Sharp Q1 2026 revenue decline at Data I/O (NASDAQ: DAIO) widens loss

Rhea-AI Filing Summary

Data I/O Corporation reported a weak first quarter of 2026, with revenue falling and losses widening. Net sales were $3.3 million, down from $6.2 million a year earlier, as capital equipment demand softened amid global trade and tariff uncertainty. Consumable adapters and services made up 81% of revenue, providing a recurring base.

The company posted a net loss of $3.2 million compared with a $0.4 million loss in the prior-year quarter, and gross margin slipped to 49.5% from 51.6% as fixed costs were spread over lower sales. Cash and cash equivalents declined to $5.7 million from $7.9 million at year-end, while working capital decreased to $9.3 million. Data I/O remains debt-free and recorded about $1.0 million of severance and related costs tied to a Germany workforce reduction. Management continues to address a previously identified material weakness in internal control over financial reporting. After quarter-end, the company agreed to raise approximately $9.0 million through a securities purchase agreement, subject to closing conditions.

Positive

• None.

Negative

• Revenue contraction and profitability deterioration: Q1 2026 net sales declined 47.4% year over year to $3.25 million, with net loss widening to $3.17 million and EBITDA loss reaching $3.07 million.
• Cost structure and restructuring charges: Selling, general and administrative expense rose 68.9% to $3.46 million, including roughly $1.0 million of severance and related costs from a Germany workforce reduction.
• Internal control material weakness persists: Management and auditors continue to report a material weakness in internal control over financial reporting related to segregation of duties and revenue disaggregation.
• Equity-linked financing and dilution risk: After quarter end, the company agreed to raise about $9.0 million via common stock, convertible debentures and warrants, subject to approvals, which could dilute existing shareholders.

Insights

Technology small-cap equity analyst

Q1 2026 shows steep revenue decline, heavier losses and a dilutive capital raise.

Data I/O saw Q1 2026 net sales drop to $3.25 million, a 47.4% year-over-year decline, with platform sales particularly weak. Net loss expanded to $3.17 million, and EBITDA was a loss of $3.07 million, indicating operating deleverage on a smaller revenue base.

Cash fell to $5.71 million and working capital to $9.30 million, though the company has no debt. About $1.0 million of Germany-related severance and reorganization costs inflated SG&A, while management highlights ongoing cost efficiency efforts.

A material weakness in internal control over financial reporting, tied to segregation of duties and disaggregated revenue reporting, remains outstanding, with remediation underway. Subsequent to quarter end, Data I/O entered a securities purchase agreement for roughly $9.0 million of common stock, convertible debentures and warrants, subject to customary approvals, which should bolster liquidity but introduces potential future dilution.

Key Figures

Net sales Q1 2026: $3.25 million Net income (loss): ($3.17 million) Gross margin: 49.5% +5 more

8 metrics

Net sales Q1 2026 $3.25 million Three months ended March 31, 2026 vs $6.18 million in 2025

Net income (loss) ($3.17 million) Three months ended March 31, 2026 vs ($0.38 million) in 2025

Gross margin 49.5% Q1 2026 percentage of net sales vs 51.6% in Q1 2025

Cash and cash equivalents $5.71 million Balance at March 31, 2026 vs $7.90 million at December 31, 2025

Working capital $9.30 million At March 31, 2026, down from $12.27 million at year-end 2025

EBITDA loss ($3.07 million) EBITDA for three months ended March 31, 2026

Adjusted EBITDA ($2.99 million) Excluding $77,000 equity compensation in Q1 2026

Subsequent financing size $9.0 million Aggregate gross proceeds from post-quarter securities purchase agreement

Key Terms

Adjusted EBITDA, material weakness, disclosure controls and procedures, valuation allowance, +2 more

6 terms

Adjusted EBITDA financial

"Adjusted EBITDA, excluding share-based compensation (a non-cash item), was ($2,993,000) in the first quarter of 2026"

Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.

material weakness regulatory

"we identified material weakness in our internal controls over financial reporting as of December 31, 2025"

A material weakness is a significant flaw in the systems and checks a company uses to ensure its financial reports are accurate, meaning errors or fraud could happen and not be caught. For investors it matters because it raises the risk that reported results are unreliable—similar to finding a hole in a ship’s hull—potentially leading to corrected financials, regulatory action, reduced trust, and negative effects on stock value and borrowing costs.

disclosure controls and procedures regulatory

"we evaluated the effectiveness of the design and operation of our disclosure controls and procedures"

Policies, routines and internal checks a public company uses to identify, collect and verify information that must appear in its financial reports and public filings, and to make sure that material news is disclosed accurately and on time. Investors care because effective controls increase confidence that the company’s reported numbers and disclosures are reliable and reduce the risk of surprises, much like a building’s inspection and alarm system helps occupants trust the structure’s safety.

valuation allowance financial

"primarily attributable to the impact of a full valuation allowance on our net deferred tax assets"

A valuation allowance is a reserve set aside to reduce the value of certain assets on a company's financial records when there is uncertainty about whether they will generate the expected benefits. It acts like a caution sign, indicating that some assets might not be fully recoverable or worth their recorded amount. This matters to investors because it provides a more realistic picture of a company's financial health and potential risks.

convertible debentures financial

"aggregate gross proceeds of approximately $9.0 million, consisting of a combination of common stock, convertible debentures, and warrants"

Convertible debentures are loans a company issues that pay interest like a bond but can be swapped later for the company’s shares at a set price. For investors they act like a safety-net plus a shortcut: you get regular interest payments while retaining the option to join ownership if the share price rises, which offers upside potential but can dilute existing shareholders if conversion occurs.

One Big Beautiful Bill Act regulatory

"On July 4, 2025, the One Big Beautiful Bill Act (Act) was signed into law"

A "one big beautiful bill act" is a single, large piece of legislation that bundles many policy changes and measures into one package instead of passing them separately. For investors, it matters because such omnibus bills can swiftly change tax rules, spending levels, industry regulations or subsidies all at once—like a single shopping cart that suddenly adds many items to a household budget—creating broad, rapid shifts in company costs, revenues and market expectations.

Earnings Snapshot

Revenue: $3.25 million

Q1 2026

Revenue $3.25 million -47.4% YoY

Net income (loss) ($3.17 million) more negative vs ($0.38 million) prior year

Basic and diluted EPS ($0.34) vs ($0.04) in Q1 2025

Gross margin 49.5% vs 51.6% in Q1 2025

EBITDA ($3.07 million) vs ($0.27 million) in Q1 2025

10-Q Quarterly Reports: What Changes Quarter to Quarter →

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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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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 March 31, 2026
Or
☐	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 April 30, 2026: 9,394,422

DATA I/O CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2026

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		16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
	Item 4.	Controls and Procedures		21
Part II		Other Information
	Item 1.	Legal Proceedings		23
	Item 1A.	Risk Factors		23
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		23
	Item 3.	Defaults Upon Senior Securities		23
	Item 4.	Mine Safety Disclosures		23
	Item 5.	Other Information		23
	Item 6.	Exhibits		24
Signatures				25

2

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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)
		March 31, 2026				December 31, 2025
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	5,707			$	7,901
Trade accounts receivable, net of allowance for credit losses of $29 and $29, respectively			2,394				2,841
Inventories			6,148				5,710
Other current assets			725				799
TOTAL CURRENT ASSETS			14,974				17,251
Property, plant and equipment – net			700				807
Other assets			1,950				2,118
TOTAL ASSETS		$	17,624			$	20,176
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	1,252			$	1,227
Accrued compensation			653				958
Deferred revenue			1,495				1,464
Other accrued liabilities			2,273				1,328
Income taxes payable			4				4
TOTAL CURRENT LIABILITIES			5,677				4,981
Deferred foreign income tax			250				250
Operating lease liabilities			1,235				1,411
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			24,126				24,062
Accumulated deficit			(14,144	)			(10,974	)
Accumulated other comprehensive income (loss)			480				426
TOTAL STOCKHOLDERS’ EQUITY			10,462				13,514
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	17,624			$	20,176

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 March 31,
		2026				2025
Net sales		$	3,250			$	6,176
Cost of goods sold			1,641				2,988
Gross margin			1,609				3,188
Operating expenses:
Research and development			1,291				1,515
Selling, general and administrative			3,462				2,050
Total operating expenses			4,753				3,565
Operating income (loss)			(3,144	)			(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			(3,170	)			(361	)
Income tax (expense) benefit			-				(21	)
Net income (loss)		$	(3,170	)		$	(382	)
Basic earnings (loss) per share		$	(0.34	)		$	(0.04	)
Diluted earnings (loss) per share		$	(0.34	)		$	(0.04	)
Weighted-average basic shares			9,393				9,238
Weighted-average diluted shares			9,393				9,238

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 March 31,
		2026				2025
Net income (loss)		$	(3,170	)		$	(382	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)			54				126
Comprehensive income (loss)		$	(3,116	)		$	(256	)

See notes to consolidated financial statements    

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DATA I/O CORPORATION
CONSOLIDATED STATEMENTS 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, 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
Balance at December 31, 2025			9,391,922			$	24,062			$	(10,974	)		$	426			$	13,514
Stock options exercised																			-
Stock awards issued, net of tax withheld			2,500				(13	)							-				(13	)
Issuance of stock through: ESPP							-				-				-				-
Share-based compensation							77				-				-				77
Net income (loss)			-				-				(3,170	)			-				(3,170	)
Other comprehensive income (loss)			-				-				-				54				54
Balance at March 31, 2026			9,394,422			$	24,126			$	(14,144	)		$	480			$	10,462

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DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
		For the Three Months Ended March 31,
		2026				2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(3,170	)		$	(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
Net cash provided by (used in) operating activities			(2,227	)			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			(2,248	)			55
Effects of exchange rate changes on cash			54				104
Cash and cash equivalents at beginning of period			7,901				10,326
Cash and cash equivalents at end of period		$	5,707			$	10,485
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes		$	-			$	21

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”, 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. 

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, 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.

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.  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:

		Three Months Ended
Net sales by type		March 31, 2026				March 31, 2025  (as  Revised)
(in thousands)
Platform Sales		$	625			$	3,054
Adapter Sales			1,520				1,943
Software and Services Sales*			1,105				1,179
Total		$	3,250			$	6,176

*  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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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 (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.

New Accounting Pronouncements – Standards Issued and Not Yet Implemented

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.

Inventories consisted of the following components:		March 31, 2026				December 31, 2025
(in thousands)
Raw material		$	3,011			$	2,912
Work-in-process			1,881				1,661
Finished goods			1,256				1,137
Inventories		$	6,148			$	5,710

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NOTE 3– PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consisted of the following components:

		March 31, 2026				December 31, 2025
(in thousands)
Leasehold improvements		$	361			$	356
Equipment			4,053				4,242
Sales demonstration equipment			1,031				1,029
			5,445				5,627
Less accumulated depreciation			4,745				4,820
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, 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		$	2,273			$	1,328

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, 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			2,087
Less imputed interest			(154	)
Total operating lease liabilities		$	1,933

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 March 31, 2026				Balance at December 31, 2025
(in thousands)
Right-of-use assets (Long-term other assets)		$	1,836			$	2,005
Lease liability-short term (Other accrued liabilities)		$	698			$	690
Lease liability-long term (Operating lease liabilities)		$	1,235			$	1,411

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
		March 31, 2026				March 31, 2025
(in thousands except per share data)
Numerator for basic and diluted earnings (loss) per share:
Net income (loss)		$	(3,170	)		$	(382	)
Denominator for basic
earnings (loss) per share:
Weighted-average shares			9,393				9,238
Employee stock options and awards			-				-
Denominator for diluted earnings (loss) per share:
Adjusted weighted-average shares & assumed conversions of stock options			9,393				9,238
Basic and diluted earnings (loss) per share:
Basic earnings (loss) per share		$	(0.34	)		$	(0.04	)
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
		March 31, 2026				March 31, 2025
Restricted Stock Units			104,994				84,336
Performance Stock Units			18,081				16,180
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
		March 31, 2026				March 31, 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, 2026				March 31, 2025
Restricted Stock Units			-				10,000
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, 2026				March 31, 2025
Unamortized future equity compensation expense (in thousands)		$	701			$	1,237
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
(in thousands)		March 31, 2026				March 31, 2025
Net sales		$	3,250			$	6,176
Cost of goods sold			1,641				2,988
Gross margin			1,609				3,188
Operating Expenses:
Employee expenses			2,046				2,255
Customer acquisition costs			208				293
Professional and outside services			978				541
Occupancy costs (OPEX portion)			370				219
Depreciation & amortization			106				126
Other expense (income)			1,045				131
Total operating expenses			4,753				3,565
Operating income (loss)		$	(3,144	)		$	(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 As Previously Reported				Effect of Revision				March 31, 2025 As Revised
(in thousands)
Platform Sales		$	3,317			$	(263)			$	3,054
Adapter Sales			1,963				(20	)			1,943
Software and Services Sales*			896				283				1,179
Total		$	6,176			$	-			$	6,176
*  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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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 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
Net sales by location		March 31, 2026				Change				March 31, 2025
(in thousands)
United States		$	1,755				132.1	%		$	756
% of total			54.0	%							12.2	%
International		$	1,495				(72.4	)%		$	5,420
% of total			46.0	%							87.8	%

		Three Months Ended
Net sales by type		March 31, 2026				Change				March 31, 2025 (as Revised)
(in thousands)
Platform sales		$	625				(79.5	)%		$	3,054
Adapter sales			1,520				(21.8	)%			1,943
Software and Services Sales*			1,105				(6.3	)%			1,179
Total		$	3,250				(47.4	)%		$	6,176

*  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
		March 31, 2026				Change				March 31, 2025
(in thousands)
Gross margin		$	1,609				(49.5	)%		$	3,188
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
		March 31, 2026				Change				March 31, 2025
(in thousands)
Research and development		$	1,291				(14.8	)%		$	1,515
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
		March 31, 2026				Change				March 31, 2025
(in thousands)
Selling, general &
administrative		$	3,462				68.9	%		$	2,050
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
		March 31, 2026				Change				March 31, 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
		March 31, 2026				Change				March 31, 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
		March 31, 2026				Change				March 31, 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.

Financial Condition

LIQUIDITY AND CAPITAL RESOURCES

		March 31, 2026				Change				December 31, 2025
(in thousands)
Working capital		$	9,297			$	(2,973	)		$	12,270

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

		Three Months Ended March 31,
		2026				2025
(in thousands)
Net Income (loss)		$	(3,170	)		$	(382	)
Interest (income)			(15	)			(38	)
Taxes			0				21
Depreciation & amortization			115				127
EBITDA earnings (loss)			(3,070	)			(272	)
Equity compensation			77				174
Adjusted EBITDA, excluding equity compensation		$	(2,993	)		$	(98	)

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

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

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

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.

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

None   

Item 3. Defaults Upon Senior Securities 

None 

Item 4. Mine Safety Disclosures 

Not Applicable 

Item 5. Other Information 

	(a)	None
	(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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Item 6. Exhibits 

(a)   Exhibits

	3.2	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).
	10	Material Contracts:

		None.
	31	Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:
		31.1	Chief Executive Officer Certification
		31.2	Chief Financial Officer Certification

	32	Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:
		32.1	Chief Executive Officer Certification
		32.2	Chief Financial Officer Certification
	101	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)

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

FAQ

How did Data I/O (DAIO) perform financially in Q1 2026?

Data I/O reported Q1 2026 net sales of $3.25 million, down from $6.18 million a year earlier, and a net loss of $3.17 million versus a $0.38 million loss. Gross margin slipped to 49.5% as lower volume spread fixed costs over fewer sales.

What drove Data I/O’s revenue decline in Q1 2026?

Revenue fell mainly due to weaker capital equipment demand and platform sales. Platform revenue declined 79.5% to $0.63 million, while adapter sales dropped 21.8% and software and services declined 6.3%. Management cited global trade and tariff uncertainty and delayed customer decisions.

What is Data I/O’s cash and liquidity position as of March 31, 2026?

Cash and cash equivalents were $5.71 million at March 31, 2026, down from $7.90 million at year-end. Working capital stood at $9.30 million, and the company had no debt. Management believes current resources can fund operations for at least the next year.

What restructuring actions did Data I/O take in Germany in Q1 2026?

In Q1 2026, Data I/O recorded about $1.0 million of employee-related costs tied to a workforce reduction in its Germany operations. Accrued severance-related liabilities were roughly $973,000 at March 31, 2026, expected to be paid within twelve months, to improve efficiency and reduce costs.

What is the status of Data I/O’s internal control material weakness?

The company continues to report a material weakness in internal control over financial reporting related to segregation of duties and disaggregated revenue reporting. Management is enhancing review procedures and oversight, but the weakness remains until controls operate effectively for a sustained period.

What financing did Data I/O arrange after Q1 2026?

Subsequent to quarter end, Data I/O entered a definitive securities purchase agreement with institutional investors for about $9.0 million of common stock, convertible debentures and warrants. Closing is subject to customary conditions and Nasdaq rules limiting share issuance without shareholder approval.