DATA I/O CORP 10-Q

Item 1. Financial Statements DATA I/O CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (UNAUDITED) March 31, 2025 December 31, 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,485 $ 10,326 Trade accounts receivable, net of allowance for credit losses of $ 22 and $ 22 , respectively 3,865 3,960 Inventories 5,820 6,212 Other current assets 845 659 TOTAL CURRENT ASSETS $ 21,015 $ 21,157 Property, plant and equipment – net 921 1,001 Other assets 2,577 2,812 TOTAL ASSETS $ 24,513 $ 24,970 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,342 $ 820 Accrued compensation 955 1,517 Deferred revenue 1,460 1,535 Other accrued liabilities 1,205 1,161 Income taxes payable 39 39 TOTAL CURRENT LIABILITIES $ 5,001 $ 5,072 Operating lease liabilities 1,906 2,160 Long-term other payables 59 112 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, 9,239,731 shares as of March 31, 2025 and 9,236,040 shares as of December 31, 2024 23,652 23,475 Accumulated earnings (deficit) ( 6,120 ) ( 5,738 ) Accumulated other comprehensive income 15 ( 111 ) TOTAL STOCKHOLDERS’ EQUITY 17,547 17,626 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 24,513 $ 24,970 See notes to consolidated financial statements 3 Table of Contents DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (UNAUDITED) Three Months Ended March 31, 2025 2024 Net sales $ 6,176 $ 6,099 Cost of goods sold 2,988 2,879 Gross margin 3,188 3,220 Operating expenses: Research and development 1,515 1,582 Selling, general and administrative 2,050 2,498 Total operating expenses 3,565 4,080 Operating income (loss) ( 377 ) ( 860 ) Non-operating income (loss): Interest income 38 80 Foreign currency transaction gain (loss) ( 22 ) 14 Total non-operating income (loss) 16 94 Income (loss) before income taxes ( 361 ) ( 766 ) Income tax (expense) benefit ( 21 ) ( 41 ) Net income (loss) $ ( 382 ) $ ( 807 ) Basic earnings (loss) per share $ ( 0.04 ) $ ( 0.09 ) Diluted earnings (loss) per share $ ( 0.04 ) $ ( 0.09 ) Weighted-average basic shares 9,238 9,023 Weighted-average diluted shares 9,238 9,023 See notes to consolidated financial statements 4 Table of Contents DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (UNAUDITED) Three Months Ended March 31, 2025 2024 Net income (loss) $ ( 382 ) $ ( 807 ) Other comprehensive income (loss): Foreign currency translation gain (loss) 126 ( 168 ) Comprehensive income (loss) $ ( 256 ) $ ( 975 ) See notes to consolidated financial statements 5 Table of Contents DATA I/O CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) (UNAUDITED) Accumulated Retained and Other Total Common Stock Earnings 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 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 See notes to consolidated financial statements 6 Table of Contents DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (UNAUDITED) For the Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 382 ) $ ( 807 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 127 202 Equipment transferred to cost of goods sold 9 251 Share-based compensation 174 281 Net change in: - - Trade accounts receivable 132 885 Inventories 409 ( 496 ) Other current assets ( 182 ) ( 49 ) Accounts payable and accrued liabilities ( 12 ) ( 649 ) Deferred revenue ( 160 ) 279 Other long-term liabilities ( 254 ) ( 140 ) Deposits and other long-term assets 248 202 Net cash provided by (used in) operating activities 109 ( 41 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 56 ) ( 139 ) Cash provided by (used in) investing activities ( 56 ) ( 139 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock, less payments for shares withheld to cover tax 2 7 Cash provided by (used in) financing activities 2 7 Increase (decrease) in cash and cash equivalents 55 ( 173 ) Effects of exchange rate changes on cash 104 ( 169 ) Cash and cash equivalents at beginning of period 10,326 12,341 Cash and cash equivalents at end of period $ 10,485 $ 11,999 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 21 $ 109 See notes to consolidated financial statements 7 Table of Contents 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 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, 2025 and March 31, 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 three months ended March 31, 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. 8 Table of Contents 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 were $ 1.5 million and $ 1.8 million for March 31, 2025 and 2024, respectively, and the portion expected to be recognized within one year was $ 1.5 million and $ 1.6 million for March 31, 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. The following table represents our revenues by major categories: Three Months Ended Net sales by type March 31, 2025 Change March 31, 2024 (in thousands) Equipment $ 3,317 ( 1.5 %) $ 3,366 Adapter 1,963 6.3 % 1,846 Software and Maintenance 896 1.0 % 887 Total $ 6,176 1.3 % $ 6,099 Share-Based Compensation All stock-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. 9 Table of Contents 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. 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" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures. 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. NOTE 2 – INVENTORIES Inventories consisted of the following components: March 31, 2025 December 31, 2024 (in thousands) Raw material $ 3,120 $ 3,273 Work-in-process 1,618 1,845 Finished goods 1,082 1,094 Inventories $ 5,820 $ 6,212 10 Table of Contents NOTE 3– PROPERTY, PLANT AND EQUIPMENT, NET Property and equipment consisted of the following components: March 31, 2025 December 31, 2024 (in thousands) Leasehold improvements $ 350 $ 343 Equipment 3,851 3,777 Sales demonstration equipment 1,046 1,031 5,247 5,151 Less accumulated depreciation ( 4,326 ) ( 4,150 ) Property and equipment, net $ 921 $ 1,001 NOTE 4 – OTHER ACCRUED LIABILITIES Other accrued liabilities consisted of the following components: March 31, 2025 December 31, 2024 (in thousands) Lease liability - short term $ 655 $ 640 Product warranty 398 350 Sales return reserve 32 32 Other taxes 38 69 Other 82 70 Other accrued liabilities $ 1,205 $ 1,161 The changes in our product warranty liability for the three months ending March 31, 2025 and year ended December 31, 2024 are as follows: March 31, 2025 December 31, 2024 (in thousands) Liability, beginning balance $ 350 $ 449 Net expenses 227 901 Warranty claims ( 227 ) ( 901 ) Accrual revisions 48 ( 99 ) Liability, ending balance $ 398 $ 350 11 Table of Contents NOTE 5– OPERATING LEASE COMMITMENTS We have commitments under non-cancelable 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, 2025 are as follows: March 31, 2025 Operating Lease Commitments (in thousands) 2025 (remaining) $ 575 2026 764 2027 686 2028 433 2029 & Thereafter 369 Total $ 2,827 Less imputed interest ( 265 ) Total operating lease liabilities $ 2,562 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, 2025 and 2024 include facility related operating lease costs of $ 182,000 and $ 208,000 , respectively, and short-term lease costs of $ 9,500 and $ 9,400 , respectively. There were no new operating leases during the three months ended March 31, 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. The following table presents supplemental balance sheet information related to leases as of March 31, 2025 and December 31, 2024: Balance at March 31, 2025 Balance at December 31, 2024 (in thousands) Right-of-use assets (Long-term other assets) $ 2,468 $ 2,704 Lease liability-short term (Other accrued liabilities) 655 640 Lease liability-long term (Operating lease liabilities) 1,906 2,064 At March 31, 2025, the weighted average remaining lease term is 3.9 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 March 31, 2025, we had four contracts with a commitment of approximately $ 469,000 to be paid within one year and $ 1,473,000 to be paid beyond one year. 12 Table of Contents NOTE 7 – CONTINGENCIES As of March 31, 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 first quarter of both 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 $ 8.9 million as of both March 31, 2025 and 2024. As of March 31, for both 2025 and 2024, our deferred tax assets and valuation allowance have been reduced by approximately $ 444,000 and $ 434,000 , 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. The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended March 31, 2025 March 31, 2024 (in thousands except per share data) Numerator for basic and diluted earnings (loss) per share: Net income (loss) $ ( 382 ) $ ( 807 ) Denominator for basic earnings (loss) per share: Weighted-average shares 9,238 9,023 Employee stock options and awards - - Denominator for diluted earnings (loss) per share: Adjusted weighted-average shares & assumed conversions of stock options 9,238 9,023 Basic and diluted earnings (loss) per share: Basic earnings (loss) per share $ ( 0.04 ) $ ( 0.09 ) Diluted earnings (loss) per share $ ( 0.04 ) $ ( 0.09 ) 13 Table of Contents The weighted average number of shares outstanding used to compute earnings (loss) per share included the following: Three Months Ended March 31, 2025 March 31, 2024 Restricted Stock Units 84,336 118,903 Performance Stock Units 16,180 2,935 Stock Options - 174 Options to purchase 200,000 and 12,500 shares were outstanding as of March 31, 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. 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. First quarter 2025 shared-based compensation of $ 174,000 , was $ 107,000 lower compared to the prior year period due to staff reductions which occurred in the fourth quarter of 2024. The impact on our results of operations of recording share-based compensation, net of forfeitures, for the three months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 March 31, 2024 (in thousands) Cost of goods sold $ 25 $ 23 Research and development 48 65 Selling, general and administrative 101 193 Total share-based compensation $ 174 $ 281 Equity awards granted during the three months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 March 31, 2024 Restricted Stock Units 10,000 - Employee 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 Restricted Stock Units (“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. 14 Table of Contents The remaining unamortized expected future equity compensation expense and remaining amortization period associated with award grants of RSUs, PSUs and unvested options at March 31, 2025 and 2024 are: March 31, 2025 March 31, 2024 Unamortized future equity compensation expense (in thousands) $ 1,237 $ 2,035 Remaining weighted average amortization period (in years) 2.21 2.29 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/CEO 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 chief operating decision maker and included in the reported segment operating profits are outlined in the following table: Three Months Ended March 31, 2025 March 31, 2024 (in thousands) Net sales $ 6,176 $ 6,099 Cost of goods sold 2,988 2,879 Gross margin 3,188 3,220 Operating Expenses: Employee expenses 2,255 2,466 Customer acquisition costs 293 433 Professional and outside services 541 643 Occupancy costs (OPEX portion) 219 199 Depreciation & amortization 126 144 Other 131 195 Total operating expense 3,565 4,080 Operating income (loss) $ ( 377 ) $ ( 860 ) 15 Table of Contents