15


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


                                    FORM 10-Q
                                   (Mark One)

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

                    For the quarter ended September 30, 2001

                                       OR

              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
           Or the transition period from ___________ to ______________



                           Commission File No. 0-10394


                              DATA I/O CORPORATION

             (Exact name of registrant as specified in its charter)





              Washington                                91-0864123

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



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


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



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


7,613,574  shares of no par value  Common  Stock  issued and  outstanding  as of
November 3, 2001


<PAGE>




                              DATA I/O CORPORATION

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

                                      INDEX


Part I - Financial Information                                            Page

     Item 1.    Financial Statements                                        3

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

     Item 3.    Quantitative and Qualitative Disclosures About
                Market Risk                                                13


Part II - Other Information

     Item 1.    Legal Proceedings                                          14

     Item 2.    Changes in Securities and Use of Proceeds                  14

     Item 3.    Defaults Upon Senior Securities                            14

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

     Item 5.    Other Information                                          14

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



Signatures                                                                 15





<PAGE>
<TABLE>
<CAPTION>


                                                  PART I - FINANCIAL INFORMATION

                                                   Item 1. Financial Statements

                                                       DATA I/O CORPORATION

                                                    CONSOLIDATED BALANCE SHEETS

-----------------------------------------------------------------------------------------------------------------------
                                                                                   Sept. 30,                Dec. 28,
                                                                                      2001                    2000
-----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S>                                                                               <C>                      <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                         $6,335                 $3,133
     Marketable securities                                                              1,406                  1,944
     Trade accounts receivable, less allowance for
        doubtful accounts of $349 and $350                                              6,116                 10,627

     Inventories                                                                        6,707                  9,166
     Recoverable income taxes                                                               0                     91
     Other current assets                                                                 394                    444
                                                                                   -----------            -------------
        TOTAL CURRENT ASSETS                                                           20,958                 25,405

Property, plant and equipment - net                                                     1,800                  2,190
Other assets                                                                              363                  1,151
                                                                                   -----------            -------------
        TOTAL ASSETS                                                                  $23,121                $28,746
                                                                                   ===========            =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                                  $1,897                 $1,674
     Accrued compensation                                                                 867                  2,073
     Deferred revenue                                                                   2,053                  2,637
     Other accrued liabilities                                                          2,109                  1,623
     Accrued costs of business restructuring                                              395                    117
     Income taxes payable                                                                 417                    489
                                                                                   -----------            -------------
        TOTAL CURRENT LIABILITIES                                                       7,738                  8,613

Deferred gain on sale of property                                                       1,847                  2,094
                                                                                   -----------            -------------
        TOTAL LIABILITIES                                                               9,585                 10,707

COMMITMENTS                                                                                 -                      -

STOCKHOLDERS' EQUITY:
     Preferred stock -
        Authorized, 5,000,000 shares, including
           200,000 shares of Series A Junior Participating
        Issued and outstanding, none                                                        -                      -
     Common stock, at stated value -
        Authorized, 30,000,000 shares
        Issued and outstanding, 7,613,754
           and 7,494,592 shares                                                        18,500                 18,292
     Accumulated deficit                                                               (4,967)                  (163)
     Accumulated other comprehensive income/(loss)                                          3                    (90)
                                                                                   -----------            -------------
        TOTAL STOCKHOLDERS' EQUITY                                                     13,536                 18,039
                                                                                   -----------
                                                                                                          -------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $23,121                $28,746
                                                                                   ===========            =============


See accompanying notes
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                                        DATA I/O CORPORATION

                                              CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                             Quarters Ended              Nine Months Ended
------------------------------------------------------------------------ ------------------------ -- --------------------------
                                                                         Sept. 30,     Sept. 28,     Sept. 30,      Sept. 28,
                                                                           2001          2000           2001           2000
------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- -----------
(in thousands, except per share data)                                                  Restated 1                   Restated 1
<S>                                                                        <C>          <C>           <C>            <C>

Net sales                                                                  $6,479       $12,981       $20,849        $32,705
Cost of goods sold                                                          3,124         6,845        11,949         17,549
                                                                         ----------    ----------    -----------    -----------
Gross margin                                                                3,355         6,136         8,900         15,156

Operating expenses:
     Research and development                                               1,450         2,360         5,153          6,893
     Selling, general and administrative                                    2,011         2,361         7,457          7,943
     Net provision (reversal) for business restructuring                      499             -           959           (255)
                                                                         ----------    ----------    -----------    -----------
         Total operating expenses                                           3,960         4,721        13,569         14,581
                                                                         ----------    ----------    -----------    -----------

         Operating income/(loss)                                             (605)        1,415        (4,669)           575

Non-operating income/(expense):
     Interest income                                                           77            94           195            398
     Interest expense                                                          (2)           (3)          (13)           (23)
     Foreign currency exchange                                                 29           (11)          (61)           (25)
                                                                         ----------    ----------    -----------    -----------
         Total non-operating income                                           104            80           121            350
                                                                         ----------    ----------    -----------    -----------

Income/(loss) from operations before income taxes
        and cumulative effect of accounting changes                          (501)        1,495        (4,548)           925

Income tax expense                                                             70             4            92             34
                                                                         ----------    ----------    -----------    -----------
Income/(loss) from operations and before cumulative
   effect of accounting changes                                              (571)        1,491        (4,640)           891

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

Net income/(loss)                                                           ($571)       $1,491       ($4,640)       ($1,640)
                                                                         ==========    ==========    ===========    ===========

Basic income/(loss) per share:
     From operations                                                       ($0.08)        $0.20        ($0.61)         $0.12
     From cumulative effect of change in accounting principle                0.00          0.00          0.00          (0.34)
                                                                         ----------    ----------    -----------    -----------
     Total basic income/(loss) per share                                   ($0.08)        $0.20        ($0.61)        ($0.22)
                                                                         ==========    ==========    ===========    ===========

Diluted income/(loss) per share:
     From operations                                                       ($0.08)        $0.20        ($0.61)         $0.12
     From cumulative effect of change in accounting principle                0.00          0.00          0.00          (0.34)
                                                                         ----------    ----------    -----------    -----------
     Total diluted income/(loss) per share                                 ($0.08)        $0.20        ($0.61)        ($0.22)
                                                                         ==========    ==========    ===========    ===========

Shares used in calculation of net income/(loss) per share
        Basic                                                               7,596         7,431         7,572          7,378
                                                                         ==========    ==========    ===========    ===========
        Diluted                                                             7,596         7,642         7,572          7,378
                                                                         ==========    ==========    ===========    ===========

See accompanying notes

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

<PAGE>

<TABLE>
<CAPTION>

                                                           DATA I/O CORPORATION

                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS


-----------------------------------------------------------------------------------------------------------------------------
                                                                                               Sept. 30,         Sept. 28,
For the nine months ended                                                                        2001               2000
-----------------------------------------------------------------------------------------------------------------------------
(in  thousands)
<S>                                                                                             <C>             <C>
OPERATING ACTIVITIES:
   Net loss                                                                                     ($4,640)          ($1,640)
   Adjustments to reconcile loss from operations to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                                                1,720             1,603
     Net loss on dispositions                                                                       141                 -
     Amortization of deferred gain on sale of property                                             (247)             (248)
     Net change in:
        Trade accounts receivable                                                                 4,477            (3,442)
        Inventories                                                                               2,448            (3,695)
        Recoverable income taxes                                                                     91               132
        Other current assets                                                                         50               289
        Accrued cost of business restructuring                                                      271              (362)
        Accounts payable and accrued liabilities                                                   (569)              152
        Deferred revenue                                                                           (584)             (272)
                                                                                              ------------      -------------
   Net cash provided by (used in) operating activities                                            3,158            (7,483)

INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                                                      (687)             (850)
   Purchases of marketable securities                                                            (2,505)           (2,345)
   Proceeds from sales of marketable securities                                                   3,042             9,019
                                                                                              ------------      -------------
     Cash provided by (used in) investing activities                                               (150)            5,824

FINANCING ACTIVITIES:
   Proceeds from shares issued through employee stock purchase plan                                 209               171
   Proceeds from exercise of stock options                                                            -               123
                                                                                             ------------      -------------
      Cash provided by financing activities                                                         209               294

   Effects of exchange rate changes on cash and cash equivalents                                    (15)                -
                                                                                             ------------      -------------

   Increase/(decrease) in cash and cash equivalents                                               3,202            (1,365)
   Cash and cash equivalents at beginning of period                                               3,133             3,597
                                                                                              ------------      -------------
   Cash and cash equivalents at end of period                                                    $6,335            $2,232
                                                                                              ============      =============
   See accompanying notes


</TABLE>


<PAGE>


                              DATA I/O CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE  1 -  FINANCIAL  STATEMENT  PREPARATION

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

NOTE 2 - INVENTORIES

Inventories consisted of the following components (in thousands):

                                           Sept. 30,               Dec. 28,
                                             2001                    2000
                                      ----------------       ----------------
Raw material                                $3,986                  $4,526
Work-in-process                              1,509                   2,756
Finished goods                               1,212                   1,884
                                      ----------------       ----------------
                                            $6,707                  $9,166
                                      ================       ================


NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

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

                                           Sept 30,                  Dec. 28,
                                             2001                      2000
                                    ----------------          ----------------
Building improvements                     $    226                   $   205
Equipment                                   12,305                    12,703
                                    ----------------          ----------------
                                            12,531                    12,908
Less accumulated depreciation               10,731                    10,718
                                    ----------------          ----------------
                                           $ 1,800                   $ 2,190
                                    ================          ================



<PAGE>


NOTE 4 - BUSINESS RESTRUCTURING PROGRESS

On July 12,  2001 the Company  announced  that it would take  further  strategic
actions to reduce its breakeven point. These actions included:  the closure of a
manufacturing  facility in Germany and its operations  moved to other  locations
within the Company;  the Company's four product  families were combined into two
groups;  service groups across the  organization  consolidated  to create a team
more responsive to global customer needs;  and certain other expense  reductions
were  targeted  for the third  quarter,  including  a closure  of the  Company's
Redmond  facility for one week. A restructuring  charge of $499,000 was recorded
in the third  quarter  of 2001 and is  primarily  related  to lease  abandonment
charges and  employee  severance.  Of this  amount  $312,000  remains  unpaid at
September 30, 2001.

In the second quarter of 2001, the Company  recorded a  restructuring  charge of
$460,000  associated with actions taken to reduce the Company's  breakeven point
and realign the Company with growth activities.  This operational  repositioning
was  mandated by the impact which the current  economic  slowdown and decline in
capital  spending  across a high  number of  customer  groups has had on general
demand for  programming  equipment.  The  Company's  repositioning  included the
following  four  components:  a reduction in the Company's  global  workforce of
approximately 40 persons or 20% of the workforce; discontinuance or reallocation
of numerous  projects and  activities  not essential to the Company's  long-term
goals;   streamlining  of  activities  to  decrease   discretionary   marketing,
distribution and promotional  expenses;  and consolidation of numerous functions
across the  organization  to create a team which is more  productive and able to
respond faster to global customer needs. At September 30, 2001 all restructuring
expenses  associated  with these  activities had been paid except  approximately
$18,000.

During the third quarter and fourth quarters of 1998, the Company recorded total
restructuring charges of $4.4 million as the Company began the implementation of
a plan to restructure its Redmond and foreign  subsidiary  operations to a level
more in line with the lower sales it was  experiencing and related to activities
directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH
("SMS").  The  remaining  reserve at September  30, 2001 is $65,000 that relates
primarily to lease abandonment expenses.

On October  22, 2001 the Company  announced  that it planned to take  additional
cost reductions  actions in the fourth quarter to bring the quarterly  breakeven
point to approximately $6 million in quarterly revenue.

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

                                                        Reserve                       2001          Reserve
                                                       Balance at      2001        Payments/       Balance at
 Description                                            12/28/00     Expenses     Write-offs       09/30/2001
 --------------                                       ------------- -----------   ------------- -----------------
<S>                                                     <C>             <C>            <C>             <C>
 Downsizing U.S. Operations:
  Employee severance                                     $ -            $305           $301            $  4
  Redmond facility consolidation and abandonment          107              -             42              65
  Consulting and legal expenses                            -              41             27              14

 Downsizing Foreign Operations                             10            613            311             312
                                                      ------------- -----------   ------------- -----------------
 Total                                                   $117           $959           $681            $395
                                                      ============= ===========   ============= =================

</TABLE>

<PAGE>

NOTE 5 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
<TABLE>
<CAPTION>
                                                                         Third Quarter                 First Nine Months
                                                                  -----------------------------    ---------------------------
                                                                     2001             2000            2001            2000
                                                                  -----------     -------------    -----------     -----------
<S>                                                               <C>               <C>              <C>             <C>
                                                                                    Restated 1                       Restated 1
Numerator for basic and diluted earnings per share:
       Income /(loss) from operations before cumulative
         effect of change in accounting principle                     ($571)            $1,491       ($4,640)          $  891
        Cumulative effect of change in accounting principle               -                  -             -           (2,531)
                                                                  -----------     -------------    -----------     -----------
               Net income/(loss)                                      ($571)            $1,491       ($4,640)         ($1,640)
                                                                  ===========     =============    ===========     ===========

Denominator:
        Denominator for basic earnings per share -
         weighted-average shares                                      7,596              7,431         7,572            7,378
        Employee stock options (1)                                        -                211             -               -
                                                                  -----------     -------------    -----------     -----------
         Denominator for diluted earnings per share -
                  adjusted weighted-average shares and
                  assumed conversions of stock options                7,596              7,642         7,572            7,378
                                                                  ===========     =============    ===========     ===========
Basic and diluted earnings/(loss) per share
         From operations, after taxes before cumulative
         effect of change in accounting principle                    ($0.08)             $0.20        ($0.61)           $0.12
         From change in accounting principle                           0.00               0.00          0.00            (0.34)
                                                                  -----------     -------------    -----------     -----------
         Total basic and diluted earnings/(loss) per share           ($0.08)             $0.20        ($0.61)          ($0.22)
                                                                  ===========     =============    ===========     ===========

        (1) Excludes 4,000 and 44,000 employee stock options which were antidilutive for the third quarter and the nine months ended
            September 30, 2001, respectively, and 251,000 which were antidilutive for the nine months ended September 28, 2000.
</TABLE>

NOTE 6 - ACCOUNTING FOR INCOME TAXES

The Company's effective tax rate for the first nine months of 2001 differed from
the  statutory 34% tax rate  primarily due to operating  losses for which no tax
benefit was recorded. Tax valuation reserves increased by approximately $255,000
during the third  quarter.  As of September  30, 2001 the Company has  valuation
reserves of $8.8 million.

NOTE 7 - COMPREHENSIVE INCOME

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

                                                       For the Third Quarter                 For the Nine Months
                                                   -------------------------------    ----------------------------------
                                                       2001             2000              2001               2000
                                                   -------------    --------------    -------------    -----------------
                                                                     Restated 1                           Restated 1
<S>                                                    <C>           <C>                  <C>             <C>
    Net income /(loss)                                   ($571)          $1,491           ($4,640)         ($1,640)
    Foreign currency translation gain/(loss)               171               43                93               (4)
                                                   -------------    --------------    -------------    -----------------
    Total comprehensive income /(loss)                   ($400)          $1,534           ($4,547)         ($1,644)
                                                   =============    ==============    =============    =================
</TABLE>
1 The restatement is due to the Company's adoption of SAB 101.

NOTE 8 - CHANGE IN FISCAL YEAR

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

NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES

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

The Company utilizes forward foreign exchange  contracts to reduce the impact of
foreign currency exchange rate risks where natural hedging  strategies cannot be
effectively employed. All hedging instruments held by the Company are designated
as fair value hedges and as of September  30, 2001 are  considered  to be highly
effective.  Generally,  these  contracts have  maturities less than one year and
require the Company to exchange foreign currencies for U.S. dollars at maturity.
The  change in fair value of open  hedge  contracts  as of  September  30,  2001
resulted in a realized  loss of $74,000  and is included in accounts  payable on
the balance sheet.

NOTE 10 - REVENUE RECOGNITION

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

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

NOTE 11 - RECENT ACCOUNTING PRONIUNCEMENTS

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards (SFAS) No. 141, "Business  Combinations," and No.
142, "Goodwill and Other Intangible Assets."

SFAS No. 141 requires  that the purchase  method of  accounting  be used for all
business   combinations   initiated   after   June   30,   2001.   Use   of  the
pooling-of-interests  method is no longer permitted.  SFAS No. 141 also includes
guidance on the  initial  recognition  and  measurement  of  goodwill  and other
intangible  assets  acquired in a business  combination  that is completed after
June 30, 2001.

SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived
intangible  assets.  Instead,  these  assets must be reviewed  annually (or more
frequently  under certain  conditions)  for  impairment in accordance  with this
statement.  This  impairment  test uses a fair value  approach  rather  than the
undiscounted  cash  flows  approach   previously   required  by  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of." We are  required to adopt SFAS No. 142  effective  January 1,
2002.  We do not  believe  the  adoption  of SFAS No.  142 will have a  material
impact.

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 the general economy;  future
results  of   operations  or  financial   position;   changes  in  gross  margin
percentages;  market  acceptance of the Company's  newly  introduced or upgraded
products;  development,  introduction  and shipment of new products;  success of
restructuring  efforts;  expected  spending  levels;  and any other  guidance on
future  periods  are  forward-looking  statements.   Forward-looking  statements
reflect  management's  current  expectations and are inherently  uncertain.  The
Company's   actual   results   may  differ   significantly   from   management's
expectations.  The  following  discussions  and  discussions  under the  caption
"Business - Cautionary  Factors That May Affect Future Results" in Item 1 in the
Company's  Annual  report on Form 10-K for the year  ended  December  28,  2000,
describe some, but not all, of the factors that could cause these differences.
<TABLE>
<CAPTION>
Results of Operations

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

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

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

                                                                        Restated 1                                 Restated 1
<S>                                            <C>          <C>            <C>            <C>          <C>          <C>
Non-automated programming systems              $3,147       (24.0)         $4,143         $9,196       (29.5)       $13,053

Automated programming systems                   3,332       (62.3)          8,838         11,653       (40.7)        19,652
                                           -----------------------------------------  ------------- -----------------------------

Total programming systems                      $6,479       (50.0)        $12,981        $20,849       (36.3)       $32,705
                                           =========================================  ==========================================


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

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

                                                                       Restated 1                                 Restated 1

 United States                                $2,116         (52.7%)      $4,473         $7,394         (34.7%)     $11,331

    % of total                                 32.7%                       34.5%          35.5%                       35.6%

 International                                $4,363         (48.7%)      $8,508        $13,455         (37.0%)     $21,374

    % of total                                 67.3%                       65.5%          64.5%                       65.4%
</TABLE>
1 The restatement is due to the Company's adoption of SAB 101.


Booked orders for the quarter were $5,426;  automated systems totaled $2,619 and
bookings for non-automated  systems were $2,807.  Shipments exceeded bookings by
$1,053 resulting in a decrease in backlog to $1,566 at September 30, 2001.

Sales for the third quarter and the first nine months of 2001 are  substantially
lower for both automated and non-automated  systems compared to the same periods
in 2000.  The decline is attributed to the Company  experiencing  a reduction in
orders  due   primarily   to  a  general   economic   slowing  in  the  wireless
communications  industry,  among contract  manufacturers and in other sectors of
the electronics industry.
<TABLE>
<CAPTION>
Gross Margin

                                                      Third Quarter                        First Nine Months
                                           ---------------------------------------------------------------------------
 (in thousands)                                  2001                2000               2001               2000
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                 <C>               <C>
                                                                   Restated 1                            Restated 1

Gross Margin                                    $3,355              $6,136             $8,900            $15,156

Percentage of net sales                          51.8%               47.3%              42.7%              46.3%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The restatement is due to the Company's adoption of SAB 101.

Gross  margin  dollars  decreased  $2,781 or 45.3% on a 50.0%  revenue  decrease
during the third quarter 2001 versus the same quarter in 2000.  The gross margin
percentage  increased  from 47.3% to 51.8%.  The  increase  in the gross  margin
percentage reflects the savings from the cost savings and restructuring  efforts
that the Company has implemented during the year.

Research and Development
<TABLE>
<CAPTION>

                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------
 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>               <C>
 Research and development                       $1,450              $2,360              $5,153            $6,893
 Percentage of net sales                         22.4%               18.2%               24.7%             21.1%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The decrease in research and  development  (R&D)  spending for the third quarter
and first  nine  months of 2001 as  compared  to the first  nine  months of 2000
reflects lower headcount and lower development  spending.  R&D spending was high
in the  first  half of 2000  due to PP100  and  ProLINE  RoadRunner  development
activities.

Selling, General and Administrative
<TABLE>
<CAPTION>

                                                      Third Quarter                         First Nine Months
                                           ---------------------------------------------------------------------------
 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
                                                                  Restated 1                            Restated 1
<S>                                             <C>                 <C>                 <C>               <C>
 Selling, general & administrative              $2,011              $2,361              $7,457            $7,943

 Percentage of net sales                         30.1%               18.2%               35.8%             24.3%
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The restatement is due to the Company's adoption of SAB 101.

Selling,  general and  administrative  (SG&A) expenses  decreased  ($350) in the
third  quarter of 2001  versus 2000 and ($486) for the first nine months of 2001
versus last year.  Tight internal  spending  controls,  coupled with the reduced
costs of the  restructuring  activities  undertaken during the year has led to a
significant  reduction  in SG&A  spending.  The  increase  in SG&A  expense as a
percentage of net sales is due to the drop in revenue being a greater percentage
than the reduction in spending.


<PAGE>

<TABLE>
<CAPTION>

Interest

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

 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                 <C>               <C>
 Interest income                                  $77                $94                 $194              $398

 Interest expense                                 ($2)                ($3)               ($13)             ($23)
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

The  decrease  in  interest  income for the first nine months as compared to the
same  period in 2000,  is due to the  decrease  in cash,  cash  equivalents  and
marketable securities during the first six months of the year and lower interest
rates. In the third quarter, the Company's cash, cash equivalents and marketable
security  position  increased to a level greater than the prior year,  but lower
interest rates received on investments  still resulted in lower interest  income
versus the prior year.

<TABLE>
<CAPTION>
Income Taxes

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

 (in thousands)                                  2001                2000                2001              2000
 ---------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                 <C>               <C>
 Income tax expense from  operations              $70                 $4                 $92                $34
 ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Tax expense  recorded  for both the third  quarter and first nine months of 2001
was due to foreign taxes. Tax valuation reserves increased by approximately $255
during the quarter.  The Company has valuation  reserves of $8,779 and $7,430 as
of September 30, 2001 and September 28, 2000 respectively.

Financial Condition
<TABLE>
<CAPTION>
Liquidity and Capital Resources
                                                                   Sept. 30,                               Dec. 28,
(in thousands)                                                        2001                Change             2000
------------------------------------------------------------- --------------------- -------------------- -------------
<S>                                                                <C>                   <C>               <C>
Working capital                                                     $13,220              ($3,572)          $16,792
------------------------------------------------------------- --------------------- -------------------- -------------
</TABLE>

Working capital  decreased during the first nine months of 2001 primarily due to
funding of the losses for the period.  Cash,  cash  equivalents  and  marketable
securities  increased  approximately  $2.7 million during the period,  inventory
decreased $2.5 million,  and accounts receivable has decreased $4.5 million. The
lower  level of sales and  focused  collection  and  buying  efforts  led to the
decrease in accounts  receivable and inventory levels and the resulting increase
in cash and cash equivalents.

The  Company  estimates  that  capital  expenditures  for  property,  plant  and
equipment  during the remainder of 2001 will be between $100 and $200.  Although
the  Company  expects  that  such  expenditures  will be made,  it has  purchase
commitments for only a small portion of this amount.

At  September  30,  2001,  the  Company had no debt and the  Company's  material
short-term sources of liquidity consisted of approximately $7.7 million in cash,
cash  equivalents  and  available-for-sale  marketable  securities.  The Company
believes that its existing cash, cash equivalents and marketable securities will
be sufficient to meet its operating requirements for the next twelve months.

Share Repurchase Program

Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800  shares  (approximately  15.2%) of its outstanding
Common Stock.  These purchases may be executed  through open market purchases at
prevailing  market prices,  through block  purchases or in privately  negotiated
transactions,  and may commence or be  discontinued at any time. As of September
30, 2001, the Company has repurchased  all except for 107,600 shares  authorized
by the repurchase  program.  The Company has not  repurchased  shares under this
plan since the second  quarter of 1997 although it still has the authority to do
so.

Restructuring

In the second quarter of 2001, the Company  recorded a  restructuring  charge of
$460,000  associated with actions taken to reduce the Company's  breakeven point
and realign the Company with growth activities.  This operational  repositioning
was  mandated by the impact which the current  economic  slowdown and decline in
capital  spending  across a high  number of  customer  groups has had on general
demand for  programming  equipment.  The  Company's  repositioning  included the
following  four  components:  a reduction in the Company's  global  workforce of
approximately 40 persons or 20% of the workforce; discontinuance or reallocation
of numerous  projects and  activities  not essential to the Company's  long-term
goals;   streamlining  of  activities  to  decrease   discretionary   marketing,
distribution and promotional  expenses;  and consolidation of numerous functions
across the  organization  to create a team which is more  productive and able to
respond faster to global customer needs. At September 30, 2001 all restructuring
expenses  associated  with these  activities had been paid except  approximately
$18,000.

On July 12,  2001 the Company  announced  that it would take  further  strategic
actions to reduce its breakeven point. These actions included:  the closure of a
manufacturing  facility in Germany and its operations  moved to other  locations
within the Company;  the Company's four product  families were combined into two
groups;  service groups across the  organization  consolidated  to create a team
more responsive to global customer needs;  and certain other expense  reductions
were  targeted  for the third  quarter,  including  a closure  of the  Company's
Redmond  facility for one week. A restructuring  charge of $499,000 was recorded
in the third  quarter  of 2001 and is  primarily  related  to lease  abandonment
charges and  employee  severance.  Of this  amount  $312,000  remains  unpaid at
September 30, 2001.

On October  22, 2001 the Company  announced  that it planned to take  additional
cost  reduction  actions in the fourth  quarter to further  reduce its operating
breakeven point to approximately $6 million in quarterly revenue.


General

European Monetary Conversion

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

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


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company has  experienced  no material  changes in market  risk.  The Company
currently uses only foreign  exchange  forward  contracts to offset the exchange
rate risk resulting in sales  denominated in foreign  currencies,  which are not
material as of September 30, 2001. The Company is exposed to interest rate risks
on its short-term  investments in marketable  securities.  The Company generally
invests in high-grade  commercial  paper with original  maturity dates of twelve
months or less and  conservative  money market funds to minimize its exposure to
interest  rate  risk on its  marketable  securities,  which  are  classified  as
available-for-sale as of September 30, 2001 and December 28, 2000.

<PAGE>

PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

                  None


Item 2.           Changes in Securities and Use of Proceeds

                  None

Item 3.           Defaults Upon Senior Securities

                  None

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

                  None

Item 5.           Other Information

                  DEPARTURE OF OFFICER

                  Jim Rounds,  the Company's Chief Technology Officer will not
                  be  returning  to the Company from the leave of absence that
                  he  began   earlier  this  year.   This  position  has  been
                  eliminated as part of the Company's  restructuring.

Item 6.           Exhibits and Reports on Form 8-K


                  (a) Exhibits

                  None

                  (b) Reports on Form 8-K

                  None



<PAGE>


SIGNATURES

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



                                          DATA I/O CORPORATION
                                          (REGISTRANT)
DATED:   November 12, 2001



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