daio_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended September 30, 2025

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

	For the transition period from ________________ to ________________

Commission file number: 0-10394

DATA I/O CORPORATION

(Exact name of registrant as specified in its charter)

Washington		91-0864123
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6645 185th Ave NE, Suite 100, Redmond, Washington, 98052

425-881-6444

(Address of principal executive offices, including zip code)

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

Title of each class		Trading Symbol(s)		Name of each exchange 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 ☒ 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	☐	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 ☐ No ☒

Shares of Common Stock, no par value, outstanding as of October 31, 2025: 9,391,883

DATA I/O CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2025

INDEX

Part I. Financial Information			Page

	Item 1.	Financial Statements (Unaudited)	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

	Item 4.	Controls and Procedures	22

Part II Other Information

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24

	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Mine Safety Disclosures	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	25

Signatures			26

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DATA I/O CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(UNAUDITED)

	September 30, 2025			December 31, 2024

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9,664		$	10,326
Trade accounts receivable, net of allowance for credit losses of $29 and $22, respectively		3,368			3,960
Inventories		5,800			6,212
Other current assets		661			659
TOTAL CURRENT ASSETS		19,493			21,157

Property, plant and equipment – net		925			1,001
Other assets		2,276			2,812
TOTAL ASSETS	$	22,694		$	24,970

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,437		$	820
Accrued compensation		924			1,517
Deferred revenue		1,358			1,535
Other accrued liabilities		1,340			1,161
Income taxes payable		12			39
TOTAL CURRENT LIABILITIES		5,071			5,072

Operating lease liabilities		1,579			2,160
Long-term other payables		34			112

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, 9,390,730 shares as of September 30, 2025 and 9,236,040 shares as of December 31, 2024		23,907			23,475
Accumulated deficit		(8,224	)		(5,738	)
Accumulated other comprehensive income (loss)		327			(111	)
TOTAL STOCKHOLDERS’ EQUITY		16,010			17,626
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	22,694		$	24,970

See notes to consolidated financial statements

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DATA I/O CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024

Net sales	$	5,393		$	5,423		$	17,516		$	16,584
Cost of goods sold		2,659			2,499			8,634			7,684
Gross margin		2,734			2,924			8,882			8,900
Operating expenses:
Research and development		1,709			1,544			4,886			4,539
Selling, general and administrative		2,418			1,705			6,609			6,112
Total operating expenses		4,127			3,249			11,495			10,651
Operating income (loss)		(1,393	)		(325	)		(2,613	)		(1,751	)
Non-operating income (loss):
Interest income		34			71			107			224
Foreign currency transaction gain (loss)		(3	)		(53	)		22			9
Total non-operating income (loss)		31			18			129			233
Income (loss) before income taxes		(1,362	)		(307	)		(2,484	)		(1,518	)
Income tax (expense) benefit		-			-			(2	)		(393	)
Net income (loss)	$	(1,362	)	$	(307	)	$	(2,486	)	$	(1,911	)

Basic earnings (loss) per share	$	(0.15	)	$	(0.03	)	$	(0.27	)	$	(0.21	)
Diluted earnings (loss) per share	$	(0.15	)	$	(0.03	)	$	(0.27	)	$	(0.21	)
Weighted-average basic shares		9,389			9,235			9,308			9,121
Weighted-average diluted shares		9,389			9,235			9,308			9,121

See notes to consolidated financial statements

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DATA I/O CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024

Net income (loss)	$	(1,362	)	$	(307	)	$	(2,486	)	$	(1,911	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)		23			268			327			30
Comprehensive income (loss)	$	(1,339	)	$	(39	)	$	(2,159	)	$	(1,881	)

See notes to consolidated financial statements

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DATA I/O CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(UNAUDITED)

									Accumulated
									and Other			Total
	Common Stock					Accumulated			Comprehensive			Stockholders’
	Shares		Amount			Deficit			Income (Loss)			Equity
Balance at December 31, 2023		9,020,819	$	22,731		($2,645)			$	233		$	20,319
Stock awards issued, net of tax withholding		1,759		-			-			-			-
Issuance of stock through: ESPP		2,381		7			-			-			7
Share-based compensation		-		281			-			-			281
Net income (loss)		-		-			(807	)		-			(807	)
Other comprehensive income (loss)		-		-			-			(168	)		(168	)
Balance at March 31, 2024		9,024,959		23,019		(3,452)				65			19,632
Stock awards issued, net of tax withholding		194,879		(229	)		-			-			(229	)
Issuance of stock through: ESPP		-		-			-			-			-
Share-based compensation		-		382			-			-			382
Net income (loss)		-		-			(797	)		-			(797	)
Other comprehensive income (loss)		-		-			-			(70	)		(70	)
Balance at June 30, 2024		9,219,838		23,172		(4,249)			(5)				18,918
Stock awards issued, net of tax withholding		13,543		-			-			-			-
Issuance of stock through: ESPP		2,638		6			-			-			6
Share-based compensation		-		304			-			-			304
Net income (loss)		-		-			(307	)		-			(307	)
Other comprehensive income (loss)		-		-			-			268			268
Balance at September 30, 2024		9,236,019	$	23,482		($4,556)			$	263		$	19,189
Balance at December 31, 2024		9,236,040	$	23,475			($5,738)			($111)		$	17,626
Stock awards issued, net of tax withholding		1,759		(3	)		-			-			(3	)
Issuance of stock through: ESPP		1,932		6			-			-			6
Share-based compensation		-		174			-			-			174
Net income (loss)		-		-			(382	)		-			(382	)
Other comprehensive income (loss)		-		-			-			126			126
Balance at March 31, 2025		9,239,731	$	23,652		($6,120)			$	15		$	17,547
Stock awards issued, net of tax withholding		134,967		(98	)		-			-			(98	)
Issuance of stock through: ESPP		-		-			-			-			-
Share-based compensation		-		250			-			-			250
Net income (loss)		-		-			(742	)		-			(742	)
Other comprehensive income (loss)		-		-			-			289			289
Balance at June 30, 2025		9,374,698		23,804		(6,862)				304			17,246
Stock awards issued, net of tax withholding		13,714		(19	)		-			-			(19	)
Issuance of stock through: ESPP		2,318		7			-			-			7
Share-based compensation		-		115			-			-			115
Net income (loss)		-		-			(1,362	)		-			(1,362	)
Other comprehensive income (loss)		-		-			-			23			23
Balance at September 30, 2025		9,390,730	$	23,907		($8,224)			$	327		$	16,010

See notes to consolidated financial statements

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DATA I/O CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

	For the Nine Months Ended September 30,
	2025			2024

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(2,486	)	$	(1,911	)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization		369			451
Equipment transferred to cost of goods sold		59			259
Share-based compensation		539			967
Net change in:
Trade accounts receivable		681			3,119
Inventories		471			(704	)
Other current assets		7			140
Accounts payable and accrued liabilities		125			(1,582	)
Deferred revenue		(336	)		(68	)
Other long-term liabilities		(581	)		184
Deposits and other long-term assets		576			(300	)
Net cash provided by (used in) operating activities		(576	)		555

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(352	)		(279	)
Cash provided by (used in) investing activities		(352	)		(279	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, less payments for shares withheld to cover tax		(107	)		(216	)
Cash provided by (used in) financing activities		(107	)		(216	)
Increase (decrease) in cash and cash equivalents		(1,035	)		60

Effects of exchange rate changes on cash		373			(29	)
Cash and cash equivalents at beginning of period		10,326			12,341
Cash and cash equivalents at end of period	$	9,664		$	12,372

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	9		$	458

See notes to consolidated financial statements

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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”) is the leading global provider of advanced security and data deployment solutions for microcontrollers, security ICs and memory devices. 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 September 30, 2025, and September 30, 2024, 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, 2024, has been derived from the audited financial statements at that date. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations. Operating results for the nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

Significant Accounting Policies

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, 2024 (filed with the SEC on April 1, 2025). 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.

Revenue Recognition

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 and that the installation meets the criteria to be a separate performance obligation. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed as 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.

The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment. Installation that is considered perfunctory includes any installation that is expected to be performed by other parties, such as distributors, other vendors, or the customers themselves. This analysis considers the complexity, skill and training needed and customer installation expectations.

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We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, installation, services and support and extended maintenance components. We allocate the transaction price of each element based on the relative selling prices. Relative selling price is based on the selling price of the standalone system. For the installation and service and support performance obligations, we use the value of the discount given to distributors who perform these components. For software maintenance performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is recognized on the system based on shipping terms, software based on delivery, installation and services based on completion of work, and software maintenance and extended warranty support ratably over the term of the agreement, typically one year. Total deferred revenue, which represents undelivered performance obligations for installation, service, support and extended contracts, was $1.4 million and $1.5 million for September 30, 2025 and 2024, respectively. The portion expected to be recognized within one year was $1.4 million and $1.3 million for September 30, 2025 and 2024, respectively.

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 are sold in our normal and ordinary course of business with standard warranty coverage. 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.

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The following table represents our revenues by major categories:

	Three Months Ended				Nine Months Ended
Net sales by type	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
(in thousands)
Equipment	$	2,774	$	2,509	$	9,087	$	8,228
Adapter		1,750		2,005		6,044		5,667
Software and Maintenance		869		909		2,385		2,689
Total	$	5,393	$	5,423	$	17,516	$	16,584

Share-Based Compensation

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.

Income Tax

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 (“OB3”) was enacted, which includes provisions allowing for the immediate expensing of domestic research and experimental (“R&E”) expenditures under Section 174A, effective for tax years beginning after December 31, 2021. The Company has elected not to accelerate the amortization of unamortized R&E costs incurred in prior years. As a result, no discrete tax adjustment was recorded in Q3 2025, and the Company continues to amortize R&E expenditures over the five-year period as previously required under Section 174. However, the Company will continue to evaluate the impact of OB3 on future periods.

New Accounting Pronouncements – Standards Issued and Not Yet Implemented

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” which expands the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, and will apply on a prospective basis starting with the Company’s consolidated financial statements included in the annual report on Form 10-K for the fiscal year ending December 31, 2025. Retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its annual income tax disclosures in its consolidated financial statements, however it is not expected to have any impact on the Company’s results of operations, cash flows, or financial condition.

In November 2024, 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, qualitative descriptions for expense captions not specifically disaggregated quantitatively, and the total amount and definition of selling expenses for interim and annual reporting periods. This standard is effective for the annual reporting period beginning January 1, 2027, and interim reporting periods beginning January 1, 2028, and should be applied retrospectively to all comparative periods. Early adoption is permitted. The Company is currently evaluating the effects of adopting this new accounting guidance.

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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. If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments and our gross margin could be adversely affected.

Inventories consisted of the following components:

	September 30, 2025		December 31, 2024
(in thousands)
Raw material	$	2,958	$	3,273
Work-in-process		1,877		1,845
Finished goods		965		1,094
Inventories	$	5,800	$	6,212

NOTE 3– PROPERTY, PLANT AND EQUIPMENT, NET

Property and equipment consisted of the following components:

	September 30, 2025		December 31, 2024
(in thousands)
Leasehold improvements	$	355	$	343
Equipment		4,184		3,777
Sales demonstration equipment		1,077		1,031
		5,616		5,151
Less accumulated depreciation		4,691		4,150
Property and equipment, net	$	925	$	1,001

NOTE 4 – OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following components:

	September 30, 2025		December 31, 2024
(in thousands)
Lease liability - short term	$	682	$	640
Product warranty		517		350
Sales return reserve		32		32
Other taxes		19		69
Other		90		70
Other accrued liabilities	$	1,340	$	1,161

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The changes in our product warranty liability at September 30, 2025 and year ended December 31, 2024 are as follows:

	September 30, 2025			December 31, 2024
(in thousands)
Liability, beginning balance	$	350		$	449
Net expenses		529			901
Warranty claims		(529	)		(901	)
Accrual revisions		167			(99	)
Liability, ending balance	$	517		$	350

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 September 30, 2025, are as follows:

	September 30, 2025
(in thousands)
2025 (remaining)	$	196
2026		775
2027		694
2028		433
2029		369
Thereafter		-
Total		2,467
Less imputed interest		(206	)
Total operating lease liabilities	$	2,261

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 and nine months ended September 30, 2025, include facility related operating lease costs of $185,000 and $550,000, respectively, and short-term lease costs of $9,800 and $29,000, respectively. In the prior year, components of our lease expense for the three months and nine months ended September 30, 2024, include facility related operating lease costs of $214,000 and $629,000, respectively, and short-term lease costs of $10,000 and $9,000, respectively. There were no new operating leases during the nine months ended September 30, 2025.

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.

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The following table presents supplemental balance sheet information related to leases as of September 30, 2025, and December 31, 2024:

	September 30, 2025		December 31, 2024
(in thousands)
Right-of-use assets (Long-term other assets)	$	2,164	$	2,704
Lease liability-short term (Other accrued liabilities)	$	682	$	640
Lease liability-long term (Operating lease liabilities)	$	1,579	$	2,064

At September 30, 2025, the weighted average remaining lease term is 3.4 years and the weighted average discount rate used is 5%.

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 September 30, 2025, we had confirmed contracts with a commitment of approximately $554,000 to be paid within one year and $480,000 to be paid beyond one year.

NOTE 7 – CONTINGENCIES

As of September 30, 2025, 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 third quarter of 2025 and 2024 primarily related to foreign and minor state taxes.

The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowance, as well as foreign taxes. We have a valuation allowance of $9.3 million as of September 30, 2025. As of September 30, 2025 and 2024, our deferred tax assets and valuation allowance have been reduced by approximately $449,000 and $441,000, respectively. Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of net deferred tax assets including our net operating losses and credit carryforwards and continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance.

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.

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

	Three Months Ended						Nine Months Ended
	September 30, 2025			September 30, 2024			September 30, 2025			September 30, 2024
(in thousands except per share data)
Numerator for basic and diluted earnings (loss) per share:
Net income (loss)	$	(1,362	)	$	(307	)	$	(2,486	)	$	(1,911	)

Denominator for basic earnings (loss) per share:
Weighted-average shares		9,389			9,235			9,308			9,121

Employee stock options and awards		-			-			-			-

Denominator for diluted earnings (loss) per share:
Adjusted weighted-average shares & assumed conversions of stock options		9,389			9,235			9,308			9,121

Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share	$	(0.15	)	$	(0.03	)	$	(0.27	)	$	(0.21	)
Diluted earnings (loss) per share	$	(0.15	)	$	(0.03	)	$	(0.27	)	$	(0.21	)

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

	Three Months Ended				Nine Months Ended
	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024

Restricted Stock Units		46,217		10,214		67,211		71,265
Performance Stock Units		17,726		7,312		18,554		9,222
Stock Options		-		-		-		151

Options to purchase 200,000 and 34,398 shares were outstanding as of September 30, 2025 and 2024, respectively, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.

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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.

The impact on our results of operations of recording share-based compensation, net of forfeitures, for the three and nine months ended September 30, 2025 and 2024, were as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024
(in thousands)
Cost of goods sold	$	18	$	26	$	80	$	86
Research and development		27		69		140		215
Selling, general and administrative		70		209		319		666
Total share-based compensation	$	115	$	304	$	539	$	967

Equity awards granted during the three and nine months ended September 30, 2025 and 2024 were as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2025		September 30, 2024		September 30, 2025		September 30, 2024

Restricted Stock Units		100,000		2,500		196,472		234,150
Performance Stock Units		-		-		-		119,000
Stock Option Units		-		200,000		-		200,000

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 have been no Performance Stock awards granted in 2025.

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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 September 30, 2025 and 2024 are:

	September 30, 2025		September 30, 2024

Unamortized future share-based compensation expense (in thousands)	$	1,060	$	2,401
Remaining weighted average amortization period (in years)		2.09		2.24

NOTE 11 – SEGMENT INFORMATION

Data I/O operates as a single segment entity, with the sole objective to design, manufacture, and sell programming systems. 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					Nine Months Ended
(in thousands)	September 30, 2025		September 30, 2024			September 30, 2025		September 30, 2024
Net sales	$	5,393	$	5,423		$	17,516	$	16,584
Cost of goods sold		2,659		2,499			8,634		7,684
Gross margin		2,734		2,924			8,882		8,900
Operating Expenses:
Employee expenses		2,250		2,328			6,897		7,075
Customer acquisition costs		327		249			860		955
Professional and outside services		859		483			1,970		1,465
Occupancy costs		239		203			701		581
Depreciation & amortization		137		131			369		418
Other expense (income)		315		(145	)		698		157
Total operating expenses		4,127		3,249			11,495		10,651
Operating income (loss)	($1,393)		($325)			($2,613)		($1,751)

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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 economic outlook; industry prospects and trends; expected business recovery; industry partnerships; future results of operations or financial position; future spending; expected expenses, breakeven revenue point; expected market decline, bottom or growth; 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; taxes, trade issues and tariffs; expected inventory levels; expectations for unsupported platform or product versions and related inventory and other charges; 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 Annual Report. The Reader should not place undue reliance on these forward-looking statements. The following discussions and the 2024 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 make progress in key operational areas during the third quarter, despite a challenging global economic environment. The third quarter represents a continuation in proving the growth and market expansion strategies being implemented over the past several months. At the same time, efficiency improvements and streamlining operations resulted in a lower cost basis for manufacturing and overhead. We are focused on improvements to our core programming platform and received several industry awards for our innovative new products.

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 third 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 grow our pipeline of opportunities beyond the automotive sector including a revitalization of our activities with semiconductor companies and forging strategic product development relationships with leading firms serving the memory and microcontroller sectors. 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.

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, as this has created additional strain on the global economy, affected customers’ end markets, and stalled capital investments. 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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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, 2024, which was filed with the SEC on April 1, 2025, 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							Nine Months Ended
Net sales by product line	September 30, 2025		Change			September 30, 2024		September 30, 2025		Change			September 30, 2024
(in thousands)
Automated programming systems	$	3,431		(14.5	)%	$	4,012	$	11,092		(13.6	)%	$	12,844
Non-automated programming systems		1,962		39.1	%		1,411		6,424		71.8	%		3,740
Total programming systems	$	5,393		(0.6	)%	$	5,423	$	17,516		5.6	%	$	16,584

	Three Months Ended									Nine Months Ended
Net sales by location	September 30, 2025			Change			September 30, 2024			September 30, 2025			Change			September 30, 2024
(in thousands)
United States	$	7			(98.2	)%	$	388		$	1,047			(12.8	)%	$	1,201
% of total		0.1	%					7.2	%		6.0	%					7.2	%

International	$	5,386			7.0	%	$	5,035		$	16,469			7.1	%	$	15,383
% of total		99.9	%					92.8	%		94.0	%					92.8	%

	Three Months Ended							Nine Months Ended
Net sales by type	September 30, 2025		Change			September 30, 2024		September 30, 2025		Change			September 30, 2024
(in thousands)
Equipment sales	$	2,774		10.6	%	$	2,509	$	9,087		10.4	%	$	8,228
Adapter sales		1,750		(12.7	)%		2,005		6,044		6.7	%		5,667
Software and maintenance		869		(4.4	)%		909		2,385		(11.3	)%		2,689
Total	$	5,393

SEC Form 10-Q filed by Data I/O Corporation