What changed in this filing

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Item 1A. Risk Factors

2026-04-16 compared with 2025-04-01 · 45 added, 17 removed, 246 unchanged (20% of the section changed)

11 unchanged sentences

The reader should not unduly rely on our forward-looking statements.

The reader is advised, however, to consult any future disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the SEC and press releases.

The reader is advised, however, to consult any future disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission (“SEC”) and press releases.

Also, note that we provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business.

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TARIFFS AND TRADE ISSUES

Changes in tariffs and trade issues may adversely affect our business, including revenues and/or gross margins.

Changes in tariffs and issues of trade and global conflict may adversely affect our business, including revenues and/or gross margins.

The tariff environment continued to evolve in 2025, with new tariff actions and ongoing trade tensions between the United States and China among others affecting the Company’s costs and competitive position.

The Company produces products in both the United States and China and sells into global markets.

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.

The Company’s dual-sourced manufacturing strategy in Redmond, Washington and Shanghai, China provided flexibility to navigate tariff challenges, optimize tariff exposure and support customers to the extent they shift manufacturing to the Americas.

However, further increases in tariff rates, additional items subject to tariffs, or retaliatory trade actions could increase costs and adversely affect revenues and gross margins and on-going uncertainty surrounding tariffs may continue to affect customer investment decisions and timelines, adversely affect demand for the Company’s offerings.

We produce products in the United States and China.

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We do not have any operations in Russia or Ukraine, nor do we rely on any software or hardware components sourced from these two countries.

The Israel - Hamas war could have similar issues, although we have not experienced any material impacts.

The escalation of military conflict involving Iran and other actors in the Middle East, including risks of broader regional war, cyberattacks, and disruption to critical shipping routes and energy infrastructure, could materially impact global economic conditions and adversely affect our business, including through increased costs, supply chain disruptions, and demand volatility.

NEW PRODUCTS OR SERVICES

We are pursuing new product or service initiatives, and business models that may develop more slowly and/or to a lesser extent than expected.

In order to lead in new and potentially lucrative market opportunities, for example in security deployment of programmable devices, circuit boards and electronic systems, we are making significant investments in people, technology and business development while the market is developing and uncertain.

Due to the length of time to market from design to production in security provisioning, if these markets develop more slowly than planned, or if our security deployment solutions are not widely accepted, then we may not achieve our expected return on investment in new technologies, which may significantly affect the results of our existing business.

In the security deployment area, we have introduced a pay per use business model and service fees that may not be accepted by our customers who are accustomed to paying for capital equipment upfront, rather than paying per use charges.

In order to lead in new and potentially lucrative market opportunities, we are making significant investments in people, technology and business development while the market is developing and uncertain.

Due to the length of time to market from design to production in security provisioning, if these markets develop more slowly than planned, or if our solutions are not widely accepted, then we may not achieve our expected return on investment in new technologies, which may significantly affect the results of our existing business.

Failure to adapt to new technological trends in our industry may impact our competitiveness and financial results.

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Improper SMT process control can negatively impact the end customer’s ability to successfully program devices.

This can cause them to change their programing methods away from pre-programming to post placement programming techniques, including ISP, ICT.

This can cause them to change their programming methods away from pre-programming to post placement programming techniques, including ISP, ICT.

Data I/O has, and continues to work with several semiconductor manufacturers to develop best practices to minimize the impact of reflow and potential concerns about X-ray induced data loss so that preprogramming remains a supported alternative;

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Failure to adapt to increasing automotive electronics customer requirements and a rapidly changing global automotive electronics ecosystem may impact our competitiveness and result in a decline in sales or increased costs.

Concentration in automotive electronics and our orders related to automotive electronics customers has been dominant in recent years at 59% in 2024, 63% in 2023 and 61% in 2022.

Concentration in automotive electronics represented approximately 64% of 2025 bookings, compared to 59% in 2024 and 63% in 2023, as the broader slowdown in the semiconductor industry caught up with the automotive sector.

Demand was further impacted by a broad-based reallocation of technology spending toward AI-related investments and a reassessment of electric vehicle manufacturing capacity and plans by major automotive OEMs and their supply chains.

The emerging buildout of Edge AI represents a potential growth driver as autonomous systems and connected vehicles require increasing volumes of data to be securely provisioned into semiconductor devices at the point of manufacture.

As we have been concentrated on automotive electronics customers, any decrease in demand from these customers may materially impact our results, as it will take some time to transition our product line to other markets.

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For example, we may encounter these problems:

technical problems in the development of a new programming and/or security deployment systems or the robotics for new automated handing systems;

technical problems in the development of a new programming or provisioning systems;

inability to hire qualified personnel or turnover in existing personnel or inability to engage or retain key technology partners;

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We may pursue business acquisitions that could impair our financial position and profitability.

During 2025, the Company engaged a leading boutique middle-market investment bank to evaluate inorganic growth opportunities.

Management has expressed a preference for non-equity funding sources when pursuing acquisitions.

The active pursuit of acquisitions increases the risks described below.

We may pursue acquisitions of complementary technologies, product lines or businesses.

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We might face increased competition and might not be able to compete successfully with current and future competitors.

Technological advances have reduced the barriers of entry into the market in which we compete.

Technological advances have reduced the barriers of entry into the capital equipment segment of the data provisioning market in which we compete.

We expect competition to increase from both established and emerging companies.

If we fail to compete successfully against current and future sources of competition, our profitability and financial performance will be adversely impacted.

The Company is expanding into adjacent segments of the data provisioning market, which has developing competition and may bring exposure to new competitors and competitive forces.

THIRD PARTY RELATIONSHIPS

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Our small relative level of business means we frequently lack influence and significant purchasing power.

If we cannot develop alternative sources of these components, if sales of parts or software are discontinued by the supplier, if we experience deterioration in our relationship with these suppliers, or if these suppliers require financing which is not available, there may be delays or reductions in product introductions or shipments, which may materially adversely affect our operating results.

Because we rely on a small number of suppliers for certain parts, we are subject to possible price increases by these suppliers.

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A decline in economic and market conditions may result in delayed or decreased capital spending and delayed or defaulted payments from our customers.

Current and future public health crise, geo-political conflicts, and economic barriers, tariffs and constraints can adversely impact the Company’s financial performance.

The broader semiconductor market has experienced a multi-year cyclical downturn which continued into 2025, with notable softness in automotive electronics as a reassessment of electric vehicle capacity and manufacturing plans affected ordering patterns.

Demand for capital equipment was further impacted by a reallocation of technology spending, with AI and AI datacenter-related investments taking priority.

The overall data provisioning market represents a significantly larger opportunity than the traditional programming equipment market.

While it has been impacted by many of the same macroeconomic forces as the capital equipment segment, the impact has been somewhat more muted, and the cyclical effects are much less pronounced.

Furthermore, the entire market is showing early signs of a recovery led by use cases such as the emerging buildout of Edge AI.

Current and future public health crises, geo-political conflicts, and economic barriers, tariffs and constraints can adversely impact the Company’s financial performance.

Our business is highly impacted by capital spending plans and other economic cycles that affect the users and manufacturers of integrated circuits.

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timing of significant orders;

timing of installation or customer acceptance requirements;

sales channel mix of direct vs.

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We have a history of operating losses and may be unable to generate enough revenue to achieve and maintain profitability.

We have incurred operating losses in five of the last ten years.

We have incurred operating losses in 8 of the last ten years.

We operate in a cyclical industry.

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The loss of key employees may adversely affect our operations.

During 2025, the Company underwent significant leadership transitions, including the appointment of Charles DiBona as Chief Financial Officer in August 2025, replacing Gerald Ng.

Additional changes were made in sales, marketing, and engineering leadership as part of the Company’s strategic transformation.

While management believes these changes strengthen the Company’s capabilities, leadership transitions carry inherent risks including potential disruption to ongoing operations and loss of institutional knowledge.

We have employees located in the U.S., Germany and China.

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We may need to raise additional capital and our future access to capital is uncertain.

Cash at December 31, 2025 was $7.9 million.

Our past revenues have sometimes been, and our future revenues may again be, insufficient to support the expense of our operations and any expansion of our business.

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CYBERSECURITY RISKS

Cybersecurity incidents could result in loss of revenue, business disruptions, remediation costs, legal claims and proceedings, regulatory actions, reporting delays, increased insurance costs, or damage to the Company’s reputation which could adversely impact or operations and financial results.

In August 2025, the Company experienced a ransomware incident that resulted in the shutdown of most global operating systems, business disruptions including the inability to timely process certain shipments, and significant remediation costs of approximately $388,000 in the third quarter of 2025.

While the incident was contained and remediated by September 2025 and the Company does not believe any customer data was compromised, the incident demonstrated the Company’s vulnerability to cyber attacks and the potential for material operational and financial impacts.

The Company has implemented significant enhancements to its cybersecurity infrastructure and processes;

however, no assurance can be given that these measures will prevent future incidents.

A future cybersecurity incident could result in loss of revenue, business disruptions, remediation costs, legal claims and proceedings, regulatory actions, reporting delays, increased insurance costs, or damage to the Company’s reputation.

The costs of preventing, responding to and recovering from cybersecurity incidents may be material.

Cybersecurity breaches or terrorism could result in liabilities or costs as well as damage to or loss of our data or customer access to our website and information systems.

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Failure to comply with increasing regulatory requirements may adversely affect our stock price and business.

As a public company, we are subject to numerous governmental and stock exchange requirements which we believe, we are in compliance with.

As a public company, we are subject to numerous governmental and stock exchange requirements with which we believe we are in compliance.

Our failure to meet regulatory requirements and exchange listing standards may result in actions such as:

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and securities claims and litigation.

Unfortunately, increased regulations pushed onto public companies may have a disproportionate impact to smaller public companies.

The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (SEC) have requirements that we may fail to meet or we may fall out of compliance with, such as the internal controls auditor attestation required under Section 404 of the Sarbanes-Oxley Act of 2002, with which we are not currently required to comply as we are a smaller reporting company.

Increased regulations pushed onto public companies may have a disproportionate impact to smaller public companies.

The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (SEC)SEC have requirements that we may fail to meet or we may fall out of compliance with, such as the internal controls auditor attestation required under Section 404 of the Sarbanes-Oxley Act of 2002, with which we are not currently required to comply as we are a smaller reporting company.

We assume that we will continue to have the status of a smaller reporting company based on the aggregate market value of the voting and non-voting shares held as of June 30, 2025.

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If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

As previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, the Company identified a material weakness in internal control over financial reporting related to user access and segregation of duties within certain IT systems.

During 2025, the Company implemented remediation actions including enhancements to system access controls, improved segregation of duties, and expanded monitoring and review procedures.

Meanwhile, the Company has identified an additional instance of material weakness, and while management has taken steps to remediate these internal control issues related to reviews and reporting, these weaknesses did persist during the reporting period of this Form 10-K for the year ended December 31, 2025.

While we have policies and procedures in place designed to prevent corruption and bribery, because our business is significantly international, violations of the Foreign Corrupt Practices Act (FCPA) could have a significant adverse effect on our business due to the disruption and distraction of an investigation, financial penalties and criminal penalties.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors