1,218                 $1,262              $3,905            $3,642

 Percentage of net sales           18.5%                  16.3%               19.6%             16.9%
 -------------------------------------------------------------------------------------------------------
</TABLE>

Research and development ("R&D") spending for the third quarter of 2005 compared
to the third quarter of 2004 decreased in dollars due to lower  personnel  costs
relating to open positions and less R&D materials, but increased as a percentage
of sales due to the lower sales  volume.  During the third  quarter of 2005,  we
introduced our new ImageWriter  300 product.  We expect R&D spending to increase
as we fill open positions.  Our R&D spending also fluctuates based on the number
and the development stage of projects.

The increase in R&D  expenses for the first nine months of 2005  compared to the
same period in 2004  relates to our new product  initiatives,  particularly  the
ImageWriter,   our  new  in-system  programming  solution,  the  new  automation
solution, and the start of engineering operations in China.

<TABLE>
SELLING, GENERAL AND ADMINISTRATIVE

                                              Three Months Ended                     Nine Months Ended
                               --------------------------------------------------------------------------------

 (in thousands)                      Sept. 30, 2005      Sept. 30, 2004      Sept. 30, 2005    Sept. 30, 2004
 --------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                 <C>               <C>
 Selling, general & administrative        $2,411              $2,405              $7,421          $6,700

 Percentage of net sales                    36.6%               31.0%               37.2%           31.2%
 --------------------------------------------------------------------------------------------------------------
</TABLE>

Selling,  general and  administrative  ("SG&A") expenses were  approximately the
same for the third  quarter of 2005 compared to the third quarter of 2004. A few
significant  expense changes  include reduced USA selling  expenses of $133,000,
which offset increased  expenses  associated with the new information  system of
$95,000 and a custom duties settlement cost of $35,000.

The increase in SG&A  expenses for the first nine months of 2005 compared to the
same period in 2004 relates to additional  marketing  personnel and launch costs
of $257,000,  expenses  associated with the new information  system of $113,000,
additional accounting


                                       13
<PAGE>


personnel and auditor costs of $178,000, Sarbanes-Oxley internal control related
costs of $52,000,  additional China administration costs of $52,000, a reduction
of allocated out facility costs of $52,000,  and additional  investor  relations
costs of $50,000.

<TABLE>
INTEREST
                                              Three Months Ended                     Nine Months Ended
                               --------------------------------------------------------------------------------

 (in thousands)                      Sept. 30, 2005      Sept. 30, 2004      Sept. 30, 2005    Sept. 30, 2004
 --------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                 <C>               <C>
 Interest income                      $37                     $14                 $81                $42

 Interest expense                     ($4)                    ($6)               ($16)              ($13)
 --------------------------------------------------------------------------------------------------------------
</TABLE>

Interest  income  increased  in the third  quarter of 2005 and nine month period
compared to the same periods in 2004 due to higher yields.

<TABLE>
INCOME TAXES
                                              Three Months Ended                     Nine Months Ended
                               --------------------------------------------------------------------------------

 (in thousands)                      Sept. 30, 2005      Sept. 30, 2004      Sept. 30, 2005    Sept. 30, 2004
 --------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                 <C>               <C>
 Income tax expense (benefit)             ($5)                 $1                  $106             $103
 --------------------------------------------------------------------------------------------------------------
</TABLE>

Tax benefit for the third  quarter of 2005 relates to a reduction in the current
year's  foreign tax  obligations.  Tax expense for the first nine months of 2005
relates to foreign and state tax obligations.  The Company's  effective tax rate
for the third  quarter and for the first nine months of 2005  differed  from the
statutory  34% tax  rate  primarily  due to the  tax  valuation  allowances  and
domestic net operating loss carryforwards. The tax valuation allowance decreased
by approximately $71,000 during the quarter ended September 30, 2005 and $26,000
for the first nine months of 2005. As of September  30, 2005,  the Company has a
valuation allowance of $9,782,000.


Financial Condition
-------------------

<TABLE>
LIQUIDITY AND CAPITAL RESOURCES
                                          Sept. 30,                  June 30,               Dec. 31,
(in thousands)                               2005         Change       2005      Change       2004
----------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>        <C>        <C>         <C>
Working capital                             $9,925         $294       $9,631     ($619)      $10,250
----------------------------------------------------------------------------------------------------
</TABLE>


At September 30, our principal sources of liquidity  consisted of existing cash,
cash  equivalents  and marketable  securities.  Our working capital for the nine
month period  decreased by $325,000 and our current ratio  increased from 2.8 at
December 31, 2004 to 3.1 at September 30, 2005.

Our cash and cash  equivalents  decreased by $2.9 million  during the first nine
months  of 2005  primarily  due to the  increase  in  cash  used  for  operating
activities  including  the funding for the  Brazilian  operation  totaling  $1.7
million.  The $1.7 million of cash used for operations primarily included a $2.3
million increase in accounts  receivable,  $477,000 decrease in accounts payable
and accrued  liabilities,  and a $532,000 decrease in deferred revenue partially
offset by a $96,000 decrease in inventory,  $491,000 of demonstration  equipment
transferred   to  cost  of  goods  sold,  and  $833,000  of   depreciation   and
amortization.  The increase in accounts  receivable results from increased sales
especially  late  in  the  quarter  and  the  longer  collection  times  we  are
experiencing with increased international sales, especially in China.

We used $1.8 million of cash in investing activities during the third quarter of
2005, which primarily  relates to the purchase of property,  plant and equipment
totaling $1.6 million.  The capital purchases  included  approximately  $515,000
related to the Brazilian  operation and  approximately  $306,000  related to the
purchase of our new information  system.  During the second quarter,  we entered
into an agreement to purchase a worldwide  information  system.  As of September
30,  2005,  we  incurred  approximately  $306,000  related to the  software  and
maintenance  for our new  information  system and we expect to incur  additional
hardware,  software and  implementation  costs during the next few quarters.  We
expect  that we will  continue  to make  capital  expenditures  to  support  our
business and anticipate  that present working capital will be sufficient to meet
our operating  requirements.  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  require
substantial working capital to fund our operations.  Over the last few years, we
restructured our operations to lower our costs


                                       14
<PAGE>

and operating  expenditures in certain 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  September 30, 2006. 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 September 30, 2005 (in thousands):

         During year                      Purchase                Operating
       Ending Sept. 30,                  obligations               leases
       ---------------------------     ---------------           ------------
       2006                                  $1,146                  $1,577
       2007                                     202                     581
       2008                                       -                     165
       2009                                       -                      54
       2010 and thereafter                        -                       -
                                       ---------------           ------------
       Total                                 $1,348                  $2,377
                                       ================          ============


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.  In March 2005, the SEC issued SAB 107,  "Share-Based  Payments," which
gives guidance on the application of FAS 123R and extends the required  adoption
date to January 1, 2006 for Data I/O.  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 and October 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, 2007.
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.

In May 2005, the FASB issued  Statement No. 154,  "Accounting  Changes and Error
Corrections." This Statement replaces APB Opinion No. 20, "Accounting  Changes,"
and FASB Statement No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements, and changes the requirements for the accounting for and reporting of
a change in accounting principle.  Statement No. 154 is effective for accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005.

In June 2005, the FASB issued staff position ("FSP") FSP FAS 143-1,  "Accounting
for  Electronic  Equipment  Waste  Obligations  Pursuant  to  a  European  Union
Directive." FSP FAS 143-1 provides guidance related to the costs associated with
historical  electrical and electronic  waste  equipment  ("WEEE"),  based on the
European Union Directive. The guidance takes effect the later of the first


                                       15
<PAGE>


reporting  period  ending after June 8, 2005,  or, for an  applicable  EU-member
country,  upon the  adoption  of a law that  complies  with the  Directive.  The
adoption of FSP FAS 143-1 has not had a significant  effect on our  consolidated
financial statements.

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>
                                                                                   Principal        Estimated Fair
                                          Principal         Estimated Fair        Cash Flows           Value at
                                         Cash Flows            Value at          to Sept. 30,        December 31,
                                         For Q4 2005        Sept. 30, 2005           2005                2004
                                        -------------      ----------------      -------------     ----------------
<S>                                         <C>                  <C>                   <C>                <C>
   Corporate Bonds                             --                   --                $787               $787

   Taxable Auction Securities               1,200                1,200                 250                250
                                            3.783%                                   2.352%
                                        -------------      ----------------      -------------     ----------------
   Total portfolio value                   $1,200               $1,200              $1,037             $1,037
                                       ==============      ================      =============     ================
</TABLE>


FOREIGN CURRENCY RISK

We have operations in Germany,  Canada,  China,  and 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,  China,  and 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.



                                       16
<PAGE>

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

At September  30, 2005,  we had two forward  contracts to sell Euros in exchange
for $936,495  with rates  ranging from 1.2008 to 1.2170 all  scheduled to be due
within the next quarter and with a value at maturity of $934,042.

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


                                       17
<PAGE>


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 Agent, as
               amended by Amendment No. 1 thereto,  dated as of May 28, 1992 and
               Amendment No. 2 thereto,  dated as of July 16, 1997 (Incorporated
               by  reference to Data I/O's Report on Form 8-K filed on March 13,
               1998).


                                       18
<PAGE>

          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  Plan
               (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)).



                                       19
<PAGE>


         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 .........................22

          31.2 Chief Financial Officer Certification .........................23

     32   Certification - Section 906:

          32.1 Chief Executive Officer Certification .........................24

          32.2 Chief Financial Officer Certification .........................25

     99   Other Exhibits

          99.1 Risk Factors ..................................................26



                                       20
<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, 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)



                                       21
<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  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

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

Date  November 10, 2005                    /s/ FREDERICK R. HUME
                                           -------------------------------------
                                           Frederick R. Hume
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)
                                           -------------------------------------



                                       22

<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  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

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

Date  November 10, 2005                    /s/ JOEL S. HATLEN
                                           -------------------------------------
                                           Joel S. Hatlen
                                           Vice President and Chief Financial
                                              Officer
                                           Principal Financial Officer)
                                           -------------------------------------



                                       23
<PAGE>

Exhibit 32.1

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


In connection with the quarterly  Report of Data I/O Corporation (the "Company")
on Form  10-Q  for the  period  ended  September  30,  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)
November 10, 2005




                                       24

<PAGE>

Exhibit 32.2
Certification by Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



In connection with the quarterly  Report of Data I/O Corporation (the "Company")
on Form  10-Q  for the  period  ended  September  30,  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)
November 10, 2005


                                       24
<PAGE>

Exhibit 99.1


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


Data I/O's  disclosure and analysis in this Report contain 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  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 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


                                       26

<PAGE>

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.


                                       27
<PAGE>

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.


                                       28

<PAGE>

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.


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 76% for the nine months  ended  September  30,  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/import 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") which becomes effective later in 2006
(China  has  recently  established  a  similar  requirement).  Failure  to  meet
directives  may prevent us from  marketing  certain  products in Europe or other
territories with similar requirements.

We operate subsidiaries in Germany,  China, Canada, and 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.


                                       29
<PAGE>

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, 2007.  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.


                                       30

<PAGE>

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  worldwide  information  system  may
adversely affect our operations and sales.
--------------------------------------------------------------------------------

We have recently acquired and are in the process of implementing 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  and  liquidity.  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.









                                       31