Financial Analysis

NOTE 8 CONTINGENCIES As of December 31, 2025, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in managements opinion, individually or in aggregate, would have a material adverse effect on our results of operations or financial position. …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Net sales by type 2025 2024 As Revised (in thousands) Platform Sales $ 8,997 $ 10,466 Adapter Sales 7,903 7,190 Software and Services Sales * 4,600 4,113 Total $ 21,500 $ 21,769

DisaggregationOfRevenueTableTextBlock

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 for the years ended December 31, 2025 and 2024 was as follows: Year Ended December 31, 2025 2024 (in thousands) Cost of goods sold $ 98 $ 112 Research and development 170 228 Selling, general and administrative 429 636 Total share-based compensation $ 697 $ 976 The following table summarizes stock option activity under our stock option plans for the twelve months ended December 31, 2025 and 2024: 2025 2024 Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life in Years Outstanding at beginning of year 200,000 $ 2.39 12,500 $ 4.98 Granted - - 200,000 2.39 Exercised - - - - Cancelled, Expired or Forfeited - - (12,500 ) (4.98 ) Outstanding at end of year 200,000 $ 2.39 4.67 200,000 $ 2.39 5.67 Vested or expected to vest at end of the period 190,445 $ 2.39 182,676 $ 2.39 Exercisable at end of year 62,500 $ 2.39 12,500 $ 2.39 The aggregate intrinsic value of outstanding options is $81,540. There were no stock option awards exercised in 2025 or 2024. Restricted stock award activity including per …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

NOTE 12 INCOME TAXES Components of income (loss) before taxes: Year Ended December 31, (in thousands) 2025 2024 U.S. operations $ (5,030 ) $ (3,591 ) Foreign operations 34 884 Total income (loss) before taxes $ (4,996 ) $ (2,707 ) Income tax expense (benefit) consists of: Year Ended December 31, (in thousands) 2025 2024 Current tax expense (benefit) U.S. federal $ 0 $ 0 State 2 4 Foreign (12 ) 382 (10 ) 386 Deferred tax expense (benefit) foreign 250 - Total income tax expense (benefit) $ 240 $ 386 For the year ended December 31, 2025, income tax expense includes $250,000 of deferred tax expense resulting from the recognition of deferred tax liabilities associated with outside basis differences in foreign subsidiaries. Effective Rate Reconciliation: (In thousands) 2025 Percent U.S. federal statutory tax $ (1,049 ) 21.00 % State and local income tax, net of federal income tax effect 2 (0.04 )% Foreign tax effects: China: Withholding tax 271 (5.42 )% Statutory rate differential (180 ) 3.60 % Germany: Statutory rate differential 139 (2.78 )% Tax Credits: Research and development credit (47 ) 0.94 % Changes in valuation allowances 1,267 (25.36 )% Nontaxable or nondeductible items: Permanent differences - stock compensation (111 ) 2.22 % Permanent differences - other 8 (0.16 )% Changes in unrecognized tax benefits (31 ) 0.62 % Other adjustments (29 ) 0.58 % Global effective tax $ 240 (4.80 )% The following table presents the required disclosures prior to our adoption of ASU 2023-09 …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 6 LEASES 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. Future minimum lease payments as of December 31 are as follows: (in thousands) 2026 $ 775 2027 694 2028 433 2029 369 2030 - Thereafter - Total 2,271 Less imputed interest (170 ) Total operating lease liabilities $ 2,101 Cash paid for amounts included in the measurement of lease liabilities was $735,000 and $795,000 for the years ended December 31, 2025 and 2024, respectively. The Company has no finance leases. The total annual lease expense in 2025 and 2024, including operating lease expenses and short-term lease expenses of $30,000 and $38,000, was approximately $807,000 and $845,000, respectively. Variable payments were not material and were treated as non-lease components and were recognized in the period for which the costs occur. 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 operations services. The lease payment decrease in 2025 versus 2024 was due primarily to the realization of a full year of the reduction in lease rates for our Redmond, Washington and Shanghai, China facilities effected in 2024 when, the Red …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 became effective for the Companys annual period beginning January 1, 2025, and has been applied on a prospective basis in these consolidated financial statements. …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

NOTE 13 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 companys 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: Year Ended (in thousands) December 31, 2025 December 31, 2024 Net sales $ 21,500 $ 21,769 Cost of goods sold 10,904 10,163 Gross margin 10,596 11,606 Operating Expenses: Employee expenses 9,213 9,715 Customer acquisition c …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations 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. Principles of Consolidation The consolidated financial statements include the accounts of Data I/O Corporation and wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include: Revenue Recognition Allowance for Credit Losses Inventory Obsolescence Allowances Warranty Accruals Tax Valuation Allowances Share-based Compensation Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated at the exchange rate on the b …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

NOTE 16 SUBSEQUENT EVENTS In preparing the financial statements, the Company has reviewed all known events which occurred after December 31, 2025 through the date on which the financial statements are available for issuance, for potential recognition or disclosure in the consolidated financial statements and footnotes. In January 2026, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, providing the ability to issue up to $20 million of equity securities. The shelf registration provides financial flexibility for potential strategic initiatives, including acquisitions aligned with the Companys growth strategy. Also in January, the Company took steps to realign its German subsidiary, scaling back on some functions and bringing a number of roles back to headquarters which resulted in the elimination of several positions in the German subsidiary. In February 2026, the Company announced a collaboration with IAR, a global leader in embedded development tools and security solutions, to combine IARs security expertise with Data I/Os provisioning expertise. The collaboration is intended to create a frictionless solution that reduces the complexity inherent in current device provisioning approaches, simplifying the process of securely programming and provisioning devices across global manufacturing supply chains. …

SubsequentEventsTextBlock · excerpt; the full note is in the filing