DATA I/O CORP 10-K

Item 8. Financial Statements and Supplementary Data See pages 32-57. 32 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Data I/O Corporation Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Data I/O Corporation (a Washington corporation) and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes and financial statement schedules included under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Net Realizable Value of Inventory As described further in Note 1 to the financial statements, management measures the net realizable value of inventory based on estimated reductions to inventory for obsolete, slow-moving, excess and non-salable inventory by reviewing current transactions and forecasted demand. We identified net realizable value of inventory specifically as a critical audit matter. 33 Table of Contents The principal considerations for our determination that the net realizable value of inventory represents a critical audit matter are that the assessment of the valuation of inventory is complex and includes an estimate of forecasted demand. The demand estimate is subjective and requires the Company to consider significant assumptions such as economic conditions, technological advances, historical usage, and consumer trends, which are subject to significant uncertainty and therefore require significant auditor judgement. Our audit procedures related to the net realizable value of inventory included the following, among others: · To test the adequacy of the Company’s allowance for excess and obsolete inventories, we performed substantive audit procedures that included, among others, testing the completeness and accuracy of the underlying data used in the estimation calculations, specifically those related to inventory movements and aging. We also evaluated the reasonableness of significant assumptions including the estimated reserve percentage and other significant assumptions through inquiry of management and personnel outside of finance team and analytical procedures. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2001. San Jose, California April 16, 2026 34 Table of Contents CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2025 December 31, 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,901 $ 10,326 Trade accounts receivable, net of allowance for credit losses of $ 29 and $ 22 , respectively 2,841 3,960 Inventories 5,710 6,212 Other current assets 799 659 TOTAL CURRENT ASSETS 17,251 21,157 Property, plant and equipment – net 807 1,001 Other assets 2,118 2,812 TOTAL ASSETS $ 20,176 $ 24,970 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,227 $ 820 Accrued compensation 958 1,517 Deferred revenue 1,464 1,535 Other accrued liabilities 1,328 1,161 Other income taxes payable 4 39 TOTAL CURRENT LIABILITIES 4,981 5,072 Deferred foreign income tax 250 - Operating lease liabilities 1,411 2,160 Long-term other payables 20 112 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, 9,391,922 shares as of December 31, 2025 and 9,236,040 shares as of December 31, 2024 24,062 23,475 Accumulated earnings (deficit) ( 10,974 ) ( 5,738 ) Accumulated other comprehensive income 426 ( 111 ) TOTAL STOCKHOLDERS’ EQUITY 13,514 17,626 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 20,176 $ 24,970 See notes to consolidated financial statements 35 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) For the Years Ended December 31, 2025 2024 Net sales $ 21,500 $ 21,769 Cost of goods sold 10,904 10,163 Gross margin 10,596 11,606 Operating expenses: Research and development 6,531 6,240 Selling, general and administrative 9,181 8,404 Total operating expenses 15,712 14,644 Operating income (loss) ( 5,116 ) ( 3,038 ) Non-operating income (loss): Interest income 130 273 Foreign currency transaction gain (loss) ( 10 ) 58 Total non-operating income (loss) 120 331 Income (loss) before income taxes ( 4,996 ) ( 2,707 ) Income tax (expense) benefit ( 240 ) ( 386 ) Net income (loss) $ ( 5,236 ) $ ( 3,093 ) Basic earnings (loss) per share $ ( 0.56 ) $ ( 0.34 ) Diluted earnings (loss) per share $ ( 0.56 ) $ ( 0.34 ) Weighted-average basic shares 9,329 9,150 Weighted-average diluted shares 9,329 9,150 36 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) For the Years Ended December 31, 2025 2024 Net Income (loss) $ ( 5,236 ) $ ( 3,093 ) Other comprehensive income: Foreign currency translation gain (loss) 537 ( 344 ) Comprehensive income (loss) $ ( 4,699 ) $ ( 3,437 ) See notes to consolidated financial statements 37 Table of Contents CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Accumulated Accumulated 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 options exercised - - - Stock awards issued, net of tax withheld 210,202 ( 246 ) - ( 246 ) Issuance of stock through: ESPP 5,019 14 - 14 Share-based compensation - 976 - 976 Net income (loss) - - ( 3,093 ) - ( 3,093 ) Other comprehensive income (loss) - - ( 344 ) ( 344 ) Balance at December 31, 2024 9,236,040 $ 23,475 $ ( 5,738 ) $ ( 111 ) $ 17,626 Stock options exercised - - - - - Stock awards issued, net of tax withheld 151,632 ( 124 ) - - ( 124 ) Issuance of stock through: ESPP 4,250 14 - - 14 Share-based compensation - 697 - - 697 Net income (loss) - ( 5,236 ) - ( 5,236 ) Other comprehensive income (loss) - - - 537 537 Balance at December 31, 2025 9,391,922 $ 24,062 $ ( 10,974 ) $ 426 $ 13,514 See notes to consolidated financial statements 38 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Twelve Months Ended December 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 5,236 ) $ ( 3,093 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 495 564 Equipment transferred to cost of goods sold 257 260 Share-based compensation 697 977 Net change in: 1,214 Trade accounts receivable 566 1,711 Inventories ( 135 ) ( 358 ) Other current assets ( 76 ) 29 Accounts payable and accrued liabilities ( 1,263 ) Deferred foreign income tax 250 Deferred revenue ( 245 ) 122 Other long-term liabilities ( 749 ) 1,458 Deposits and other long-term assets 735 ( 1,402 ) Net cash provided by (used in) operating activities ( 2,227 ) ( 995 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 558 ) ( 467 ) Cash provided by (used in) investing activities ( 558 ) ( 467 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock, less payments for shares withheld to cover tax ( 107 ) ( 232 ) Repurchase of common stock - - Payment of capital lease obligation - - Cash provided by (used in) financing activities ( 107 ) ( 232 ) Increase (decrease) in cash and cash equivalents ( 2,892 ) ( 1,694 ) Effects of exchange rate changes on cash 467 ( 321 ) Cash and cash equivalents at beginning of period 10,326 12,341 Cash and cash equivalents at end of period $ 7,901 $ 10,326 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 10 $ 459 See notes to consolidated financial statements 39 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 balance sheet date. Revenues, costs and expenses of foreign subsidiaries are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to stockholders’ equity. Realized and unrealized gains and losses resulting from the effects of changes in exchange rates on assets and liabilities denominated in foreign currencies are included in non-operating expense as foreign currency transaction gains and losses. Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of 90 days or less are considered cash equivalents. We maintain our cash and cash equivalents with major financial institutions in the United States of America, which are insured by the Federal Deposit Insurance Corporation (FDIC), and in foreign jurisdictions. Deposits in U.S. banks exceed the FDIC insurance limit. We have not experienced any losses on our cash and cash equivalents. Cash and cash equivalents held in foreign bank accounts, typically in local currency, in China and Germany, totaled $ 5.2 million and $ 4.3 million at December 31, 2025 and 2024, respectively. This cash held in subsidiaries have restrictions and costs associated with repatriations, currency conversions, and complying with government policies, regulations and controls, especially in China. Fair Value of Financial Instruments Certain financial instruments are carried at cost on the consolidated balance sheets, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and other short-term liabilities. Trade Accounts Receivable Majority of our accounts receivable are due from companies in the electronics manufacturing industries. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Account receivables are typically due within 30 to 60 days and are stated at amounts due net of an allowance for credit losses. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine the allowance by considering a number of factors, including a forward-looking expectation based upon the condition of the general economy and the industry as a whole and our previous bad debt experience, as well as the length of time trade accounts receivable are past due, the industry and geographic payment practices involved, and the customer’s current ability to pay their obligation to us. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for credit losses. 40 Table of Contents Inventories Inventories are stated at the lower of cost or net realizable value with cost being the currently adjusted standard cost, which approximates cost on a first-in, first-out basis. We estimate changes to inventory for obsolete, slow-moving, excess and potential non-salable inventory by reviewing current transactions and forecasted product demand. We evaluate our inventories on an item-by-item basis and record an adjustment (lower of cost or net realizable value) accordingly. Property, Plant and Equipment Property, plant and equipment, including leasehold improvements, are stated at cost, and depreciation is calculated over the estimated useful lives of the related assets or lease terms on the straight-line basis. We depreciate substantially all property, plant and equipment over periods of three to seven years. We depreciate leasehold improvements over the remaining portion of the lease or over the expected life of the asset if less than the remaining term of the lease. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Based on these evaluations, for the years ended December 31, 2025 and 2024, no impairment was noted or recorded for property, plant and equipment. Patent Costs We expense external costs, such as filing fees and associated attorney fees, incurred to obtain initial patents, but capitalize patents obtained through acquisition as intangible assets. We also expense costs associated with maintaining and defending issued patents. Income Taxes Income taxes 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 (“OB3”) was enacted, which includes provisions allowing for the immediate expensing of domestic research and experimental (“R&E”) expenditures under Section 174A, effective for tax years beginning after December 31, 2021. The Company has elected not to accelerate the amortization of unamortized R&E costs incurred in prior years. As a result, the Company continues to amortize R&E expenditures over the five-year period as previously required under Section 174. The Company will continue to evaluate the impact of OB3 on future periods. 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. 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 2025 and 2024, the impact of capitalization of incremental costs for obtaining contracts was 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. 41 Table of Contents 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. Total deferred revenue which represents undelivered performance obligations for installation, service, support and extended maintenance contracts was $ 1.5 million and $ 1.7 million and the portion expected to be recognized within one year was $ 1.5 million and $ 1.5 million for December 31, 2025 and 2024, respectively. Deferred revenue as of December 31, 2023 was $ 1.4 million. When we license software separately, we recognize revenue upon the transfer of control of the software, which is generally upon delivery, provided that only immaterial items in the context of the contract with the customer 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: 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 * 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 2024 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 15 for additional information regarding the revision of prior‑period disaggregated revenue amounts. 42 Table of Contents Leases – Accounting Standards Codification 842 Leases arise from contracts which convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. Our leasing arrangements are primarily for office and manufacturing facility space we use to conduct our operations. In addition, there are automobiles, and a small amount of office equipment leased. We determine whether contracts include a lease at the inception date, which is generally upon contract signing, considering factors such as whether the contract includes an asset which is physically distinct, which party obtains substantially all of the capacity and economic benefit of the asset, and which party directs how, and for what purpose, the asset is used during the contractual period of use. Our leases commence when the lessor makes the asset available for our use. At commencement, we record a lease liability at the present value of future lease payments, net of any future lease incentives to be received. Some of our lease agreements include cancellable future periods subject to termination or extension options. We include cancellable lease periods in our future lease payments when we are reasonably certain to continue to utilize the asset for those periods. We calculate the present value of future lease payments at commencement using a discount rate which we estimate as the collateralized borrowing rate we believe would be incurred on our future lease payments over a similar term. At commencement, we record a corresponding right-of-use asset, which is calculated based on the amount of the lease liability, adjusted for any advance lease payments paid, initial direct costs incurred or lease incentives received prior to commencement. Right-of-use assets are subject to evaluation for impairment or disposal on a basis consistent with other long-lived assets. Leases are classified at commencement as either operating or finance leases. As of December 31, 2025, all leases are classified as operating leases. Rent expense for operating leases is recognized on the straight-line method over the term of the agreement beginning on the lease commencement date. In accounting for leases, we utilize certain practical expedients and policy selections available under the lease accounting standard. We do not record right-of-use assets or lease liabilities for leases with terms of 12 months or less. For contracts containing real estate leases, we do not combine lease and non-lease components. The primary impact of this policy election is that we do not include in our calculation of lease liabilities any fixed and non-cancellable future payments due under the contract for items such as common area maintenance, utilities and other costs. Lease-related costs which are variable rather than fixed are expensed in the period incurred. Assumptions, judgments and estimates impacting the carrying value of our right-of-use assets and liabilities include evaluating whether an arrangement contains a lease, determining whether the lease term should include any cancellable future periods, estimating the discount rate used to calculate our lease liabilities, estimating the fair value and useful life of the leased asset for the purpose of classifying the lease as an operating or finance lease, evaluating whether a lease contract amendment represents a new lease agreement or a modification to the existing lease and evaluating our right-of-use assets for impairment. Research and Development Research and development costs are generally expensed as incurred. Advertising Expense Advertising costs are expensed as incurred. Total advertising expenses were approximately $ 139,000 and $ 92,000 for the years ending December 31, 2025 and 2024, respectively. Warranty Expense We record a liability for an estimate of costs that we expect to incur under our basic limited warranty when product revenue is recognized. Factors affecting our warranty liability include the number of units sold and historical and anticipated rates of claims and costs per claim. We normally provide a warranty for our products for defects for periods ranging from ninety days to one year. We provide for the estimated cost that may be incurred under our product warranties and periodically assess the adequacy of our warranty liability based on changes in the above factors. We record revenues on extended warranties on a straight-line basis over the term of the related warranty contracts. Service costs are expensed as incurred. Earnings (Loss) Per Share Basic earnings (loss) per share exclude any dilutive effects of stock options. Basic earnings (loss) per share are computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted-average number of common shares and common stock equivalent shares outstanding during the period. The common stock equivalent shares from equity awards used in calculating diluted earnings per share were 86,000 and 74,000 for the years ended December 31, 2025 and 2024, respectively. Excluded from the computation of diluted earnings per share were options to purchase 200,000 and 200,000 shares of common stock because of the net loss in 2025 and 2024, thus the options were anti-dilutive for the years ended December 31, 2025 and 2024, respectively. 43 Table of Contents Diversification of Credit Risk Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of trade receivables. Our trade receivables are geographically dispersed and include customers in many different industries. Our consolidated accounts receivable balance as of December 31, 2025 and 2024 includes foreign accounts receivable in the functional currency of our foreign subsidiaries amounting to $ 612,000 and $ 1.2 million, respectively. We generally do business with our foreign distributors in U.S. Dollars. We believe that the risk of loss is significantly reduced due to the diversity of our end customers and sales geographies. We perform on-going credit evaluations of our customers’ financial conditions and require collateral, such as letters of credit and bank guarantees, or prepayment whenever deemed necessary. The following represented greater than 10% of our accounts receivable for the applicable years: Percentage of Accounts Receivable 2025 2024 Number of customers 3 2 Approximate percentage of accounts receivable balance 49 % 43 % Percentage of Customer 1 19 % 30 % Percentage of Customer 2 16 % 13 % Percentage of Customer 3 14 % - Diversification of Net Sales The following represented greater than 10% of net sales for the applicable years: Percentage of Net Sales 2025 2024 Number of customers 3 2 Approximate percentage of net sales 41 % 34 % Percentage of Customer 1 18 % 19 % Percentage of Customer 2 12 % 15 % Percentage of Customer 3 11 % - Reclassifications Certain prior‑year amounts have been reclassified within the notes to the consolidated financial statements to conform to the current‑year presentation. These reclassifications had no impact on the consolidated balance sheets, statements of operations, statements of comprehensive income (loss), statements of stockholders’ equity or cash flows as previously reported. New Accounting Pronouncements – Standards Issued and Implemented 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 Company’s annual period beginning January 1, 2025, and has been applied on a prospective basis in these consolidated financial statements. 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, 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. 44 Table of Contents NOTE 2 – TRADE ACCOUNTS RECEIVABLE, NET December 31, 2025 December 31, 2024 (in thousands) Trade accounts receivable $ 2,870 $ 3,982 Less allowance for credit losses 29 22 Trade accounts receivable, net* $ 2,841 $ 3,960 ________________ Trade accounts receivable, net was $5.7 million as of December 31, 2023. Changes in Data I/O’s allowance for credit losses are as follows: December 31, 2025 December 31, 2024 (in thousands) Beginning balance $ 22 $ 72 Credit loss (reversal) 7 ( 3 ) Accounts written-off - ( 47 ) Ending balance $ 29 $ 22 NOTE 3 – INVENTORIES December 31, 2025 December 31, 2024 (in thousands) Raw material $ 2,912 $ 3,273 Work-in-process 1,661 1,845 Finished goods 1,137 1,094 Inventories $ 5,710 $ 6,212 NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET December 31, 2025 December 31, 2024 (in thousands) Leasehold improvements $ 356 $ 343 Equipment 4,242 3,777 Sales demonstration equipment 1,029 1,031 5,627 5,151 Less accumulated depreciation 4,820 4,150 Property and equipment, net $ 807 $ 1,001 Total depreciation expense recorded for 2025 and 2024 was $ 495,000 and $ 564,000 , respectively. 45 Table of Contents NOTE 5 – OTHER ACCRUED LIABILITIES Other accrued liabilities consisted of the following components: December 31, 2025 December 31, 2024 (in thousands) Lease liability - short term $ 690 $ 640 Product warranty 517 350 Sales return reserve 32 32 Other taxes 60 69 Other 29 70 Other accrued liabilities $ 1,328 $ 1,161 The changes in our product warranty liability for the year ended: December 31, 2025 December 31, 2024 (in thousands) Liability, beginning balance $ 350 $ 449 Net expenses 576 901 Warranty claims ( 576 ) ( 901 ) Accrual revisions 167 ( 99 ) Liability, ending balance $ 517 $ 350 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. 46 Table of Contents 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 Redmond lease was renewed and extended by 3.75 years and the Shanghai, China lease was renewed and extended by 3 years. Right-of-use assets obtained in exchange for lease liabilities was approximately $2.5 million the year ended December 31, 2024 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 December 31, 2025 and 2024: Year Ended December 31, 2025 2024 (in thousands) Right-of-use assets (Long-term other assets) $ 2,005 $ 2,704 Lease liability-short term (Other accrued liabilities) $ 690 $ 640 Lease liability-long term (Operating lease liabilities) $ 1,411 $ 2,064 At December 31, 2025, the weighted average remaining lease term is 3.2 years and the weighted average discount rate is 5 %. Lessor Arrangements During the year ended December 31, 2025, the Company recognized approximately $0.6 million of revenue from one sales‑type lease related to the lease of programming equipment, which is included in Platform Sales in the consolidated statements of operations. The Company did not recognize sales‑type lease revenue during the year ended December 31, 2024. The Company does not typically enter into sales‑type lease arrangements and does not expect such arrangements to be recurring. We determined the residual value of this leased equipment based on its estimated end-of-term market value. We estimate the residual value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale market sales prices, past remarketing experience and any known significant market/product trends. We also consider the following critical factors in our residual value estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model changes, quantities, third-party residual guarantees and contractual customer purchase options. Although the lease permits month‑to‑month continuation, the Company has concluded that the lessee is reasonably certain to exercise the purchase option. Accordingly, as of December 31, 2025, substantially all remaining undiscounted lease payments related to the Company’s sales‑type lease are expected to be received in 2026. The timing of such payments is consistent with the Company’s estimate of the exercise of the purchase option and supports the carrying amount of the net investment in the lease recognized as of December 31, 2025. At December 31, 2025, the Company’s net investment in sales‑type leases was $0.4 million, which is included in Trade accounts receivable, net on the consolidated balance sheets. The net investment represents the present value of future lease payments and the expected purchase option proceeds, discounted at the rate implicit in the lease. NOTE 7 – 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. On December 31, 2025, we had contracts with a commitment of approximately $ 905,000 , of which approximately $ 585,000 is expected to be paid during 2026, $160,000 during 2027, $160,000 during 2028, $0 during 2029, 2030 and thereafter. 47 Table of Contents 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 management’s opinion, individually or in aggregate, would have a material adverse effect on our results of operations or financial position. NOTE 9 – STOCK AND RETIREMENT PLANS Stock Option Plans At December 31, 2025, there were 400,838 shares available for future grant under the Data I/O Corporation 2023 Omnibus Incentive Compensation Plan (the “2023 Plan”). At December 31, 2025, there were shares of Common Stock reserved for issuance for outstanding awards. Pursuant to the 2023 Plan, options are granted to our officers and key employees with exercise prices equal to the fair market value of the Common Stock at the date of grant and generally vest over four years. Options granted under the plan have a maximum term of six years from the date of grant. Stock awards are granted under the 2023 Plan which for RSU awards generally vest over three or four years and one year for non-employee Directors. Performance Share Unit (PSU) awards vest based upon three-year performance achievement. The performance measures for the PSUs awarded in 2023 are cumulative revenue growth over the three-year period ending December 31, 2025. The performance measures for the PSUs awarded in 2024 are revenue growth targets, EBITDA targets and for Engineers, project objectives for the three-year period ending December 31, 2026. There were no PSU awards granted in 2025. Employee Stock Purchase Plan Under the Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of our Common Stock at six-month intervals at 95% of the fair market value on the last day of each six-month period. Employees may purchase shares having a value not exceeding ten percent of their gross compensation during an offering period. During 2025 and 2024, a total of 4,250 and 5,019 shares, respectively, were purchased under the plan at average prices of $ 3.00 and $ 2.85 per share, respectively. At December 31, 2025 and 2024, 14,637 and 16,955 shares were reserved for future grant respectively. Stock Appreciation Rights Plan We have a Stock Appreciation Rights (“SAR”) Plan under which each director, executive officer or holder of 10% or more of our Common Stock has a SAR with respect to each exercisable stock option. The SAR entitles the SAR holder to receive cash from us for the difference between the market value of the stock and the exercise price of the option in lieu of exercising the related option. SARs are only exercisable following a tender offer or exchange offer for our stock or following approval by shareholders of any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of more than 50% of the common shares outstanding. As no event has occurred which would make the SARs exercisable, and no such event is deemed probable, no compensation expense has been recorded under this plan. At December 31, 2025 and 2024, there were 200,000 and 200,000 SARs outstanding, respectively. Retirement Savings Plan We have a savings plan that qualifies as a cash or deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S. employees may defer their pre-tax salary or post-tax salary if Roth is elected, subject to IRS limitations. In fiscal year 2025, we contributed one dollar for each dollar contributed by a participant on the first two percent and $.50 for each dollar contributed by participant on the next four percent of a participant’s eligible earnings. Our matching contribution expense for the savings plan, net of forfeitures, was approximately $ 197,000 and $ 217,000 in 2025 and 2024, respectively. Employer matching contributions owed to the plan were $ 219,000 and $ 230,000 at December 31, 2025 and 2024, respectively. 48 Table of Contents 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. 49 Table of Contents Restricted stock award activity including performance-based stock award activity under our share-based compensation plan was as follows: 2025 2024 Awards Weighted - Average Grant Date Fair Value Awards Weighted - Average Grant Date Fair Value Outstanding at beginning of year 471,900 $ 3.55 728,625 $ 4.17 Granted 212,348 2.76 363,150 2.87 Vested ( 195,775 ) 3.62 ( 296,209 ) 4.12 Cancelled ( 120,343 ) 3.61 ( 323,666 ) 3.66 Outstanding at end of year 368,130 $ 3.04 471,900 $ 3.55 During the years ended December 31, 2025 and 2024, 1,100 and 86,507 shares, respectively, were withheld from issuance related to restricted stock units vesting and stock option exercises to cover employee taxes and stock options exercise price. Non-employee directors 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. 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. 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. The table above includes performance shares granted in 2024 of 124,000 shares at the target performance level ( the threshold level would be 50% and the maximum level would be 150% of the target level ). The remaining unamortized expected future compensation expense and remaining amortization period associated with unvested option grants and restricted stock awards are: December 31, 2025 December 31, 2024 Unamortized future compensation expense $ 924,149 $ 1,413,500 Remaining weighted average amortization period in years 1.90 2.31 The weighted average number of shares outstanding used to compute earnings (loss) per share included the following: Year Ended December 31, 2025 2024 Weighted average shares outstanding 9,328,776 9,149,538 Restricted and Performance Stock Units - - Stock Options - - Weighted average shares 9,328,776 9,149,538 NOTE 11 – SHARE REPURCHASE PROGRAMS Data I/O did not have a share repurchase program in 2025 or 2024. 50 Table of Contents 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. 51 Table of Contents 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 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the year ended December 31, 2024: (In thousands) 2024 Statutory tax $ ( 568 ) State and foreign income tax, net of federal income tax benefit 150 Valuation allowance for deferred tax assets 804 Foreign sourced deemed dividend income 175 Stock based compensation ( 168 ) Other ( 7 ) Total income tax expense (benefit) (effective tax rate of ( 14.3 %)) $ 386 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 makes 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. As noted in the 2025 rate reconciliation above, we derive the effective tax rate benefit, or detriment, attributed to non-U.S. income taxed at different rates primarily from our operations in China, among others. 52 Table of Contents Deferred Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at the end of each period were as follows: (In thousands) 2025 2024 Allowance for credit losses $ 6 $ 4 Inventory and product return reserves 1,419 1,666 Compensation accruals 3,013 2,791 Book-over-tax depreciation and amortization 20 12 Foreign net operating loss carryforwards 415 241 U.S. net operating loss carryforwards 4,063 2,983 U.S. credit carryforwards 1,642 1,564 Gross deferred tax assets $ 10,578 $ 9,261 Valuation allowance ( 10,506 ) ( 9,239 ) Total net deferred tax assets $ 72 $ 22 Deferred tax liabilities: (In thousands) 2025 2024 Accrued liabilities $ ( 72 ) $ ( 22 ) Deferred tax liabilities - foreign ( 250 ) - Total gross deferred tax liabilities ( 322 ) ( 22 ) $ ( 250 ) $ 0 Changes in the valuation allowance for deferred tax assets were as follows: 2025 Balance at Beginning of Year $ 9,239 Additions charged to expenses/other accounts 1,267 (Deductions) recoveries, net - Balance at End of Year $ 10,506 The change in valuation allowance is substantially attributable to the uncertainty regarding the realizability of our U.S. deferred tax assets. As of December 31, 2025, our federal and non-U.S. net operating loss carryforwards for income tax purposes were $ 19,345,000 and $ 1,690,000 respectively. The majority of the federal and non-U.S. net operating loss carryforwards have multiple expiration dates. The remaining federal U.S. net operating loss carryforwards expire at various dates through 2034.The Company has determined that certain undistributed earnings of its foreign subsidiaries are indefinitely reinvested. Accordingly, no deferred income taxes have been recorded on those earnings. The deferred tax liability related to these indefinitely reinvested earnings that has not been recognized was approximately $ 294,000 as of December 31, 2025. Deferred income taxes have been recorded for undistributed foreign earnings that are expected to be repatriated. Uncertain Tax Positions (In thousands) 2025 2024 Beginning gross unrecognized tax benefits $ 442 $ 430 Settlements and effective settlements with tax authorities - - Changes in balances related to tax position taken during prior periods - - Changes in balances related to tax position taken during current period ( 31 ) 12 Ending gross unrecognized tax benefits $ 411 $ 442 53 Table of Contents Historically, we have incurred minimal interest expense, and no penalties associated with tax matters. We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense. Tax years that remain open for examination include 2022, 2023, 2024 and 2025 in the United States of America. In addition, various tax years from 2004 to 2014 may be subject to examination if we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns. Income Tax Paid We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025: (In thousands) 2025 Federal taxes $ 0 State taxes 2 Foreign taxes (China, others minimal) 8 Total income tax paid $ 10 54 Table of Contents 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 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: 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 costs 1,259 1,268 Professional and outside services 2,953 2,025 Occupancy costs 980 787 Depreciation and amortization 460 540 Other expense (income) 847 309 Total operating expense 15,712 14,644 Operating income (loss) $ ( 5,116 ) $ ( 3,038 ) 55 Table of Contents NOTE 14 – GEOGRAPHIC INFORMATION Major operations outside the U.S. include sales, engineering and service support by subsidiaries in Germany as well as in China, which also manufactures some of our products. None of our employees are represented by a collective bargaining agreement. We determine international sales by the international geographic destination into which the products are sold and delivered and include not only sales by foreign subsidiaries but also export sales from the U.S. to our foreign distributors and to our representatives’ customers. Certain revenues recognized over time (for instance, multi-period service contracts under ASC 606) are allocated to geographic regions based on estimates, because our systems do not track the country of these revenues as they are deferred and recognized. In such cases, we allocate revenue to countries proportionally based on the initial contract value by country, which we believe is a reasonable approximation. International sales do not include transfers between Data I/O and our foreign subsidiaries. Long-lived assets are reported in the region where the asset is physically located, and consist of property, plant and equipment and other long-term assets. The following tables provide summary operating information by geographic area: Year Ended December 31, (in thousands) 2025 2024 Net sales by location: United States $ 1,289 $ 1,377 International 20,211 20,392 $ 21,500 $ 21,769 International sales: Germany $ 4,236 $ 3,483 China 3,913 4,136 Mexico 3,763 3,701 Korea 2,516 3,265 Long-lived assets by location: United States $ 1,874 $ 2,500 Germany 310 446 China 747 927 $ 2,931 $ 3,873 56 Table of Contents NOTE 15 – 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 year ended December 31, 2024. 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 year ended December 31, 2024 to enhance comparability. Effect of Revision Net sales by type 2024 As Previously Reported Effect of Revision 2024 As Revised (in thousands) Platform Sales $ 10,985 $ ( 519 ) $ 10,466 Adapter Sales 7,250 ( 60 ) 7,190 Software and Services Sales* 3,534 579 4,113 Total $ 21,769 $ 0 $ 21,769 * includes service and parts sales associated with equipment service contracts 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 Company’s 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 IAR’s security expertise with Data I/O’s 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. 57 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . None.