# EDGAR Filing Document

**Accession Number:** 0000351998
**File Stem:** 0001654954-26-005009
**Filing Date:** 2026-5
**Character Count:** 80170
**Document Hash:** f5304ebbeba0d926d0a0c6611be568ba
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001654954-26-005009.hdr.sgml**: 20260515

**ACCESSION NUMBER**: 0001654954-26-005009

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 67

**CONFORMED PERIOD OF REPORT**: 20260331

**FILED AS OF DATE**: 20260515

**DATE AS OF CHANGE**: 20260515

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** DATA I/O CORP
- **CENTRAL INDEX KEY:** 0000351998
- **STANDARD INDUSTRIAL CLASSIFICATION:** INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825]
- **ORGANIZATION NAME:** 08 Industrial Applications and Services
- **EIN:** 910864123
- **STATE OF INCORPORATION:** WA
- **FISCAL YEAR END:** 1211

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-10394
- **FILM NUMBER:** 26989903

**BUSINESS ADDRESS:**
- **STREET 1:** 6645 185TH AVE NE, SUITE 100
- **CITY:** REDMOND
- **STATE:** WA
- **ZIP:** 98052
- **BUSINESS PHONE:** 4258676922

**MAIL ADDRESS:**
- **STREET 1:** 6645 185TH AVE NE, SUITE 100
- **CITY:** REDMOND
- **STATE:** WA
- **ZIP:** 98052

?xml version='1.0' encoding='ASCII'? daio_10q.htm

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

---

| | |
|:---|:---|
| (Mark One) | (Mark One) |
| ☒ | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| For the quarterly period ended <u>**March 31, 2026**</u> | For the quarterly period ended <u>**March 31, 2026**</u> |
| Or  | Or  |
| ☐ | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| For the transition period from ________________ to ________________ | For the transition period from ________________ to ________________ |

---

Commission file number: **<u>0-10394</u>**

---

| |
|:---|
| **DATA I/O CORPORATION** |
| (Exact name of registrant as specified in its charter) |

---

---

| | |
|:---|:---|
| **Washington** | **91-0864123** |
| (State or other jurisdiction <br>of incorporation or organization) | (I.R.S. Employer <br>Identification No.) |

---

<u>**6645 185th Ave NE, Suite 100, Redmond, Washington, 98052 425-881-6444**</u>

(Address of principal executive offices, including zip code)

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| **Title of each class** | **Trading** <br>**Symbol(s)** | **Name of each exchange** <br>**on which registered** |
| Common Stock | DAIO | NASDAQ |

---

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | | | |
|:---|:---|:---|:---|
| Large accelerated filer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company  | ☒ |
|  |  | Emerging growth company | ☐ |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☒

Shares of Common Stock, no par value, outstanding as of April 30, 2026: 9,394,422

**DATA I/O CORPORATION**

**FORM 10-Q**

**For the Quarter Ended March 31, 2026**

**INDEX**

---

| | | | |
|:---|:---|:---|:---|
| [Part I.](#p1) |  | **[Financial Information](#p1)** | **Page** |
|  | [Item 1.](#p1i1) | [Financial Statements (Unaudited)](#p1i1) | 3 |
|  | [Item 2.](#p1i2) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#p1i2) | 16 |
|  | [Item 3.](#p1i3) | [Quantitative and Qualitative Disclosures About Market Risk](#p1i3) | 21 |
|  | [Item 4.](#p1i4) | [Controls and Procedures](#p1i4) | 21 |
| [Part II](#p2) |  | **[Other Information](#p2)** |  |
|  | [Item 1.](#p2i1) | [Legal Proceedings](#p2i1) | 23 |
|  | [Item 1A.](#p2i1a) | [Risk Factors](#p2i1a) | 23 |
|  | [Item 2.](#p2i2) | [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](#p2i2) | 23 |
|  | [Item 3.](#p2i3) | [Defaults Upon Senior Securities](#p2i3) | 23 |
|  | [Item 4.](#p2i4) | [Mine Safety Disclosures](#p2i4) | 23 |
|  | [Item 5.](#p2i5) | [Other Information](#p2i5) | 23 |
|  | [Item 6.](#p2i6) | [Exhibits](#p2i6) | 24 |
| [Signatures](#sig) | [Signatures](#sig) |  | 25 |

---

---

| |
|:---|
| 2 |
| *[**Table of Contents**](#toc1)* |

---

**PART I - FINANCIAL INFORMATION**

**<u>Item 1.</u> <u>Financial Statements</u>**

---

| | | |
|:---|:---|:---|
| **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** |
| **CONSOLIDATED BALANCE SHEETS** | **CONSOLIDATED BALANCE SHEETS** | **CONSOLIDATED BALANCE SHEETS** |
| **(in thousands, except share data)** | **(in thousands, except share data)** | **(in thousands, except share data)** |
| **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** |
|  | **March 31,** <br>**2026** | **December 31,** <br>**2025** |
| **ASSETS** |  |  |
| CURRENT ASSETS: |  |  |
| Cash and cash equivalents | $5707 | $7901 |
| Trade accounts receivable, net of allowance for credit losses of $29 and $29, respectively | 2394 | 2841 |
| Inventories | 6148 | 5710 |
| Other current assets | 725 | 799 |
| TOTAL CURRENT ASSETS | 14974 | 17251 |
| Property, plant and equipment – net | 700 | 807 |
| Other assets | 1950 | 2118 |
| TOTAL ASSETS | $17624 | $20176 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| CURRENT LIABILITIES: |  |  |
| Accounts payable | $1252 | $1227 |
| Accrued compensation | 653 | 958 |
| Deferred revenue | 1495 | 1464 |
| Other accrued liabilities | 2273 | 1328 |
| Income taxes payable | 4 | 4 |
| TOTAL CURRENT LIABILITIES | 5677 | 4981 |
| Deferred foreign income tax | 250 | 250 |
| Operating lease liabilities | 1235 | 1411 |
| Long-term other payables |  | 20 |
| 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, 9,394,422 shares as of March 31, |  |  |
| 2026 and 9,391,922 shares as of December 31, 2025 | 24126 | 24062 |
| Accumulated deficit | (14144) | (10974) |
| Accumulated other comprehensive income (loss) | 480 | 426 |
| TOTAL STOCKHOLDERS' EQUITY | 10462 | 13514 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $17624 | $20176 |

---

*See notes to consolidated financial statements*&nbsp;&nbsp;&nbsp;&nbsp;

---

| |
|:---|
| 3 |
| *[**Table of Contents**](#toc1)* |

---

---

| | | |
|:---|:---|:---|
| **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** |
| **CONSOLIDATED STATEMENTS OF OPERATIONS** | **CONSOLIDATED STATEMENTS OF OPERATIONS** | **CONSOLIDATED STATEMENTS OF OPERATIONS** |
| **(in thousands, except per share amounts)** | **(in thousands, except per share amounts)** | **(in thousands, except per share amounts)** |
| **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** |
|  | **Three Months Ended** <br>**March 31,** | **Three Months Ended** <br>**March 31,** |
|  | **2026** | **2025** |
| Net sales | $3250 | $6176 |
| Cost of goods sold | 1641 | 2988 |
| Gross margin | 1609 | 3188 |
| Operating expenses: |  |  |
| Research and development | 1291 | 1515 |
| Selling, general and administrative | 3462 | 2050 |
| Total operating expenses | 4753 | 3565 |
| Operating income (loss) | (3144) | (377) |
| Non-operating income (loss): |  |  |
| Interest income | 15 | 38 |
| Foreign currency transaction gain (loss) | (41) | (22) |
| Total non-operating income (loss) | (26) | 16 |
| Income (loss) before income taxes  | (3170) | (361) |
| Income tax (expense) benefit | - | (21) |
| Net income (loss) | $(3170) | $(382) |
| Basic earnings (loss) per share | $(0.34) | $(0.04) |
| Diluted earnings (loss) per share | $(0.34) | $(0.04) |
| Weighted-average basic shares | 9393 | 9238 |
| Weighted-average diluted shares  | 9393 | 9238 |

---

*See notes to consolidated financial statements*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

---

| |
|:---|
| 4 |
| *[**Table of Contents**](#toc1)* |

---

---

| | | |
|:---|:---|:---|
| **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** |
| **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**  | **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**  | **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**  |
| **(in thousands)** | **(in thousands)** | **(in thousands)** |
| **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** |
|  | **Three Months Ended** <br>**March 31,** | **Three Months Ended** <br>**March 31,** |
|  | **2026** | **2025** |
| Net income (loss) | $(3170) | $(382) |
| Other comprehensive income (loss): |  |  |
| Foreign currency translation gain (loss) | 54 | 126 |
| Comprehensive income (loss) | $(3116) | $(256) |

---

*See notes to consolidated financial statements*&nbsp;&nbsp;&nbsp;&nbsp;

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| |
|:---|
| 5 |
| *[**Table of Contents**](#toc1)* |

---

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** | **DATA I/O CORPORATION** |
| **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** | **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** | **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** | **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** | **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** | **CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY** |
| **(in thousands, except share amounts)** | **(in thousands, except share amounts)** | **(in thousands, except share amounts)** | **(in thousands, except share amounts)** | **(in thousands, except share amounts)** | **(in thousands, except share amounts)** |
| **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** |
|  |  |  |  | Accumulated |  |
|  |  |  |  | and Other | Total |
|  | Common Stock | Common Stock | Accumulated | Comprehensive | Stockholders' |
|  | Shares | Amount | Deficit | Income (Loss) | Equity |
| **Balance at December 31, 2024** | 9236040 | $23475 | $(5738) | $(111) | $17626 |
| Stock awards issued, net of tax withholding | 1759 | (3) |  |  | (3) |
| Issuance of stock through: ESPP | 1932 | 6 |  |  | 6 |
| Share-based compensation |  | 174 |  |  | 174 |
| Net income (loss) |  |  | (382) |  | (382) |
| Other comprehensive income (loss) | - | - | - | 126 | 126 |
| **Balance at March 31, 2025** | 9239731 | $23652 | $(6120) | $15 | $17547 |
| **Balance at December 31, 2025** | 9391922 | $24062 | $(10974) | $426 | $13514 |
| Stock options exercised |  |  |  |  |  |
| Stock awards issued, net of tax withheld | 2500 | (13) |  |  | (13) |
| Issuance of stock through: ESPP |  |  |  |  |  |
| Share-based compensation |  | 77 |  |  | 77 |
| Net income (loss) |  |  | (3170) |  | (3170) |
| Other comprehensive income (loss) | - | - | - | 54 | 54 |
| **Balance at March 31, 2026** | 9394422 | $24126 | $(14144) | $480 | $10462 |

---

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|:---|
| 6 |
| *[**Table of Contents**](#toc1)* |

---

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| | | |
|:---|:---|:---|
| **DATA I/O CORPORATION**  | **DATA I/O CORPORATION**  | **DATA I/O CORPORATION**  |
| **CONSOLIDATED STATEMENTS OF CASH FLOWS** | **CONSOLIDATED STATEMENTS OF CASH FLOWS** | **CONSOLIDATED STATEMENTS OF CASH FLOWS** |
| **(in thousands)** | **(in thousands)** | **(in thousands)** |
| **(UNAUDITED)** | **(UNAUDITED)** | **(UNAUDITED)** |
|  | **For the Three Months Ended** <br>**March 31,** | **For the Three Months Ended** <br>**March 31,** |
|  | **2026** | **2025** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| Net income (loss) | $(3170) | $(382) |
| Adjustments to reconcile net income (loss) |  |  |
| to net cash provided by (used in) operating activities: |  |  |
| Depreciation and amortization | 115 | 127 |
| Equipment transferred to cost of goods sold | - | 9 |
| Share-based compensation | 77 | 174 |
| Net change in: |  |  |
| Trade accounts receivable | 447 | 132 |
| Inventories | (438) | 409 |
| Other current assets | 74 | (182) |
| Accounts payable and accrued liabilities | 673 | (12) |
| Deferred revenue | 31 | (160) |
| Other long-term liabilities | (204) | (254) |
| Deposits and other long-term assets | 168 | 248 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) operating activities | (2227) | 109 |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| Purchases of property, plant and equipment | (8) | (56) |
| Cash provided by (used in) investing activities | (8) | (56) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| Net proceeds from issuance of common stock, less payments for shares withheld to cover tax | (13) | 2 |
| Cash provided by (used in) financing activities | (13) | 2 |
| Increase (decrease) in cash and cash equivalents | (2248) | 55 |
| Effects of exchange rate changes on cash | 54 | 104 |
| Cash and cash equivalents at beginning of period | 7901 | 10326 |
| Cash and cash equivalents at end of period | $5707 | $10485 |
| **Supplemental disclosure of cash flow information:** |  |  |
| Cash paid during the period for: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes | $- | $21 |

---

*See notes to consolidated financial statements*&nbsp;&nbsp;&nbsp;&nbsp;

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|:---|
| 7 |
| *[**Table of Contents**](#toc1)* |

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**DATA I/O CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Data I/O Corporation ("Data I/O", "We", "Our", "Us", the "Company") is a global market leader for advanced programming, security deployment, security provisioning and associated Intellectual Property ("IP") protection and management solutions used in electronics manufacturing with flash memory, microcontrollers, and flash memory-based intelligent devices as well as secure element devices, authentication devices and secure microcontrollers. Customers for our programming system products are located around the world, primarily in Asia, Europe and the Americas. Our manufacturing operations are currently located in Redmond, Washington, United States and Shanghai, China.

We prepared the financial statements as of March 31, 2026 and March 31, 2025, 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, 2025, has been derived from the audited financial statements at that date. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations. Operating results for the three months ended March 31, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.

<u>Significant Accounting Policies</u>

These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2025 (filed with the SEC on April 16, 2026). There have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

<u>Revenue Recognition</u>

Accounting Standards Codification (ASC) Topic 606, *Revenue from Contracts with Customers* (ASC 606) provides a single, principles-based, five-step model to be applied to all contracts with customers. It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.

We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year. During the current and prior period quarters, the impact of capitalization of incremental costs for obtaining contracts were immaterial. We exclude sales, use, value added, some excise taxes and other similar taxes from the measurement of the transaction price.

We recognize revenue upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.

We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, services and support and extended maintenance components. We allocate the transaction price of each element based on the relative selling price of each performance obligation. For hardware, we determine our best estimate of selling price based on an expected cost-plus-a-margin approach. For the service and support performance obligations, we estimate the standalone selling price using the adjusted market assessment approach, which considers observable market pricing, discounting practices, and prices charged for comparable standalone arrangements. For software maintenance performance obligations, we determine our best estimate of selling price based on observable standalone sales of annual software maintenance renewals. Revenue is recognized on the system based on shipping terms, software based on delivery, services based on completion of work, and software maintenance and extended warranty support ratably over the term of the agreement, typically one year.

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We record deferred revenue as any non-refundable amounts that are primarily related to prepayments from customers, which is recognized as revenue as or when the performance obligations are satisfied. We have elected the practical expedient to omit disclosure of the amount of the transaction price allocated to remaining performance obligations for contracts with an expected contract length of one year or less.

When we license software separately, we recognize revenue upon the transfer of control of the software, which is generally upon shipment, provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions, if any, have been met.

We recognize revenue when there is an approved contract that both parties are committed to perform, both parties' rights have been identified, the contract has substance, collection of substantially all the consideration is probable, the transaction price has been determined and allocated over the performance obligations, the performance obligations including substantive acceptance conditions, if any, in the contract have been met, the obligation is not contingent on resale of the product, the buyer's obligation would not be changed in the event of theft, physical destruction or damage to the product, the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items. Payment terms are generally 30 to 60 days from shipment.

We transfer certain products out of service from their internal use and make them available for sale. The products transferred are typically our standard products in one of the following areas: service loaners, rental or test units; engineering test units; or sales demonstration equipment. Once transferred, the equipment is sold by our regular sales channels as used equipment inventory. These product units often involve refurbishing and an equipment warranty and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit's net book value, and the sale transaction is accounted for as revenue and cost of goods sold.

The following table represents our revenues by major categories:

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| | | |
|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  |
| Net sales by type | March 31, 2026 | March 31, 2025 <br>(as Revised) |
| (in thousands) |  |  |
| Platform Sales | $625 | $3054 |
| Adapter Sales | 1520 | 1943 |
| Software and Services Sales\* | 1105 | 1179 |
| Total | $3250 | $6176 |

---

\* includes service and parts sales associated with equipment service contracts

The Company identified an error in the prior-year disaggregated revenue amounts. As a result, the 2025 revenue by major category amounts have been revised. The correction did not impact the Company's previously reported consolidated balance sheets, statements of operations, comprehensive income (loss), or statements of cash flows. See: Note 12 for additional information regarding the revision of prior-period disaggregated revenue amounts.

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<u>Share-Based Compensation</u>

All share-based compensation awards are measured based on estimated fair values on the date of grant and recognized as compensation expense on the straight-line method. Our share-based compensation is reduced for estimated forfeitures at the time of grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.

<u>Income Tax</u>

Income taxes for U.S. and foreign subsidiary operations are computed at current enacted tax rates, less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, and any changes in the valuation allowance caused by a change in judgment about the realization of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

On July 4, 2025, the One Big Beautiful Bill Act (Act) was signed into law. The Act makes permanent key elements of the Tax Cuts and Jobs Act, including 100 percent bonus depreciation, domestic research cost expensing, increases the AMIC to 35 percent from 25 percent and modifications to the international tax framework. The Act includes multiple effective dates, with certain provisions effective in 2025 and others phased in through 2027. We continue to evaluate the impact of the Act's provisions that will take effect in future years. As a result of this legislation, the Company is deducting its domestic Section 174A expenditures beginning in the 2025 taxable year.

<u>New Accounting Pronouncements – Standards Issued and Not Yet Implemented</u>

In November 2024, the FASB issued ASU 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation (Subtopic 220-40)," which requires disclosure of specific information about costs and expenses within relevant expense captions on the face of the income statement. This standard is effective for the Company's annual reporting period beginning January 1, 2027, and interim reporting periods beginning January 1, 2028. Early adoption is permitted. The Company is currently evaluating the effects of adopting this new accounting guidance.

**NOTE 2 – INVENTORIES**

Inventories are stated at the lower of cost or net realizable value. Adjustments are made to standard cost, which approximates actual cost on a first-in, first-out basis. We estimate reductions to inventory for obsolete, slow-moving, excess and non-salable inventory by reviewing current transactions and forecasted product demand. We evaluate our inventories on an item-by-item basis and record inventory adjustments accordingly.

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| | | |
|:---|:---|:---|
| Inventories consisted of the following components: | March 31,<br>2026 | December 31,<br>2025 |
| (in thousands) |  |  |
| Raw material | $3011 | $2912 |
| Work-in-process | 1881 | 1661 |
| Finished goods | 1256 | 1137 |
| Inventories | $6148 | $5710 |

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**NOTE 3– PROPERTY, PLANT AND EQUIPMENT, NET**

Property, plant and equipment consisted of the following components:

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| | | |
|:---|:---|:---|
|  | March 31,<br>2026 | December 31,<br>2025 |
| (in thousands) |  |  |
| Leasehold improvements | $361 | $356 |
| Equipment | 4053 | 4242 |
| Sales demonstration equipment | 1031 | 1029 |
|  | 5445 | 5627 |
| Less accumulated depreciation | 4745 | 4820 |
| Property, plant and equipment, net | $700 | $807 |

---

**NOTE 4 – OTHER ACCRUED LIABILITIES**

Other accrued liabilities consisted of the following components:

---

| | | |
|:---|:---|:---|
|  | March 31, 2026 | December 31,<br>2025 |
| (in thousands) |  |  |
| Lease liability - short term | $698 | $690 |
| Product warranty | 515 | 517 |
| Sales return reserve | 32 | 32 |
| Other taxes | 21 | 60 |
| Severance accrual | 973 | - |
| Other | 34 | 29 |
| Other accrued liabilities | $2273 | $1328 |

---

During the three months ended March 31, 2026, the Company recorded approximately $1.0 million of employee-related costs associated with a workforce reduction in its Germany operations. These costs consisted primarily of severance and related employee termination benefits, as well as legal and other costs incurred in connection with the workforce reduction.

As of March 31, 2026, accrued liabilities related to these termination benefits were approximately $973,000, which are expected to be paid within the next twelve months.

The changes in our product warranty liability at for the three months ending March 31, 2026 and year ended December 31, 2025 are as follows:

---

| | | |
|:---|:---|:---|
|  | March 31, 2026 | December 31,<br>2025 |
| (in thousands)  |  |  |
| Product warranty liability, beginning balance  | $517 | $350 |
| Net expenses  | 978 | 576 |
| Warranty claims  | (978) | (576) |
| Accrual revisions  | (2) | 167 |
| Product warranty liability, ending balance  | $515 | $517 |

---

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**NOTE 5 – OPERATING LEASE COMMITMENTS**

We have commitments under non-cancellable operating leases and other agreements, primarily for factory and office space, with initial or remaining terms of one year or more as of March 31, 2026, are as follows:

---

| | |
|:---|:---|
|  | March 31, 2026 |
| (in thousands)  |  |
| 2026 (remaining) | $585 |
| 2027 | 700 |
| 2028 | 433 |
| 2029 | 369 |
| 2030 |  |
| And Thereafter |  |
| Total | 2087 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less imputed interest | (154) |
| Total operating lease liabilities | $1933 |

---

For the largest lease component, the Company has three facilities with our headquarters and primary engineering and operational functions located in Redmond, Washington. Our two subsidiary facilities in Munich, Germany and Shanghai, China provide extended worldwide sales, service, engineering and operation services. The components of our lease expense for the three months ended March 31, 2026, include facility related operating lease costs of $189,000, and short-term lease costs of $7,800. In the prior year, components of our lease expense for the three months ended March 31, 2025, include facility related operating lease costs of $182,000, and short-term lease costs of $9,500. There were no new operating leases during the three months ended March 31, 2026.

The Redmond, Washington headquarters facility lease runs to October 31, 2029, at approximately 20,460 square feet. The lease for the facility located in Shanghai, China runs to October 31, 2027, at approximately 19,400 square feet. The lease for the facility located near Munich, Germany runs to August 2027, at approximately 4,895 square feet.

The following table presents supplemental balance sheet information related to leases as of March 31, 2026, and December 31, 2025:

---

| | | |
|:---|:---|:---|
|  | Balance at <br>March 31, <br>2026 | Balance at <br>December 31,<br>2025 |
| (in thousands)  |  |  |
| Right-of-use assets (Long-term other assets)  | $1836 | $2005 |
| Lease liability-short term (Other accrued liabilities)  | $698 | $690 |
| Lease liability-long term (Operating lease liabilities)  | $1235 | $1411 |

---

**NOTE 6 – OTHER 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. As of March 31, 2026, we had confirmed contracts with a commitment of approximately $596,000 to be paid within one year and $480,000 to be paid beyond one year.

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**NOTE 7 – CONTINGENCIES**

As of March 31, 2026, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in management's opinion, individually or in aggregate, would have a material adverse effect on our results of operations or financial position.

**NOTE 8 – INCOME TAXES**

Income tax expense for the first quarter of 2026 and 2025 primarily related to foreign and minor state taxes.

Benefit or provision for income taxes for the three months ended March 31, 2026, and 2025, was a provision of $0 and $21,000, respectively, and the effective tax rates for these periods were 0% and 5.82%, respectively. The difference between our effective tax rates for the three months ended March 31, 2026 and 2025, and the U.S. statutory rate of 21% was primarily attributable to the impact of a full valuation allowance on our net deferred tax assets, as well as foreign taxes. Our consolidated effective tax rate decreased for the three months ended March 31, 2026, compared to the same period in the prior year primarily due to operational results in the first quarter of 2026.

**NOTE 9 – EARNINGS PER SHARE**

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method.

Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share:

---

| | | |
|:---|:---|:---|
|  | Three Months Ended | Three Months Ended |
|  | March 31,<br>2026 | March 31,<br>2025 |
| (in thousands except per share data) |  |  |
| Numerator for basic and diluted earnings (loss) per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | $(3170) | $(382) |
| Denominator for basic |  |  |
| earnings (loss) per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Weighted-average shares | 9393 | 9238 |
| Employee stock options and awards | - | - |
| Denominator for diluted earnings (loss) per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjusted weighted-average shares & assumed conversions of stock options | 9393 | 9238 |
| Basic and diluted earnings (loss) per share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic earnings (loss) per share | $(0.34) | $(0.04) |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted earnings (loss) per share | $(0.34) | $(0.04) |

---

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The weighted average number of shares outstanding used to compute earnings (loss) per share included the following:

---

| | | |
|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  |
|  | March 31,<br>2026 | March 31,<br>2025 |
| Restricted Stock Units | 104994 | 84336 |
| Performance Stock Units | 18081 | 16180 |
| Stock Options | 685 |  |

---

Options to purchase 200,000 and 200,000 shares were outstanding as of March 31, 2026 and 2025, respectively, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.

**NOTE 10 – SHARE-BASED COMPENSATION**

For share-based awards granted, we have recognized compensation expense based on the estimated grant date fair value method. For these awards we have recognized compensation expense using a straight-line amortization method and reduced for estimated forfeitures.

---

| | | |
|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  |
|  | March 31,<br>2026 | March 31,<br>2025 |
| (in thousands)  |  |  |
| Cost of goods sold | $12 | $25 |
| Research and development | 2 | 48 |
| Selling, general and administrative | 63 | 101 |
| Total share-based compensation | $77 | $174 |

---

Equity awards granted during the three months ended March 31, 2026 and 2025 were as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | March 31,<br>2026 | March 31,<br>2025 | March 31,<br>2025 |
| Restricted Stock Units |  |  | 10000 |
| Performance Stock Units |  |  |  |

---

Employee Restricted Stock Units ("RSUs") typically vest annually over three or four years and employee Non-Qualified stock options typically vest quarterly over four years and have a six-year exercise period. Non-employee director RSUs typically vest over the earlier of one year or the next annual meeting of shareholders and Non-Qualified stock options vest over three years and have a six-year exercise period.

Performance Stock Units ("PSUs") typically cliff vest at the end of the performance period and the performance metric for 2023 awards is cumulative revenue growth over the three-year period ending December 31, 2025, with a cumulative revenue threshold, target, and maximum performance measure. For 2024 awards, the performance metrics included revenue growth, EBITDA and project objective targets over the three-year period ending December 31, 2026. There were no Performance Stock awards granted in 2025 or 2026.

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The remaining unamortized expected future share-based compensation expense and remaining amortization period associated with award grants of RSUs, PSUs and unvested options at March 31, 2026 and 2025 are:

---

| | | |
|:---|:---|:---|
|  | March 31,<br>2026 | March 31,<br>2025 |
| Unamortized future equity compensation expense (in thousands) | $701 | $1237 |
| Remaining weighted average amortization period (in years) | 1.80 | 2.21 |

---

**NOTE 11 – SEGMENT INFORMATION**

Data I/O operates as a single segment entity, to design, manufacture, and sell programming systems and services. We operate in three separate locations — Redmond, Washington; Shanghai, China; and Munich, Germany — these locations function as part of a single, integrated business and all operations are strategically aligned to support this objective.

The accounting policies of the programming system segment are the same as those described in the summary of significant accounting policies. The measure of segment assets is reported on the balance sheet as total consolidated assets.

Our Chief Operating Decision Maker ("CODM") is the President/Chief Executive Officer who reviews the Company's financial performance on a consolidated basis without distinguishing between different business lines or geographic areas for the purpose of making operating decisions, allocating resources and evaluating financial performance. Financial performance is assessed using operating results, actual net income vs. plan, balance sheet fluctuations, and other key performance indicators. Significant single segment expense categories that are provided to the CODM and included in the reported segment operating profits are outlined in the following table:

---

| | | |
|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  |
| (in thousands) | March 31,<br>2026 | March 31,<br>2025 |
| Net sales | $3250 | $6176 |
| Cost of goods sold | 1641 | 2988 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross margin | 1609 | 3188 |
| Operating Expenses: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Employee expenses | 2046 | 2255 |
| &nbsp;&nbsp;&nbsp;&nbsp;Customer acquisition costs | 208 | 293 |
| &nbsp;&nbsp;&nbsp;&nbsp;Professional and outside services | 978 | 541 |
| &nbsp;&nbsp;&nbsp;&nbsp;Occupancy costs (OPEX portion) | 370 | 219 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation & amortization | 106 | 126 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other expense (income) | 1045 | 131 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 4753 | 3565 |
| Operating income (loss) | $(3144) | $(377) |

---

**NOTE 12 – PRIOR PERIOD REVISION**

The Company identified an error in the prior-year disaggregated revenue amounts of net sales by type. As such, the Company has revised the net sales by type for the quarter ended March 31, 2025. This correction affected only the disaggregation of net sales among Platform, Adapter, and Software and Services sales and did not impact the Company's previously reported consolidated balance sheets, statements of operations, comprehensive income (loss), or statements of cash flows. While the total revenue was not affected, the Company has revised the presentation of net sales by type for the quarter ended March 31, 2025 to enhance comparability.

---

| | | | |
|:---|:---|:---|:---|
| Effect of Revision |  |  |  |
| Net sales by type | March 31, 2025<br>As Previously Reported | Effect of Revision | March 31, 2025<br>As Revised |
| (in thousands) |  |  |  |
| Platform Sales | $3317 | $(263) | $3054 |
| Adapter Sales | 1963 | (20) | 1943 |
| Software and Services Sales\* | 896 | 283 | 1179 |
| Total | $6176 | $- | $6176 |
| \* includes service and parts sales associated with equipment service contracts |  |  |  |

---

**NOTE 13 – SUBSEQUENT EVENTS**

Subsequent to quarter end, the Company entered into a definitive securities purchase agreement with institutional investors for aggregate gross proceeds of approximately $9.0 million, consisting of a combination of common stock, convertible debentures, and warrants. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the second quarter of 2026. Nasdaq rules will limit the number of shares that may be issued upon conversion or exercise of the convertible debentures and warrants absent shareholder approval.

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**<u>Item 2.</u> <u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>**

<u>General</u>

**FORWARD-LOOKING STATEMENTS** 

This Quarterly Report on Form 10-Q contains 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 and trends; expected business recovery; industry partnerships; future results of operations or financial position; future spending; expected expenses, breakeven revenue point; cybersecurity risk management and costs; expected market decline, bottom or growth; the development of the Edge AI market; market acceptance of our newly introduced or upgraded products or services; the sufficiency of our cash to fund future operations and capital requirements; development, introduction and shipment of new products or services; changing foreign operations; strategic transformation progress and timeline; ERP implementation timeline; potential acquisitions; and the 2026 organic growth framework; taxes, trade issues and tariffs; expected inventory levels; expectations for unsupported platform or product versions and related inventory and other charges; Russian invasion of Ukraine impacts; Israel – Hamas war impacts; supply chain expectations; semiconductor chip shortages and recovery; 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 Data I/O 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 Quarterly Report. The reader should not place undue reliance on these forward-looking statements. The following discussions and the 2025 Annual Report on Form 10-K section entitled "Risk Factors – Cautionary Factors That May Affect Future Results" describe some, but not all, of the factors that could cause these differences.

**OVERVIEW** 

Data I/O continued to evolve its business through the first quarter of 2026, despite a challenging global economic environment. Slower uptake of new initiatives through the early part of the quarter negatively impacted revenue growth, but momentum began to build towards quarter-end. Meanwhile, management took steps to realign costs, leveraging operating efficiencies and internal AI deployments and select, targeted spending cuts to reduce costs.

Our customers' end markets have seen some weakening of demand which has affected sell-through of microcontrollers, security ICs and memory devices, which we believe has been partially offset by customers' increased utilization of their existing systems. The net effect has been some greater need for engineering and maintenance services but also some lumpiness in demand for consumable adapters. Overall demand for capital equipment continued to be negatively impacted by global trade and tariff negotiations throughout most of the first quarter. However, the Company's ongoing supply chain planning and other actions have helped mitigate the impact of new tariffs, trade and inflationary pressures, including shifting material sourcing and product manufacturing.

We continue to focus on expanding our pipeline of opportunities beyond the automotive sector including a revitalization of our activities with semiconductor companies. Combined with continued efforts to expand our market reach, we expect to deliver revenue growth through end market diversification and an enhanced consultative sales process. In the quarter, we announced an important strategic relationship with IAR in the security space that we believe will expand the reach, applicability and addressable market for both companies.

Significant operational and product progress has been made in a short period of time against a backdrop of significant economic and cross-border trade uncertainty. We remain cautious given the near-term headwinds, but are increasingly encouraged by later-quarter activity levels. We remain focused on setting the business up for sustainable growth by driving innovation, enhancing our products and improving our value proposition.

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At the same time, we are focused on increasing our efficiency in delivering our products and services, and to that end we have sought to streamline and better align our operations. Notably, in the first quarter of 2026, we made some strategic realignments around our Germany office which we expect to yield material cost savings and efficiencies. Employee-related costs related to the Germany realignment and expensed in the first quarter amounted to approximately over $1 million, primarily for legal work and employee severance. We expect to continue to review our operations in Germany as well as the U.S. and China operations with an eye to improving operational efficiency worldwide.

**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, we evaluate our estimates, including those related to revenue recognition, sales returns, credit losses, inventories, 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.

There have been no changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on April 16, 2026, as described in *Note 1. Description of Business and Summary of Significant Accounting Policies* to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

**RESULTS OF OPERATIONS:**

**NET SALES**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
| Net sales by location | March 31, 2026 | Change | March 31, 2025 |
| (in thousands)  |  |  |  |
| United States | $1755 | 132.1% | $756 |
| % of total | 54.0% |  | 12.2% |
| International | $1495 | (72.4)% | $5420 |
| % of total | 46.0% |  | 87.8% |

---

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
| Net sales by type | March 31, 2026 | Change | March 31, 2025<br>(as Revised) |
| (in thousands)  |  |  |  |
| Platform sales | $625 | (79.5)% | $3054 |
| Adapter sales | 1520 | (21.8)% | 1943 |
| Software and Services Sales\* | 1105 | (6.3)% | 1179 |
| Total | $3250 | (47.4)% | $6176 |

---

\* includes service and parts sales associated with equipment service contracts

The Company identified an error in the prior-year disaggregated revenue amounts of net sales by type. As such, the Company has revised the net sales by type for the quarter ended March 31, 2025. This correction affected only the disaggregation of net sales among Platform, Adapter, and Software and Services sales and did not impact the Company's previously reported consolidated balance sheets, statements of operations, comprehensive income (loss), or statements of cash flows. While the total revenue was not affected, the Company has revised the presentation of net sales by type for the quarter ended March 31, 2025 to enhance comparability.

Net sales in the first quarter of 2026 were $3.3 million, compared with $6.2 million in the prior year period. Overall demand for capital equipment continued to be negatively impacted by ongoing global trade and tariff negotiations throughout most of the first quarter of 2026. Net sales of consumable adapters and services revenue represented 81% of total revenue and provide a stable base of recurring revenue.

Total platform sales in the first quarter of 2026 were 19% of revenues, adapter sales were 47% and software and services sales revenues were 34% of revenues compared with 49% and 32% and 19% respectively in the first quarter of 2025. On a geographic basis, international sales represented approximately 46% of total net sales for the first quarter of 2026 compared with 88% in the prior year period.

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Bookings increased in the latter half of the first quarter as customers had been delaying purchase decisions amid ongoing global trade and tariff concerns and as sales processes disrupted by the ransomware incident resumed. First quarter 2026 bookings were $4.2 million, up from $3.1 million in the fourth quarter 2025 and down from $4.6 million in the first quarter 2025.

Backlog at March 31, 2026, was $2.6 million, up from $1.6 million at the end of the prior quarter. Deferred revenue was $1.5 million on March 31, 2026, and $1.5 million on December 31, 2025.

**GROSS MARGIN**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31, 2026 | Change | March 31, 2025 |
| (in thousands)  |  |  |  |
| Gross margin | $1609 | (49.5)% | $3188 |
| Percentage of net sales | 49.5% |  | 51.6% |

---

Gross margin as a percentage of sales in the first quarter of 2026 was 49.5% as compared to 51.6% in the same period last year. Overall gross margins recovered sequentially as direct material costs remained steady and consistent with prior periods. Margins declined year-over-year as overheads and other fixed costs were spread over a smaller revenue base. Ongoing supply chain planning and other actions have been mitigating the impact of new tariffs, trade and inflationary pressures, including shifting material sourcing and product manufacturing.

**RESEARCH AND DEVELOPMENT**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31,<br>2026 | Change | March 31,<br>2025 |
| (in thousands) |  |  |  |
| Research and development | $1291 | (14.8)% | $1515 |
| Percentage of net sales | 39.7% |  | 24.5% |

---

Research and development ("R&D") expenses decreased in the first quarter of 2026 as compared to the same period in 2025. The decrease is due primarily to a reduction in expenses related to headcount and outside services for projects completed in 2025.

**SELLING, GENERAL AND ADMINISTRATIVE** 

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31, <br>2026 | Change | March 31, <br>2025 |
| (in thousands)  |  |  |  |
| Selling, general & |  |  |  |
| administrative | $3462 | 68.9% | $2050 |
| Percentage of net sales | 106.5% |  | 33.2% |

---

Selling, General and Administrative ("SG&A") expenses were higher in the first quarter of 2026 as compared to the same period in 2025. The year-over-year increase in SG&A expense was largely driven by a number of one-time expenses, most notably reorganization expenses related to the strategic reconfiguration of the Company's Munich operations. Continued efficiency improvements and cost reduction efforts remain a focus.

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**SHARE-BASED COMPENSATION**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31, <br>2026 | Change | March 31, <br>2025 |
| (in thousands)  |  |  |  |
| Share-based compensation | $77 | (55.7)% | $174 |

---

First quarter 2026 share-based compensation of $77,000 was $97,000 lower compared to the prior year period due to staff reductions and retirements since the fourth quarter of 2024.

**INTEREST**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31, <br>2026 | Change | March 31, <br>2025 |
| (in thousands)  |  |  |  |
| Interest income | $15 | (60.5)% | $38 |

---

Interest income was lower in the first quarter of 2026 compared to the same period in 2025 due to lower invested balances.

**INCOME TAXES**

---

| | | | |
|:---|:---|:---|:---|
|  | Three Months Ended  | Three Months Ended  | Three Months Ended  |
|  | March 31, <br>2026 | Change | March 31, <br>2025 |
| (in thousands)  |  |  |  |
| Income tax benefit (expense) | $- | (100)% | $(21) |

---

Income tax expense for the first quarter of both 2026 and 2025, primarily related to foreign and minor state taxes.

Income tax provision of $0 and $21,000 were recognized for the three months ended March 31, 2026 and 2025, respectively, and the effective tax rates for these periods were 0% and 5.82%, respectively. The difference between our effective tax rates for the three months ended March 31, 2026 and 2025, and the U.S. statutory rate of 21% was primarily attributable to the impact of a full valuation allowance on our net deferred tax assets, as well as foreign taxes. Our consolidated effective tax rate decreased for the three months ended March 31, 2026, compared to the same period in the prior year primarily due to operational results in the first quarter of 2026.

<u>Financial Condition</u>

**LIQUIDITY AND CAPITAL RESOURCES**

---

| | | | |
|:---|:---|:---|:---|
|  | March 31, <br>2026 | Change | December 31, <br>2025 |
| (in thousands)  |  |  |  |
| Working capital | $9297 | $(2973) | $12270 |

---

Working capital decreased by $3.0 million during 2026, primarily due to the revenue decline and resulting operating loss. Our current ratio was 2.6 and 3.5 for March 31, 2026 and December 31, 2025, respectively.

At March 31, 2026, our principal sources of liquidity consisted of existing cash and cash equivalents. Cash at $5.7 million decreased $2.2 million from December 31, 2025, primarily due to one-time expenses and investments in the first quarter, partially offset by an otherwise improved cost structure, lower inventory levels, and currency effects on overseas cash balances. Correspondingly, working capital of approximately $9.3 million on March 31, 2026, was down $3.0 million as compared to December 31, 2025. The Company continues to have no debt.

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Although we have no significant capital expenditure plans currently, we expect to continue to carefully make and manage expenditures to support the business. Engineering and production tooling, test equipment and sales demonstration products will continue to be purchased as we develop and release new products. Capital expenditures are expected to be funded by existing and internally generated funds.

As a result of our cyclical and seasonal industry, significant product development, customer support and selling and marketing efforts, we have required working capital to fund our operations. We have tried to balance our spending with our anticipated revenue levels and the goal of profitable operations. We have implemented or have on-going initiatives to reduce material and logistic costs, enhance product quality, increase operational and R&D efficiencies and minimize tax expenses.

We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through the next one-year period, and beyond. Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases and business development initiatives, including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time. If the Company determines to pursue significant acquisitions or business development initiatives, the Company may need to raise additional capital. If additional capital is required, the Company will review the amounts and options to raise capital at that time, but future financing would most likely be through debt and equity offerings. 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 further reduce expenditure and/or seek possible additional financing.

**OFF-BALANCE SHEET ARRANGEMENTS**

Except as noted in the accompanying consolidated financial statements in Note 5, "Operating Lease Commitments" and Note 6, "Other Commitments", we have no off-balance sheet arrangements.

**NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURES** 

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") was ($3,070,000) in the first quarter of 2026 compared to ($272,000) in the first quarter of 2025. Adjusted EBITDA, excluding share-based compensation (a non-cash item), was ($2,993,000) in the first quarter of 2026, compared to ($98,000) in the first quarter of 2025.

Non-GAAP financial measures, such as EBITDA and adjusted EBITDA, should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's results and facilitate the comparison of results. A reconciliation of net income to EBITDA and adjusted EBITDA follows:

**NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURE RECONCILIATION**

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| | | |
|:---|:---|:---|
|  | **Three Months Ended**<br>**March 31,** | **Three Months Ended**<br>**March 31,** |
|  | **2026** | **2025** |
| (in thousands) |  |  |
| Net Income (loss) | $(3170) | $(382) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest (income) | (15) | (38) |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes | 0 | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation & amortization | 115 | 127 |
| EBITDA earnings (loss) | (3070) | (272) |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity compensation | 77 | 174 |
| Adjusted EBITDA, excluding equity compensation | $(2993) | $(98) |

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**<u>Item 3</u>. <u>Quantitative and Qualitative Disclosures About Market Risk</u>**

Not applicable.

**<u>Item 4.</u> <u>Controls and Procedures</u>**

**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, we 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"). Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the CEO and CFO concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting which was identified and discussed in more detail in our annual report on Form 10-K for the year ended December 31, 2025.

As previously reported, we identified material weakness in our internal controls over financial reporting as of December 31, 2025. The material weakness related to segregation of duties and to the completeness and accuracy of internally generated reports used in the preparation of the disaggregated revenue footnote as of December 31, 2025. Notwithstanding this material weakness, we have performed additional procedures to enable management to conclude that our consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition and results of operations for the period ended March 31, 2026.

In response to the material weakness, we have made and will continue to expand the remediations needed to address this weakness. Management and the Audit Committee will monitor these remedial measures and the effectiveness of our overall control environment. A material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and Management concludes, through testing, that these controls are operating effectively.

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**CHANGES IN INTERNAL CONTROLS**

Subsequent to the identification of the material weakness discussed in the annual report on Form 10-K for the year ended December 31, 2025, management has continued to implement remediation actions designed to address the underlying control deficiencies, including enhancing review procedures and increasing management oversight over financial reporting activities. These actions are intended to improve the design and operation of the Company's internal control environment. Management believes these remediation efforts appropriately address the root causes of the material weakness; however, the material weakness will not be considered remediated until the relevant controls have operated for a sufficient period of time and management has concluded, based on testing, that the controls are operating effectively.

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**PART II - OTHER INFORMATION**

**<u>Item 1.</u> <u>Legal Proceedings</u>**

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of March 31, 2026, we were not a party to any material pending legal proceedings.

**<u>Item 1A.</u> <u>Risk Factors</u>**

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the Risk Factors described in our Annual Report except as set forth below.

At Data I/O, our customers and suppliers continue to increase reliance on systems, and as additional features are added, the risks also increase. Any significant disruptions to our global systems or the internet for any reason, which could include equipment or network failures; co-location facility failures; power outages; sabotage; employee error or other actions; cyber incidents or other security breaches; reliance on third party technology; geopolitical activity or natural disasters; all of which could have a material negative effect on our results. In August 2025, we were the subject of a targeted cyber incident. Upon discovering the incident, we shut down most of our operating systems globally to manage the safety of our overall global systems environment. This shutdown and any such future events may result in loss of revenue; business disruptions (such as the inability to timely process shipments); and significant remediation costs. This cyber incident, or any future cyber incident could also result in increased vulnerability to attempts of fraud, legal claims and proceedings including potential breach of contract claims, reporting delays or errors; interference with regulatory reporting; an increase in costs to protect our systems and technology; or damage to our reputation.

**<u>Item 2.</u> <u>Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities</u>**

None

**<u>Item 3.</u> <u>Defaults Upon Senior Securities</u>**

None

**<u>Item 4.</u> <u>Mine Safety Disclosures</u>**

Not Applicable

**<u>Item 5.</u> <u>Other Information</u>**

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| | |
|:---|:---|
| (a) |  |
| (b) | ***2026 Annual Meeting Date*** |
|  | The Board of Directors of the Company has changed the date of the Company's Annual Meeting of Stockholders ("2026 Annual Meeting") to July 8, 2026. The exact time and place of the 2026 Annual Meeting will be specified in our Notice of 2026 Annual Meeting and related proxy statement for the 2026 Annual Meeting. Because the date of the 2026 Annual Meeting is more than 30 days from the first anniversary of our 2025 Annual Meeting, there is a new deadline for the receipt of any stockholder proposals submitted for the 2026 Annual Meeting. If a stockholder desires to present a proposal for inclusion in our proxy statement for the 2026 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act ("Rule 14a-8"), the proposal must be submitted in writing to us for receipt not later than May 25, 2026, which is 10 days following the date hereof. Stockholders who wish to raise a proposal for consideration at the 2025 Annual Meeting, but who do not wish to submit a proposal for inclusion in our proxy materials pursuant to Rule 14a-8, should comply with our bylaws and deliver to us a copy of their proposal no later than May 25, 2026. If a stockholder fails to provide such notice, the respective proposal may not be addressed in our proxy materials and the proxies may exercise their discretionary voting authority if the proposal is raised at the 2026 Annual Meeting. In addition to satisfying the requirements of the advance notice provisions of our bylaws, proposals must comply with Washington law and the proxy rules promulgated by the Securities and Exchange Commission, including Rule 14a-8 if applicable, and stockholders who intend to solicit proxies in support of director nominees other than our nominees must provide us with the information required by Rule 14a-19(b) under the Exchange Act. In either case, proposals should be sent to Data I/O Corporation, 6645 185th Ave NE, Suite 100, Redmond, Washington, 98052. |
| (c) | During the quarterly period ended March 31, 2026, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement, and/or any non-Rule 10b5-1 trading arrangement (as such terms are defined pursuant to Item 408(a) of Regulation S-K). |

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**<u>Item 6.</u> <u>Exhibits</u>**

(a) **Exhibits** 

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| | |
|:---|:---|
| [3.2](http://www.sec.gov/Archives/edgar/data/351998/000165495426004356/daio_ex32.htm) | [Amended and Restated BYLAWS of Data I/O Corporation (incorporated by reference to Exhibit 3.2 of the registrant's Current Report on Form 8-K, filed with the SEC on May 8, 2026).](http://www.sec.gov/Archives/edgar/data/351998/000165495426004356/daio_ex32.htm) |
| 10 | Material Contracts: |

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| | | |
|:---|:---|:---|
|  | None. <br>|  |
| 31 | **Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:** | **Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:** |
|  | [31.1](daio_ex311.htm) | [Chief Executive Officer Certification](daio_ex311.htm) |
|  | [31.2](daio_ex312.htm) | [Chief Financial Officer Certification](daio_ex312.htm) |

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| | | |
|:---|:---|:---|
| 32 | **Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:** | **Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:** |
|  | [32.1](daio_ex321.htm) | [Chief Executive Officer Certification](daio_ex321.htm) |
|  | [32.2](daio_ex322.htm) | [Chief Financial Officer Certification](daio_ex322.htm) |
| 101 | **Interactive Data Files Pursuant to Rule 405 of Regulation S-T** | **Interactive Data Files Pursuant to Rule 405 of Regulation S-T** |

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**SIGNATURES**

Pursuant to the requirements 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.

DATED: May 15, 2026

**DATA I/O CORPORATION**

(REGISTRANT)

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| | |
|:---|:---|
| By: | /s/William Wentworth |
|  | William Wentworth |
|  | President and Chief Executive Officer<br>(Principal Executive Officer and Duly Authorized Officer) |
| By: | /s/Charles DiBona |
|  | Charles DiBona |
|  | Chief Financial Officer,<br>Secretary and Treasurer<br>(Principal Financial Officer and Duly Authorized Officer) |

---

## Exhibit 31.1

**EXHIBIT 31.1**

CERTIFICATION

I, William Wentworth, 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 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 quarterly report;

3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), 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 quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d) Disclosed in this quarterly 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): <br>

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.

DATED: May 15, 2026

/s/ William Wentworth<br>

William Wentworth

Chief Executive Officer

(Principal Executive Officer)

## Exhibit 31.2

**EXHIBIT 31.2**

CERTIFICATION

I, Charles DiBona, 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 quarterly report;

3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), 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 quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d) Disclosed in this quarterly 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): <br>

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.

DATED: May 15, 2026

/s/ Charles DiBona<br>

Charles DiBona

Chief Financial Officer

(Principal Financial Officer)

## Exhibit 32.1

**EXHIBIT 32.1**

Certification by Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Data I/O Corporation (the "Company") on Form 10-Q for the period ended March 31, 2026 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William Wentworth, Chief Executive Officer of the Company, certify, 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 as amended; 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/ William Wentworth <br>

William Wentworth

Chief Executive Officer

(Principal Executive Officer)

May 15, 2026

## Exhibit 32.2

**EXHIBIT 32.2**

Certification by Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Data I/O Corporation (the "Company") on Form 10-Q for the period ended March 31, 2026 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles DiBona, Chief Financial Officer of the Company, certify, 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 as amended; 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/ Charles DiBona<br>

Charles DiBona

Chief Financial Officer

(Principal Financial Officer)

May 15, 2026