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Item 9A. Controls and Procedures

2026-04-16 compared with 2025-04-01 · 52 added, 54 removed, 190 unchanged (36% of the section changed)

Controls and Procedures

As previously disclosed in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2024, the Company identified a material weakness in our internal control over financial reporting in the areas of user access and segregation of duties related to the information technology system that support the Company’s financial reporting processes.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

During 2025, the Company implemented enhancements to system access controls, user access provisioning and de‑provisioning controls, role‑based access restrictions, monitoring controls over privileged access, improved segregation of duties, and expanded monitoring and review procedures in efforts to address the previously identified IT user access control deficiencies.

The August 2025 ransomware incident prompted additional IT infrastructure improvements that support both cybersecurity and internal control objectives.

Specifically, the Company removed administrative access from all employees outside of the IT department.

We instituted regular reviews of access rights across all systems, and we implemented improved segregation of duties with respect to financial transactions and reporting, Management completed testing of the design and operating effectiveness of the revised controls and procedures during 2025.

While these actions were taken to improve access management and security controls, the material weakness was not fully remediated as of December 31, 2025.

A material weakness continues to exist related to ineffective user access and segregation‑of‑duties controls within IT systems that support financial reporting, Accordingly, management concluded that the conditions underlying the previously identified IT‑related material weakness remained present as of December 31, 2025.

Due to this material weakness, there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis.

In addition, management determined that the Company did not maintain effective controls over the completeness and accuracy of internally generated reports used in the preparation of the disaggregated revenue footnote.

The report used to compile revenue by major category was not reconciled to the general ledger, resulting in a misstatement of revenue by category in previously issued financial statements.

While total revenue and other primary financial statement line items were not affected, the control deficiency resulted in a misstatement of a required disclosure that could have been material and was not detected by the Company’s internal controls.

(a) 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”).

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer 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 as described below.

(b) Management’s report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our internal control systems are designed to provide reasonable assurance to the Company’s management and board of directors regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act and includes those policies and procedures that:

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Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).

Based on this assessment our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2024, our internal control over financial reporting was not effective as of December 31, 2024 because of an identified material weakness in our internal control over financial reporting as described below:

Material Weakness Identified by Management

Management determined the following material weakness in internal control over financial reporting as of December 31, 2024.

In the areas of user access and segregation of duties related to the information technology system that support the Company’s financial reporting processes.

As set forth below, management has taken and will continue to take steps to remediate the material weakness identified as of December 31, 2024.

Notwithstanding this material weakness, we have performed additional analyses and procedures to enable management to conclude that our consolidated financial statements included in this 2024 Form 10-K fairly present in all material respects our financial condition and results of operations as of and for the year ended December 31, 2024.

Management’s Remediation Plan

In response to the material weakness discussed above, we plan to continue and expand efforts already underway to remediate internal control over financial reporting, which include the following:

We are enhancing our processes around reviewing and provisioning access to key financial systems and ensuring appropriate segregation of duties;

We continue to enhance governance and reporting over the execution of these remediation action items, including expansion of mitigating controls where appropriate.

Management and our Audit Committee will monitor these specific 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 has concluded, through testing, that these controls are operating effectively.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts smaller reporting companies from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.

There were no changes made in our internal controls during the period covered by this report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Based on this assessment our Chief Executive Officer and Chief Financial Officer have concluded that material weaknesses existed 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.

Subsequent to the identification of the material weakness, management has implemented 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.

As of December 31, 2025, remediation efforts were ongoing.

Other Information

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Directors, Executive Officers and Corporate Governance

Information regarding the Registrant’s directors is set forth under “Election of Directors” in our Proxy Statement relating to our annual meeting of shareholders to be held on May 15, 2025, and is incorporated herein by reference.

Information regarding the Registrant’s directors is set forth under “Election of Directors” in our Proxy Statement relating to our annual meeting of shareholders to be held on June 11, 2026, and is incorporated herein by reference.

Proxy Statement will be filed within 120 days of our year-end.

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We have adopted a Code of Ethics that applies to all directors, officers and employees of Data I/O, including the Chief Executive Officer and Chief Financial Officer.

The key principles of the Code of Ethics are to act legally and with integrity in all work for Data I/O.

The Code of Ethics is posted on the corporate governance page of our website.

http://www.dataio.com/Company/InvestorRelations/CorporateGovernance.aspx

We will post any amendments to our Code of Ethics on our website.

In the unlikely event that the Board of Directors approves any sort of waiver to the Code of Ethics for our executive officers or directors, information concerning such waiver will also be posted on our website.

In addition to posting information regarding amendments and waivers on our website, the same information will be included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is permitted by NASDAQ’s rules.

Executive Compensation

Information called for by Part III, Item 11, is included in our Proxy Statement relating to our annual meeting of shareholders to be held on May 15, 2025 and is incorporated herein by reference.

The information appears in the Proxy Statement under the caption “Executive Compensation.” Proxy Statement will be filed within 120 days of our year-end.

Information called for by Part III, Item 11, is included in our Proxy Statement relating to our annual meeting of shareholders to be held on June 11, 2026 and is incorporated herein by reference.

The Board has previously adopted a clawback policy which allows us to recover performance-based compensation in the event of an accounting restatement.

The policy is incorporated by reference as an exhibit to this Form 10-K.

In connection with the preparation of this annual report, we determined that there was an error to previously issued financial statements, which has been corrected in this annual report.

As such, we are conducting a clawback analysis in connection with the restatement as required by the Company’s policies but have not yet determined if any erroneously awarded compensation was paid based on the restated financial results

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information called for by Part III, Item 12, is included in our Proxy Statement relating to our annual meeting of shareholders to be held on May 15, 2025 and is incorporated herein by reference.

The information appears in the Proxy Statement under the caption “Voting Securities and Principal Holders.” Proxy Statement will be filed within 120 days of our year end.

Information called for by Part III, Item 12, is included in our Proxy Statement relating to our annual meeting of shareholders to be held on June 11, 2026 and is incorporated herein by reference.

Equity Compensation Plan Information

The following table gives information about our Common Stock that may be issued upon the exercise of options and rights under all of our existing equity compensation plans as of December 31, 2025.

See Notes 9 and 10 of “Notes to Consolidated Financial Statements.”

(a) Number of securities to be issued upon the exercise of outstanding options, warrants and rights

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Table excludes unvested:

RSU awards of 79,875 from the 2000 Plan, RSU awards of 325,525 from the 2023 Plan, and PSU awards of 61,500 from the 2023 Plan.

RSU awards of 331,400 from the 2000 Plan 2023 Plan, and PSU awards of 36,750 from the 2023 Plan.

Stock Appreciation Rights Plan (“SAR”) provides that directors, executive officers or holders of 10% or more of our Common Stock have an accompanying SAR with respect to each exercisable option.

While the plan has been approved by the security holders, no amounts are included in columns (a), (b), or (c) relating to the SAR.

Table excludes unvested inducement grants to Gerald Ng of 56,250 RSU and 5,000 PSU awards.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to the section captioned “Certain Relationships and Related Transactions” in the Proxy Statement relating to our annual meeting of shareholders to be held on May 15, 2025.

Proxy Statement will be filed within 120 days of our year-end.

The information required by this Item is incorporated by reference to the Proxy Statement relating to our annual meeting of shareholders to be held on June 11, 2026.

Principal Accounting Fees and Services

The information required by this Item with respect to principal accountant fees and services is incorporated by reference to the section captioned “Principal Accountant’s Fees and Services” in the Proxy Statement relating to our annual meeting of shareholders to be held on May 15, 2025.

Proxy Statement will be filed within 120 days of our year-end.

The information required by this Item is incorporated by reference to the Proxy Statement relating to our annual meeting of shareholders to be held on June 11, 2026.

Exhibits, Financial Statement Schedules

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See Exhibit 10.36.

Executive Employment Agreement with Charles DiBona and Amendment No.

1 to the Executive Employment Agreement with Charles DiBona.

See Exhibit 10.39.

List of Documents Filed as a Part of This Report:

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Seventh Amendment to Lease, between Data I/O Corporation and Alco Redmond East, LLC, made as of October 17, 2024.

Independent Contractor Agreement and Proposal and Statement of Work effective on April 28, 2025 between Data I/O Corporation and Theisen Advisory Group, LLC dba TAG CXO (Incorporated by reference to Form 10-Q filed on August 12, 2025).

Executive Employment Agreement with Charlies DiBona (Incorporated by reference to Form 8-K filed on August 12, 2025).

Amendment No.

1 to the Executive Employment Agreement with Charles DiBona (incorporated by reference to Form 8-K filed on August 14, 2025).

Insider Trading Policy

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DATA I/O CORPORATION

March 31, 2025

April 16, 2026 By:

/s/William Wentworth

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ William Wentworth

March 31, 2025

/s/William Wentworth April 16, 2026

President and Chief Executive Officer

1 unchanged sentence

(Principal Executive Officer), Director

/s/ Gerald Y.

March 31, 2025

Chief Financial Officer

Vice President

Secretary, Treasurer

(Principal Financial and Accounting Officer)

/s/ Charles J.

DiBona April 16, 2026

Chief Financial Officer Vice President

Secretary, Treasurer (Principal Financial and Accounting Officer)

/s/Douglas W.

March 31, 2025

/s/ Edward J.

March 31, 2025

Brown April 16, 2026

April 16, 2026

/s/Garrett Larson

March 31, 2025

April 16, 2026

Garrett Larson

/s/Steven Waszak

April 16, 2026

Steven Waszak

DATA I/O CORPORATION

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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 9A. Controls and Procedures