10-Q

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

Commission file number: 0-10394

DATA I/O CORPORATION

(Exact name of registrant as specified in its charter)

Washington	91-0864123
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6645 185th Ave NE, Suite 100, Redmond, Washington, 98052

425-881-6444

(Address of principal executive offices, including zip code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	DAIO	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, ”accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

Shares of Common Stock, no par value, outstanding as of April 30, 2024:  9,025,135

DATA I/O CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 2024
INDEX
Part I.	Financial Information	Page
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II	Other Information
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
Signatures		23

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(UNAUDITED)
	March 31, 2024			December 31, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,999		$	12,341
Trade accounts receivable, net of allowance for credit losses of $71 and $72, respectively		4,822			5,707
Inventories		6,372			5,875
Other current assets		739			690
TOTAL CURRENT ASSETS		23,932			24,613
Property, plant and equipment – net		1,044			1,359
Other assets		1,228			1,429
TOTAL ASSETS	$	26,204		$	27,401
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,544		$	1,272
Accrued compensation		1,318			2,003
Deferred revenue		1,606			1,362
Other accrued liabilities		1,271			1,438
Income taxes payable		45			113
TOTAL CURRENT LIABILITIES		5,784			6,188
Operating lease liabilities		562			702
Long-term other payables		226			192
COMMITMENTS		-			-
STOCKHOLDERS’ EQUITY
Preferred stock -
Authorized, 5,000,000 shares, including 200,000 shares of Series A Junior Participating Issued and outstanding, none		-			-
Common stock, at stated value -
Authorized, 30,000,000 shares Issued and outstanding, 9,024,959 shares as of March 31, 2024 and 9,020,819 shares as of December 31, 2023		23,019			22,731
Accumulated earnings (deficit)		(3,452	)		(2,645	)
Accumulated other comprehensive income		65			233
TOTAL STOCKHOLDERS’ EQUITY		19,632			20,319
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	26,204		$	27,401
See notes to consolidated financial statements

3

DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
	Three Months Ended March 31,
	2024			2023
Net sales	$	6,099		$	7,231
Cost of goods sold		2,879			2,929
Gross margin		3,220			4,302
Operating expenses:
Research and development		1,582			1,625
Selling, general and administrative		2,498			2,508
Total operating expenses		4,080			4,133
Operating income (loss)		(860	)		169
Non-operating income (loss):
Interest income		80			35
Foreign currency transaction gain (loss)		14			(74	)
Total non-operating income (loss)		94			(39	)
Income (loss) before income taxes		(766	)		130
Income tax (expense) benefit		(41	)		(35	)
Net income (loss)	$	(807	)	$	95
Basic earnings (loss) per share	$	(0.09	)	$	0.01
Diluted earnings (loss) per share	$	(0.09	)	$	0.01
Weighted-average basic shares		9,023			8,818
Weighted-average diluted shares		9,023			9,029
See notes to consolidated financial statements

4

DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(UNAUDITED)
	Three Months Ended March 31,
	2024			2023
Net income (loss)	$	(807	)	$	95
Other comprehensive income (loss):
Foreign currency translation gain (loss)		(168	)		65
Comprehensive income (loss)	$	(975	)	$	160
See notes to consolidated financial statements

5

DATA I/O CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(UNAUDITED)
								Accumulated
					Retained			and Other			Total
	Common Stock				Earnings			Comprehensive			Stockholders'
	Shares		Amount		(Deficit)			Income (Loss)			Equity
Balance at December 31, 2022		8,816,381	$	21,897	$	(3,131	)	$	343		$	19,109
Stock awards issued, net of tax withholding		-		-		-			-			-
Issuance of stock through: ESPP		1,695		7		-			-			7
Share-based compensation		-		249		-			-			249
Net income (loss)		-		-		95			-			95
Other comprehensive income (loss)				-		-			65			65
Balance at March 31, 2023		8,818,076	$	22,153	$	(3,036	)	$	408		$	19,525
Balance at December 31, 2023		9,020,819	$	22,731	$	(2,645	)	$	233		$	20,319
Stock awards issued, net of tax withholding		1,759		-		-			-			-
Issuance of stock through: ESPP		2,381		7		-			-			7
Share-based compensation		-		281		-			-			281
Net income (loss)		-		-		(807	)		-			(807	)
Other comprehensive income (loss)				-		-			(168	)		(168	)
Balance at March 31, 2024		9,024,959	$	23,019	$	(3,452	)	$	65		$	19,632
See notes to consolidated financial statements

6

DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
	For the Three Months Ended March 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(807	)	$	95
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		202			158
Equipment transferred to cost of goods sold		251			97
Share-based compensation		281			249
Net change in:
Trade accounts receivable		885			56
Inventories		(496	)		(225	)
Other current assets		(49	)		(39	)
Accounts payable and accrued liabilities		(649	)		(46	)
Deferred revenue		279			141
Other long-term liabilities		(140	)		(88	)
Deposits and other long-term assets		202			65
Net cash provided by (used in) operating activities		(41	)		463
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(139	)		(183	)
Cash provided by (used in) investing activities		(139	)		(183	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, less payments for shares withheld to cover tax		7			7
Repurchase of common stock		-			-
Payment of capital lease obligation		-			-
Cash provided by (used in) financing activities		7			7
Increase (decrease) in cash and cash equivalents		(173	)		287
Effects of exchange rate changes on cash		(169	)		71
Cash and cash equivalents at beginning of period		12,341			11,510
Cash and cash equivalents at end of period	$	11,999		$	11,868
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	109		$	24
See notes to consolidated financial statements

7

DATA I/O CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Data I/O Corporation (“Data I/O”, “We”, “Our”, “Us”) is a global market leader for advanced programming, security deployment, security provisioning and associated Intellectual Property (“IP”) protection and management solutions used in electronics manufacturing with flash memory, microcontrollers, and flash memory-based intelligent devices as well as secure element devices, authentication devices and secure microcontrollers.  Customers for our programming system products are located around the world, primarily in Asia, Europe and the Americas. Our manufacturing operations are currently located in Redmond, Washington, United States and Shanghai, China.

We prepared the financial statements as of March 31, 2024 and March 31, 2023 according to the rules and regulations of the Securities and Exchange Commission ("SEC").  These statements are unaudited but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented.  The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date.  We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations.  Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 

Significant Accounting Policies

These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2023 (filed with the SEC on March 27, 2024).  There have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

Revenue Recognition

Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) provides a single, principles-based five-step model to be applied to all contracts with customers.  It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.   

We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year.  During the first quarter of 2024 and 2023, 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 and that the installation meets the criteria to be a separate performance obligation.  These systems are standard products with published product specifications and are configurable with standard options.  The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.

8

The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment.  Installation that is considered perfunctory includes any installation that is expected to be performed by other parties, such as distributors, other vendors, or the customers themselves.  This analysis considers the complexity, skill and training needed as well as customer expectations regarding installation.

We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, installation, services and support and extended maintenance components.  We allocate the transaction price of each element based on the relative selling prices.  Relative selling price is based on the selling price of the standalone system.  For the installation and service and support performance obligations, we use the value of the discount given to distributors who perform these components.  For software maintenance performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold.  Revenue is recognized on the system based on shipping terms, software based on delivery, installation and services based on completion of work, and software maintenance and extended warranty support ratably over the term of the agreement, typically one year.  Total deferred revenue which represents undelivered performance obligations for installation, service, support and extended contracts were $1.8 million and $2.0 million for March 31, 2024 and 2023, respectively, and the portion expected to be recognized within one year was $1.6 million and $1.7 million for March 31, 2024 and 2023, respectively.

When we sell 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:

	Three Months Ended
Net sales by type	March 31, 2024		Change	March 31, 2023
(in thousands)
Equipment	$	3,366	(16.9%)	$	4,051
Adapter		1,846	(18.6%)		2,267
Software and Maintenance		887	(2.8%)		913
Total	$	6,099	(15.7%)	$	7,231

Share-Based Compensation

All stock-based compensation awards are measured based on estimated fair values on the date of grant and recognized as compensation expense on the straight-line method.  Our share-based compensation is reduced for estimated forfeitures at the time of grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.

9

Income Tax

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.

Recently Adopted Accounting Pronouncements

For the three months ended March 31, 2024, there were no recently issued accounting pronouncements that had or are expected to have, a material impact on Data I/O Corporation’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

NOTE 2 – INVENTORIES

Inventories consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Raw material	$	3,405	$	3,328
Work-in-process		1,720		1,596
Finished goods		1,247		951
Inventories	$	6,372	$	5,875

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, NET

Property and equipment consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Leasehold improvements	$	389	$	394
Equipment		4,822		4,977
Sales demonstration equipment		969		1,396
		6,180		6,767
Less accumulated depreciation		5,136		5,408
Property and equipment, net	$	1,044	$	1,359

10

NOTE 4 – OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Lease liability - short term	$	727	$	798
Product warranty		417		449
Sales return reserve		32		32
Other taxes		38		69
Other		57		90
Other accrued liabilities	$	1,271	$	1,438

The changes in our product warranty liability for the three months ending March 31, 2024 and year ended December 31, 2023 are as follows:

	March 31, 2024			December 31, 2023
(in thousands)
Liability, beginning balance	$	449		$	425
Net expenses		246			902
Warranty claims		(246	)		(902	)
Accrual revisions		(32	)		24
Liability, ending balance	$	417		$	449

NOTE 5 – OPERATING LEASE COMMITMENTS

We have commitments under non-cancelable operating leases and other agreements, primarily for factory and office space, with initial or remaining terms of one year or more as of March 31, 2024 are as follows:

	March 31, 2024 Operating Lease Commitments
(in thousands)
2024 (remaining)	$	614
2025		583
2026		127
2027		47
2028 & Thereafter		0
Total	$	1,371
Less imputed interest		(82	)
Total operating lease liabilities	$	1,289

For the largest lease component, the Company has three facilities with our headquarters and primary engineering and operational functions located in Redmond, Washington.  Our two subsidiary facilities in Munich, Germany and Shanghai, China provide extended worldwide sales, service, engineering and operation services.  The components of our lease expense for the three months ended March 31, 2024 and 2023 include facility related operating lease costs of $213,000 and $215,000, respectively, and short-term lease costs of $8,000 and $7,000, respectively. There were no new operating leases during the three months ended March 31, 2024.

11

The Redmond, Washington headquarters facility lease runs to January 31, 2026 at approximately 20,460 square feet.  The lease for the facility located in Shanghai, China runs to October 31, 2024 at approximately 19,400 square feet.  The lease for the facility located near Munich, Germany runs to August 2027 at approximately 4,895 square feet.

The following table presents supplemental balance sheet information related to leases as of March 31, 2024 and December 31, 2023:

	Balance at March 31, 2024		Balance at December 31, 2023
(in thousands)
Right-of-use assets (Long-term other assets)	$	1,162	$	1,363
Lease liability-short term (Other accrued liabilities)		727		798
Lease liability-long term (Operating lease liabilities)		562		703

At March 31, 2024, the weighted average remaining lease term is 1.98 and the weighted average discount rate used is 5%.

NOTE 6 – OTHER COMMITMENTS

We have purchase obligations for inventory and production costs as well as other obligations such as capital expenditures, service contracts, marketing, and development agreements.  Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction.  Most arrangements are cancelable without a significant penalty, and with short notice, typically less than 90 days.  At March 31, 2024, we had one contract with a commitment of approximately $174,000 to be paid in 2024 and $251,000 to be paid beyond one year.

NOTE 7 – CONTINGENCIES

As of March 31, 2024, 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 the aggregate, would have a material adverse effect on our results of operations or financial position. 

NOTE 8 – INCOME TAXES

Income tax expense for the first quarter of both 2024 and 2023, primarily related to foreign and minor state taxes. 

The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances, as well as foreign taxes.  We have a valuation allowance of $8.9 million as of March 31, 2024.  As of March 31, for both 2024 and 2023, our deferred tax assets and valuation allowance have been reduced by approximately $434,000 and $429,000, respectively.  Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of net deferred tax assets including our net operating losses and credit carryforwards and continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance. 

NOTE 9 – EARNINGS PER SHARE

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period.  Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method. 

Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be anti-dilutive.

12

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended
	March 31, 2024			March 31, 2023
(in thousands except per share data)
Numerator for basic and diluted earnings (loss) per share:
Net income (loss)	$	(807	)	$	95
Denominator for basic earnings (loss) per share:
Weighted-average shares		9,023			8,818
Employee stock options and awards		-			211
Denominator for diluted earnings (loss) per share:
Adjusted weighted-average shares & assumed conversions of stock options		9,023			9,029
Basic and diluted
earnings (loss) per share:
Basic earnings (loss) per share	$	(0.09	)	$	0.01
Diluted earnings (loss) per share	$	(0.09	)	$	0.01

Options to purchase 12,500 were outstanding as of March 31, 2024 and 2023, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.

NOTE 10 – SHARE-BASED COMPENSATION

For share-based awards granted, we have recognized compensation expense based on the estimated grant date fair value method.  For these awards we have recognized compensation expense using a straight-line amortization method and reduced for estimated forfeitures.  

The impact on our results of operations of recording share-based compensation, net of forfeitures, for the three months ended March 31, 2024 and 2023 were as follows:

	Three Months Ended
	March 31, 2024		March 31, 2023
(in thousands)
Cost of goods sold	$	23	$	18
Research and development		65		48
Selling, general and administrative		193		183
Total share-based compensation	$	281	$	249

Equity awards granted during the three months ended March 31, 2024 and 2023 were as follows:

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		-		10,000

13

Non-employee director Restricted Stock Units (“RSUs”) typically vest over the earlier of one year or the next annual meeting of shareholders and Non-Qualified stock options vest over three years and have a six-year exercise period.  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”), granted in 2023, typically cliff vest at the end of the performance period and the performance metric is cumulative revenue growth over the three-year period ending December 31, 2025 with a cumulative revenue threshold, target, and maximum performance measure.

The remaining unamortized expected future equity compensation expense and remaining amortization period associated with award grants of unvested options, PSUs and RSUs at March 31, 2024 and 2023 are:

	Three Months Ended
	March 31, 2024		March 31, 2023
Unamortized future equity compensation expense (in thousands)	$	2,035	$	1,823
Remaining weighted average amortization period (in years)		2.29		2.37

The weighted average number of shares outstanding used to compute earnings (loss) per share included the following:

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		118,903		210,545
Performance Stock Units		2,935		0
Stock Options		174		234

14

Item2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results.  All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking.  In particular, statements herein regarding economic outlook; industry prospects and trends; expected business recovery; industry partnerships; future results of operations or financial position; future spending; expected expenses, breakeven revenue point; expected market decline, bottom or growth; market acceptance of our newly introduced or upgraded products or services; the sufficiency of our cash to fund future operations and capital requirements; development, introduction and shipment of new products or services; changing foreign operations; taxes, trade issues and tariffs; expected inventory levels; expectations for unsupported platform or product versions and related inventory and other charges; Russian invasion of Ukraine impacts; Israel–Hamas war impacts; supply chain expectations; semiconductor chip shortages and recovery; and any other guidance on future periods are forward-looking statements.  Forward-looking statements reflect management’s current expectations and are inherently uncertain.  Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or other future events.  Moreover, neither Data I/O nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements.  We are under no duty to update any of these forward-looking statements after the date of this Annual Report.  The Reader should not place undue reliance on these forward-looking statements. The following discussions and the 2023 Annual Report on Form 10-K section entitled “Risk Factors – Cautionary Factors That May Affect Future Results” describes some, but not all, of the factors that could cause these differences.

OVERVIEW

First quarter revenue at $6.1 million was down 16% compared with $7.2 million from the prior year period, reflecting lower backlog coming into the period plus timing of shipments from new bookings.  First quarter bookings were at $8.1 million, up 41% from the prior year on strong opportunity conversion in Europe and Asia.  As a result, backlog increased $1.7 million during the first quarter to $4.5 million as of March 31, 2024.  Most of these bookings are expected to be shipped and recognized as revenue in the second half of 2024.

Data I/O has a broad product portfolio and diversified international market presence as reflected in our revenue mix by product and geography.  The Americas region has seen tremendous growth over the past two years due to capacity expansion and is expected to absorb this capacity in 2024.  Our strong first quarter bookings performance was a result of diversification as strength in Europe and Asia offset lower orders in the Americas region.

Research and development efforts remain focused on strategic growth markets, namely automotive electronics and IoT new programming technologies, secure supply chain solutions, automated programming systems and their enhancements for the manufacturing environment and software. At Data I/O, we are investing for the long-term to retain and extend our leadership position in automotive electronics and security deployment. We are continuing to develop technology to securely provision newer categories of semiconductors, including Secure Microcontrollers, Authentication Chips, and Secure Elements. We continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices, including various configurations of NAND Flash, eMMC, UFS and microcontrollers on our newer products.

Furthermore, Data I/O remains focused on growth from the Automotive, Industrial and Prorgramming Center markets worldwide combined with spending controls, process efficiencies and operating leverage.  The continued outlook by industry analysts for automotive electronics, which remains our primary market focus, remains strong based on the long-term forecast for a decade. In the first quarter of 2024, Data I/O continued to expand its market penetration while reducing operating expenses.  This approach to disciplined growth remains a priority in 2024.

15

CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to revenue recognition, sales returns, credit losses, inventories, income taxes, warranty obligations, restructuring charges, contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry.  We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions. 

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:

Revenue Recognition:  Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) provides a single, principles-based five-step model to be applied to all contracts with customers.  It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.   

We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year.  During the first quarter of 2024 and 2023, 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 and that the installation meets the criteria to be a separate performance obligation.  These systems are standard products with published product specifications and are configurable with standard options.  The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.

The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment.  Installation that is considered perfunctory includes any installation that is expected to be performed by other parties, such as distributors, other vendors, or the customers themselves.  This analysis considers the complexity, skill and training needed as well as customer expectations regarding installation.

We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, installation, services and support and extended maintenance components.  We allocate the transaction price of each element based on the relative selling prices.  Relative selling price is based on the selling price of the standalone system.  For the installation and service and support performance obligations, we use the value of the discount given to distributors who perform these components.  For software maintenance performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold.  Revenue is recognized on the system based on shipping terms, software based on delivery, installation and services based on completion of work and software maintenance and extended warranty support ratably over the term of the agreement, typically one year.

When we sell 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.

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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.

Allowance for Credit Losses:  We base the allowance for credit losses on our assessment of the losses collectively expected for the future, as well as collectability of specific customer accounts and the aging of accounts receivable.  If there is deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, or events forecast that collectively indicate some impairment is expected, our estimates of the recoverability of amounts due to us could be adversely affected. 

Inventory: Inventories are stated at the lower of cost or net realizable value.  Adjustments are made to standard cost, which approximates actual cost on a first-in, first-out basis.  We estimate reductions to inventory for obsolete, slow-moving, excess and non-salable inventory by reviewing current transactions and forecasted product demand.  We evaluate our inventories on an item-by-item basis and record inventory adjustments accordingly.  If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments and our gross margin could be adversely affected. 

Warranty Accruals:  We accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations.  If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be adversely affected. 

Tax Valuation Allowances:  Given the uncertainty created by our loss history, as well as cyclical economic outlook for our industry, capital and geographic spending, as well as income and current net deferred tax assets by entity and country, we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances.  At the current time, we expect, therefore, that reversals of the tax valuation allowance will take place as we are able to take advantage of the underlying tax loss or other attributes in carry forward or their use by future income or circumstances allow us to realize these attributes.  The transfer pricing and expense or cost sharing arrangements are complex areas where judgments, such as the determination of arms-length arrangements, can be subject to challenges by different tax jurisdictions. 

Share-based Compensation: We account for share-based awards made to our employees and directors, including employee stock option awards, performance stock unit awards and restricted stock unit awards, using the estimated grant date fair value method of accounting.  For options, we estimate the fair value using the Black-Scholes valuation model and an estimated forfeiture rate.  Restricted stock unit awards and performance stock unit awards are valued based on the average of the high and low price on the date of the grant and an estimated forfeiture rate.  For options, performance and restricted stock unit awards, expense is recognized as compensation expense on the straight-line basis.  Employee Stock Purchase Plan (“ESPP”) shares were issued under provisions that do not require us to record any equity compensation expense.

17

RESULTS OF OPERATIONS:

NET SALES

	Three Months Ended
Net sales by product line	March 31, 2024			Change	March 31, 2023
(in thousands)
Automated programming systems	$	4,823		(18.6%)	$	5,927
Non-automated programming systems		1,276		(0.5%)		1,304
Total programming systems	$	6,099		(15.4%)	$	7,231
	Three Months Ended
Net sales by location	March 31, 2024			Change	March 31, 2023
(in thousands)
United States	$	226		(75.9%)	$	937
% of total		3.7	%			13.0	%
International	$	5,873		(6.7%)	$	6,294
% of total		96.3	%			87.0	%

	Three Months Ended
Net sales by type	March 31, 2024		Change	March 31, 2023
(in thousands)
Equipment sales	$	3,366	(16.9%)	$	4,051
Adapter sales		1,846	(18.6%)		2,267
Software and maintenance		887	(2.8%)		913
Total	$	6,099	(15.7%)	$	7,231

Net sales in the first quarter of 2024 were $6.1 million, as compared with $7.2 million in the prior year period and $6.9 million in the fourth quarter of 2023. Sales decrease in the first quarter primarily reflects timing of shipments on new first quarter bookings and higher backlog in the prior periods from favorable post-lockdown recovery one year ago.  

First quarter 2024 bookings were $8.1 million, as compared with $5.7 million in the prior year period and $7.2 million in fourth quarter of 2023.  Bookings increase in the first quarter was due to strong sales opportunity conversion in Europe and Asia markets.  Backlog increased $1.7 million in the first quarter to $4.5 million as of March 31, 2024 as compared to $3.2 million as of March 31, 2023 and $2.8 million as of December 31, 2023.  Data I/O had $1.8 million in deferred revenue as of March 31, 2024 as compared with $2.0 million as of March 31, 2023.

On a geographic basis, international sales represented approximately 96% of total net sales for the first quarter of 2024 compared with 87% in the prior year period. Total equipment sales were 55% of revenues, adapters were 30% and software and services revenues were 15% of revenues respectively in the first quarter of 2024 compared with 56% and 31% and 13% respectively for the first quarter of 2023. Automotive electronics represented 49% of orders followed by 37% for programming centers and 14% for IoT for the first quarter of 2024.

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GROSS MARGIN

	Three Months Ended
	March 31, 2024			Change	March 31, 2023
(in thousands)
Gross margin	$	3,220		(25.2%)	$	4,302
Percentage of net sales		52.8	%			59.5	%

Gross margin as a percentage of sales in the first quarter of 2024 was 52.8% as compared to 59.5% in the same period last year and 58% in the fourth quarter of 2023. The decrease in gross margin percentage primarily reflects lower sales volume on relatively fixed manufacturing and service costs, sales channel and product mix impacts.

RESEARCH AND DEVELOPMENT

	Three Months Ended
	March 31, 2024			Change	March 31, 2023
(in thousands)
Research and development	$	1,582		(2.6%)	$	1,625
Percentage of net sales		25.9	%			22.5	%

Research and development (“R&D”) expenses decreased in the first quarter of 2024 as compared to the same period in 2023. We have maintained our investment in our product development and supporting our growth initiatives while maintaining cost control discipline.

SELLING, GENERAL AND ADMINISTRATIVE

	Three Months Ended
	March 31, 2024			Change	March 31, 2023
(in thousands)
Selling, general & administrative	$	2,498		(0.4%)	$	2,508
Percentage of net sales		41.0	%			34.7	%

Selling, General and Administrative (“SG&A”) expenses were slightly lower in the first quarter of 2024 as compared to the same period in 2023.  First quarter spending reduction reflects higher compensation and inflationary increases offset by continued efficiency improvements and cost reduction efforts.

INTEREST

	Three Months Ended
	March 31, 2024		Change			March 31, 2023
(in thousands)
Interest income	$	80		128.6	%	$	35

Interest income was higher in the first quarter of 2024 compared to the same period in 2023 due to higher interest rates and invested balances.

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INCOME TAXES

	Three Months Ended
	March 31, 2024			Change			March 31, 2023
(in thousands)
Income tax benefit (expense)	$	(41	)		17.1	%	$	(35	)

Income tax benefit (expense) for the first quarter of 2024 and 2023 primarily related to foreign and state taxes.

The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances, as well as foreign taxes.  We have a valuation allowance of $8.9 million as of March 31, 2024.  As of March 31, for both 2024 and 2023, our deferred tax assets and valuation allowance have been reduced by approximately $434,000 and $429,000, respectively.  Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of net deferred tax assets including our net operating losses and credit carryforwards and continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance. 

Financial Condition

LIQUIDITY AND CAPITAL RESOURCES

	March 31, 2024		Change			December 31, 2023
(in thousands)
Working capital	$	18,148		(1.5%	)	$	18,425

At March 31, 2024, our principal sources of liquidity consisted of existing cash and cash equivalents.  Cash at $12 million decreased $342,000 from December 31, 2023 primarily due to lower revenue and higher first quarter expenditures for public company cost including audit, regulatory filings and stock exchange fees, and annual incentive compensation disbursements.  Correspondingly, working capital decreased by $277,000 during the first quarter to $18.1 million as of March 31, 2024.  The Company continues to have no debt.

Although we have no significant capital expenditure plans currently, we expect to continue to carefully make and manage expenditures to support the business.  Engineering and production tooling, test equipment and sales demonstration products will continue to be purchased as we develop and release new products. Capital expenditures are expected to be funded by existing and internally generated funds.

As a result of our cyclical and seasonal industry, significant product development, customer support and selling and marketing efforts, we have required working capital to fund our operations.  We have tried to balance our spending with our anticipated revenue levels and the goal of profitable operations.  We have implemented or have initiatives to implement geographic shifts in our operations, reduce exposure to the impact of currency volatility, tariffs and taxes, increase product development efficiency, and control costs.

We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through the next one-year period, and beyond.  If this belief is incorrect, we may require additional cash at the U.S. headquarters, which could cause potential repatriation of cash that is held in our foreign subsidiaries. For any repatriation, there may be tax and other impediments to any repatriation actions.  As many repatriations typically have associated withholding taxes, those amounts withheld will be a current tax without generating a current or deferred tax benefit recognition.  Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases and business development initiatives, including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time.  Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek possible additional financing.

20

OFF-BALANCE SHEET ARRANGEMENTS

Except as noted in the accompanying consolidated financial statements in Note 5, “Leases” and Note 6, “Other Commitments”, we have no off-balance sheet arrangements.

NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURES

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was ($645,000) in the first quarter of 2024 compared to $253,000 in the first quarter of 2023.  Adjusted EBITDA, excluding equity compensation (a non-cash item), was ($364,000) in the first quarter of 2024, compared to $502,000 in the first quarter of 2023.

Non-GAAP financial measures, such as EBITDA and adjusted EBITDA, should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.  We believe that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s results and facilitate the comparison of results.  A reconciliation of net income to EBITDA and adjusted EBITDA follows:

NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURE RECONCILIATION

	Three Months Ended March 31,
	2024			2023
(in thousands)
Net Income (loss)	$	(807	)	$	95
Interest (income)		(80	)		(35	)
Taxes		41			35
Depreciation & amortization		201			158
EBITDA earnings (loss)	$	(645	)	$	253
Equity compensation		281			249
Adjusted EBITDA, excluding equity compensation	$	(364	)	$	502

Recently Adopted Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 for a discussion of recently adopted accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

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 effective at the reasonable level of assurance. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROLS

There were no changes made in our internal controls during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting which is still under the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).

21

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.  As of March 31, 2024, we were not a party to any material pending legal proceedings.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.  There are no material changes to the Risk Factors described in our Annual Report.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities  

None   

Item 3. Defaults Upon Senior Securities 

None 

Item 4. Mine Safety Disclosures 

Not Applicable 

Item 5. Other Information 

None

Item 6. Exhibits 

(a) Exhibits

10 Material Contracts:

None

31	Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:
	31.1	Chief Executive Officer Certification
	31.2	Chief Financial Officer Certification
32	Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:
	32.1	Chief Executive Officer Certification
	32.2	Chief Financial Officer Certification
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: May 13, 2024

DATA I/O CORPORATION

(REGISTRANT)

By:	/s/Anthony Ambrose
	Anthony Ambrose
	President and Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)
By:	/s/Gerald Y. Ng
	Gerald Y. Ng
	Vice President and Chief Financial Officer
	Secretary and Treasurer
	(Principal Financial Officer and Duly Authorized Officer)

23

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Anthony Ambrose, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d)	Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATED: May 13, 2024

/s/ Anthony Ambrose

Anthony Ambrose

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Gerald Y. Ng, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d)	Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATED: May 13, 2024

/s/ Gerald Y. Ng

Gerald Y. Ng

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

Certification by Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Data I/O Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Ambrose, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Anthony Ambrose

Anthony Ambrose

Chief Executive Officer

(Principal Executive Officer)

May 13, 2024

EX-32.2

EXHIBIT 32.2

Certification by Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Data I/O Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerald Y. Ng, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Gerald Y. Ng

Gerald Y. Ng

Chief Financial Officer

(Principal Financial Officer)

May 13, 2024

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	Mar. 31, 2024	Apr. 30, 2024
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Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Mar. 31, 2024
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2024
Entity Common Stock Shares Outstanding		9,025,135
Entity File Number	0-10394
Entity Incorporation State Country Code	WA
Entity Tax Identification Number	91-0864123
Entity Address Address Line 1	6645 185th Ave NE
Entity Address Address Line 2	Suite 100
Entity Address City Or Town	Redmond
Entity Address State Or Province	WA
Entity Address Postal Zip Code	98052
City Area Code	425
Local Phone Number	881-6444
Security 12b Title	Common Stock
Trading Symbol	DAIO
Security Exchange Name	NASDAQ
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes

XML

CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
CURRENT ASSETS:
Cash and cash equivalents	$ 11,999	$ 12,341
Trade accounts receivable, net of allowance for credit losses of $71 and $72, respectively	4,822	5,707
Inventories	6,372	5,875
Other current assets	739	690
TOTAL CURRENT ASSETS	23,932	24,613
Property, plant and equipment - net	1,044	1,359
Other assets	1,228	1,429
TOTAL ASSETS	26,204	27,401
CURRENT LIABILITIES:
Accounts payable	1,544	1,272
Accrued compensation	1,318	2,003
Deferred revenue	1,606	1,362
Other accrued liabilities	1,271	1,438
Income taxes payable	45	113
TOTAL CURRENT LIABILITIES	5,784	6,188
Operating lease liabilities	562	702
Long-term other payables	226	192
COMMITMENTS	0	0
STOCKHOLDERS' EQUITY
Preferred stock -Authorized, 5,000,000 shares, including 200,000 shares of Series A Junior Participating Issued and outstanding, none	0	0
Common stock, at stated value -Authorized, 30,000,000 shares Issued and outstanding, 9,024,959 shares as of March 31, 2024 and 9,020,819 shares as of December 31, 2023	23,019	22,731
Accumulated earnings (deficit)	(3,452)	(2,645)
Accumulated other comprehensive income	65	233
TOTAL STOCKHOLDERS' EQUITY	19,632	20,319
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 26,204	$ 27,401

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Trade Accounts Receivable, Net Of Allowance	$ 71	$ 72
Preferred Stock, Authorized Shares	5,000,000	5,000,000
Common Stock, Authorized Shares	30,000,000	30,000,000
Common Stock, Issued Shares	9,024,959	9,020,819
Common Stock, Outstanding Shares	9,024,959	9,020,819
Series A Junior Participating
Preferred Stock, Authorized Shares	200,000	200,000

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Net sales	$ 6,099	$ 7,231
Cost of goods sold	2,879	2,929
Gross margin	3,220	4,302
Operating expenses:
Research and development	1,582	1,625
Selling, general and administrative	2,498	2,508
Total operating expenses	4,080	4,133
Operating income (loss)	(860)	169
Non-operating income (loss):
Interest income	80	35
Foreign currency transaction gain (loss)	14	(74)
Total non-operating income (loss)	94	(39)
Income (loss) before income taxes	(766)	130
Income tax (expense) benefit	(41)	(35)
Net income (loss)	$ (807)	$ 95
Basic earnings (loss) per share	$ (0.09)	$ 0.01
Diluted earnings (loss) per share	$ (0.09)	$ 0.01
Weighted-average basic shares	9,023	8,818
Weighted-average diluted shares	9,023	9,029

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Net income (loss)	$ (807)	$ 95
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(168)	65
Comprehensive income (loss)	$ (975)	$ 160

XML

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Total	Common Stock	Retained Earnings (Accumulated Deficit)	Accumulated other comprehensive loss
Balance, shares at Dec. 31, 2022		8,816,381
Balance, amount at Dec. 31, 2022	$ 19,109	$ 21,897	$ (3,131)	$ 343
Stock awards issued, net of tax withholding	0	$ 0	0	0
Issuance of stock through: ESPP, shares		1,695
Issuance of stock through: ESPP, amount	7	$ 7	0	0
Share-based compensation	249	249	0	0
Net income (loss)	95	0	95	0
Other comprehensive income (loss)	65	$ 0	0	65
Balance, shares at Mar. 31, 2023		8,818,076
Balance, amount at Mar. 31, 2023	19,525	$ 22,153	(3,036)	408
Balance, shares at Dec. 31, 2023		9,020,819
Balance, amount at Dec. 31, 2023	20,319	$ 22,731	(2,645)	233
Stock awards issued, net of tax withholding	0	$ 0	0	0
Issuance of stock through: ESPP, shares		2,381
Issuance of stock through: ESPP, amount	7	$ 7	0	0
Share-based compensation	281	281	0	0
Net income (loss)	(807)	0	(807)	0
Other comprehensive income (loss)	(168)	$ 0	0	(168)
Stock awards issued, net of tax withholding, shares		1,759
Balance, shares at Mar. 31, 2024		9,024,959
Balance, amount at Mar. 31, 2024	$ 19,632	$ 23,019	$ (3,452)	$ 65

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (807)	$ 95
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	202	158
Equipment transferred to cost of goods sold	251	97
Share-based compensation	281	249
Net change in:
Trade accounts receivable	885	56
Inventories	(496)	(225)
Other current assets	(49)	(39)
Accounts payable and accrued liabilities	(649)	(46)
Deferred revenue	279	141
Other long-term liabilities	(140)	(88)
Deposits and other long-term assets	202	65
Net cash provided by (used in) operating activities	(41)	463
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(139)	(183)
Cash provided by (used in) investing activities	(139)	(183)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, less payments for shares withheld to cover tax	7	7
Repurchase of common stock	0	0
Payment of capital lease obligation	0	0
Cash provided by (used in) financing activities	7	7
Increase (decrease) in cash and cash equivalents	(173)	287
Effects of exchange rate changes on cash	(169)	71
Cash and cash equivalents at beginning of period	12,341	11,510
Cash and cash equivalents at end of period	11,999	11,868
Cash paid during the period for:
Income taxes	$ 109	$ 24

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2024

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Data I/O Corporation (“Data I/O”, “We”, “Our”, “Us”) is a global market leader for advanced programming, security deployment, security provisioning and associated Intellectual Property (“IP”) protection and management solutions used in electronics manufacturing with flash memory, microcontrollers, and flash memory-based intelligent devices as well as secure element devices, authentication devices and secure microcontrollers.  Customers for our programming system products are located around the world, primarily in Asia, Europe and the Americas. Our manufacturing operations are currently located in Redmond, Washington, United States and Shanghai, China.

We prepared the financial statements as of March 31, 2024 and March 31, 2023 according to the rules and regulations of the Securities and Exchange Commission ("SEC").  These statements are unaudited but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented.  The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date.  We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations.  Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 

Significant Accounting Policies

These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2023 (filed with the SEC on March 27, 2024).  There have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

Revenue Recognition

Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) provides a single, principles-based five-step model to be applied to all contracts with customers.  It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.   

We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year.  During the first quarter of 2024 and 2023, 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 and that the installation meets the criteria to be a separate performance obligation.  These systems are standard products with published product specifications and are configurable with standard options.  The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.

The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment.  Installation that is considered perfunctory includes any installation that is expected to be performed by other parties, such as distributors, other vendors, or the customers themselves.  This analysis considers the complexity, skill and training needed as well as customer expectations regarding installation.

We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, installation, services and support and extended maintenance components.  We allocate the transaction price of each element based on the relative selling prices.  Relative selling price is based on the selling price of the standalone system.  For the installation and service and support performance obligations, we use the value of the discount given to distributors who perform these components.  For software maintenance performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold.  Revenue is recognized on the system based on shipping terms, software based on delivery, installation and services based on completion of work, and software maintenance and extended warranty support ratably over the term of the agreement, typically one year.  Total deferred revenue which represents undelivered performance obligations for installation, service, support and extended contracts were $1.8 million and $2.0 million for March 31, 2024 and 2023, respectively, and the portion expected to be recognized within one year was $1.6 million and $1.7 million for March 31, 2024 and 2023, respectively.

When we sell 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:

	Three Months Ended
Net sales by type	March 31, 2024		Change	March 31, 2023
(in thousands)
Equipment	$	3,366	(16.9%)	$	4,051
Adapter		1,846	(18.6%)		2,267
Software and Maintenance		887	(2.8%)		913
Total	$	6,099	(15.7%)	$	7,231

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.

Income Tax

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.

Recently Adopted Accounting Pronouncements

For the three months ended March 31, 2024, there were no recently issued accounting pronouncements that had or are expected to have, a material impact on Data I/O Corporation’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

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INVENTORIES

3 Months Ended

Mar. 31, 2024

INVENTORIES

INVENTORIES

NOTE 2 – INVENTORIES

Inventories consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Raw material	$	3,405	$	3,328
Work-in-process		1,720		1,596
Finished goods		1,247		951
Inventories	$	6,372	$	5,875

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PROPERTY PLANT AND EQUIPMENT NET

3 Months Ended

Mar. 31, 2024

PROPERTY PLANT AND EQUIPMENT NET

PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, NET

Property and equipment consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Leasehold improvements	$	389	$	394
Equipment		4,822		4,977
Sales demonstration equipment		969		1,396
		6,180		6,767
Less accumulated depreciation		5,136		5,408
Property and equipment, net	$	1,044	$	1,359

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OTHER ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2024

OTHER ACCRUED LIABILITIES

OTHER ACCRUED LIABILITIES

NOTE 4 – OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following components:

	March 31, 2024		December 31, 2023
(in thousands)
Lease liability - short term	$	727	$	798
Product warranty		417		449
Sales return reserve		32		32
Other taxes		38		69
Other		57		90
Other accrued liabilities	$	1,271	$	1,438

The changes in our product warranty liability for the three months ending March 31, 2024 and year ended December 31, 2023 are as follows:

	March 31, 2024			December 31, 2023
(in thousands)
Liability, beginning balance	$	449		$	425
Net expenses		246			902
Warranty claims		(246	)		(902	)
Accrual revisions		(32	)		24
Liability, ending balance	$	417		$	449

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OPERATING LEASE COMMITMENTS

3 Months Ended

Mar. 31, 2024

OPERATING LEASE COMMITMENTS

LEASES

NOTE 5 – OPERATING LEASE COMMITMENTS

We have commitments under non-cancelable operating leases and other agreements, primarily for factory and office space, with initial or remaining terms of one year or more as of March 31, 2024 are as follows:

	March 31, 2024 Operating Lease Commitments
(in thousands)
2024 (remaining)	$	614
2025		583
2026		127
2027		47
2028 & Thereafter		0
Total	$	1,371
Less imputed interest		(82	)
Total operating lease liabilities	$	1,289

For the largest lease component, the Company has three facilities with our headquarters and primary engineering and operational functions located in Redmond, Washington.  Our two subsidiary facilities in Munich, Germany and Shanghai, China provide extended worldwide sales, service, engineering and operation services.  The components of our lease expense for the three months ended March 31, 2024 and 2023 include facility related operating lease costs of $213,000 and $215,000, respectively, and short-term lease costs of $8,000 and $7,000, respectively. There were no new operating leases during the three months ended March 31, 2024.

The Redmond, Washington headquarters facility lease runs to January 31, 2026 at approximately 20,460 square feet.  The lease for the facility located in Shanghai, China runs to October 31, 2024 at approximately 19,400 square feet.  The lease for the facility located near Munich, Germany runs to August 2027 at approximately 4,895 square feet.

The following table presents supplemental balance sheet information related to leases as of March 31, 2024 and December 31, 2023:

	Balance at March 31, 2024		Balance at December 31, 2023
(in thousands)
Right-of-use assets (Long-term other assets)	$	1,162	$	1,363
Lease liability-short term (Other accrued liabilities)		727		798
Lease liability-long term (Operating lease liabilities)		562		703

At March 31, 2024, the weighted average remaining lease term is 1.98 and the weighted average discount rate used is 5%.

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OTHER COMMITMENTS

3 Months Ended

Mar. 31, 2024

OTHER COMMITMENTS

OTHER COMMITMENTS

NOTE 6 – OTHER COMMITMENTS

We have purchase obligations for inventory and production costs as well as other obligations such as capital expenditures, service contracts, marketing, and development agreements.  Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction.  Most arrangements are cancelable without a significant penalty, and with short notice, typically less than 90 days.  At March 31, 2024, we had one contract with a commitment of approximately $174,000 to be paid in 2024 and $251,000 to be paid beyond one year.

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CONTINGENCIES

3 Months Ended

Mar. 31, 2024

CONTINGENCIES

CONTINGENCIES

NOTE 7 – CONTINGENCIES

As of March 31, 2024, 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 the aggregate, would have a material adverse effect on our results of operations or financial position. 

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INCOME TAXES

3 Months Ended

Mar. 31, 2024

INCOME TAXES

INCOME TAXES

NOTE 8 – INCOME TAXES

Income tax expense for the first quarter of both 2024 and 2023, primarily related to foreign and minor state taxes. 

The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances, as well as foreign taxes.  We have a valuation allowance of $8.9 million as of March 31, 2024.  As of March 31, for both 2024 and 2023, our deferred tax assets and valuation allowance have been reduced by approximately $434,000 and $429,000, respectively.  Given the uncertainty created by our loss history, as well as the volatile and uncertain economic outlook for our industry and capital spending, we have limited the recognition of net deferred tax assets including our net operating losses and credit carryforwards and continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance. 

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2024

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 9 – EARNINGS PER SHARE

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period.  Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method. 

Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended
	March 31, 2024			March 31, 2023
(in thousands except per share data)
Numerator for basic and diluted earnings (loss) per share:
Net income (loss)	$	(807	)	$	95
Denominator for basic earnings (loss) per share:
Weighted-average shares		9,023			8,818
Employee stock options and awards		-			211
Denominator for diluted earnings (loss) per share:
Adjusted weighted-average shares & assumed conversions of stock options		9,023			9,029
Basic and diluted
earnings (loss) per share:
Basic earnings (loss) per share	$	(0.09	)	$	0.01
Diluted earnings (loss) per share	$	(0.09	)	$	0.01

Options to purchase 12,500 were outstanding as of March 31, 2024 and 2023, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.

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SHARE-BASED COMPENSATION

3 Months Ended

Mar. 31, 2024

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

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, net of forfeitures, for the three months ended March 31, 2024 and 2023 were as follows:

	Three Months Ended
	March 31, 2024		March 31, 2023
(in thousands)
Cost of goods sold	$	23	$	18
Research and development		65		48
Selling, general and administrative		193		183
Total share-based compensation	$	281	$	249

Equity awards granted during the three months ended March 31, 2024 and 2023 were as follows:

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		-		10,000

Non-employee director Restricted Stock Units (“RSUs”) typically vest over the earlier of one year or the next annual meeting of shareholders and Non-Qualified stock options vest over three years and have a six-year exercise period.  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”), granted in 2023, typically cliff vest at the end of the performance period and the performance metric is cumulative revenue growth over the three-year period ending December 31, 2025 with a cumulative revenue threshold, target, and maximum performance measure.

The remaining unamortized expected future equity compensation expense and remaining amortization period associated with award grants of unvested options, PSUs and RSUs at March 31, 2024 and 2023 are:

	Three Months Ended
	March 31, 2024		March 31, 2023
Unamortized future equity compensation expense (in thousands)	$	2,035	$	1,823
Remaining weighted average amortization period (in years)		2.29		2.37

The weighted average number of shares outstanding used to compute earnings (loss) per share included the following:

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		118,903		210,545
Performance Stock Units		2,935		0
Stock Options		174		234

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2024

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2023 (filed with the SEC on March 27, 2024).  There have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

Revenue Recognition

Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) provides a single, principles-based five-step model to be applied to all contracts with customers.  It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.   

We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year.  During the first quarter of 2024 and 2023, 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 and that the installation meets the criteria to be a separate performance obligation.  These systems are standard products with published product specifications and are configurable with standard options.  The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.

The revenue related to products requiring installation that is perfunctory is recognized upon transfer of control of the product to customers, which generally is at the time of shipment.  Installation that is considered perfunctory includes any installation that is expected to be performed by other parties, such as distributors, other vendors, or the customers themselves.  This analysis considers the complexity, skill and training needed as well as customer expectations regarding installation.

We enter into arrangements with multiple performance obligations that arise during the sale of a system that could include hardware, software, installation, services and support and extended maintenance components.  We allocate the transaction price of each element based on the relative selling prices.  Relative selling price is based on the selling price of the standalone system.  For the installation and service and support performance obligations, we use the value of the discount given to distributors who perform these components.  For software maintenance performance obligations, we use what we charge for annual software maintenance renewals after the initial year the system is sold.  Revenue is recognized on the system based on shipping terms, software based on delivery, installation and services based on completion of work, and software maintenance and extended warranty support ratably over the term of the agreement, typically one year.  Total deferred revenue which represents undelivered performance obligations for installation, service, support and extended contracts were $1.8 million and $2.0 million for March 31, 2024 and 2023, respectively, and the portion expected to be recognized within one year was $1.6 million and $1.7 million for March 31, 2024 and 2023, respectively.

When we sell 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:

	Three Months Ended
Net sales by type	March 31, 2024		Change	March 31, 2023
(in thousands)
Equipment	$	3,366	(16.9%)	$	4,051
Adapter		1,846	(18.6%)		2,267
Software and Maintenance		887	(2.8%)		913
Total	$	6,099	(15.7%)	$	7,231

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.

Income Tax

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.

Recently Adopted Accounting Pronouncements

For the three months ended March 31, 2024, there were no recently issued accounting pronouncements that had or are expected to have, a material impact on Data I/O Corporation’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2024

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of revenue by major categories

	Three Months Ended
Net sales by type	March 31, 2024		Change	March 31, 2023
(in thousands)
Equipment	$	3,366	(16.9%)	$	4,051
Adapter		1,846	(18.6%)		2,267
Software and Maintenance		887	(2.8%)		913
Total	$	6,099	(15.7%)	$	7,231

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INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2024

INVENTORIES

Schedule of Inventories

	March 31, 2024		December 31, 2023
(in thousands)
Raw material	$	3,405	$	3,328
Work-in-process		1,720		1,596
Finished goods		1,247		951
Inventories	$	6,372	$	5,875

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PROPERTY PLANT AND EQUIPMENT NET (Tables)

3 Months Ended

Mar. 31, 2024

PROPERTY PLANT AND EQUIPMENT NET

Property, Plant, And Equipment, Net

	March 31, 2024		December 31, 2023
(in thousands)
Leasehold improvements	$	389	$	394
Equipment		4,822		4,977
Sales demonstration equipment		969		1,396
		6,180		6,767
Less accumulated depreciation		5,136		5,408
Property and equipment, net	$	1,044	$	1,359

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OTHER ACCRUED LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2024

OTHER ACCRUED LIABILITIES

Schedule of Other Accrued Liabilities

	March 31, 2024		December 31, 2023
(in thousands)
Lease liability - short term	$	727	$	798
Product warranty		417		449
Sales return reserve		32		32
Other taxes		38		69
Other		57		90
Other accrued liabilities	$	1,271	$	1,438

Schedule of product warranty liability

	March 31, 2024			December 31, 2023
(in thousands)
Liability, beginning balance	$	449		$	425
Net expenses		246			902
Warranty claims		(246	)		(902	)
Accrual revisions		(32	)		24
Liability, ending balance	$	417		$	449

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LEASES (Tables)

3 Months Ended

Mar. 31, 2024

OPERATING LEASE COMMITMENTS

Schedule of future lease payment for long term operating leases

	March 31, 2024 Operating Lease Commitments
(in thousands)
2024 (remaining)	$	614
2025		583
2026		127
2027		47
2028 & Thereafter		0
Total	$	1,371
Less imputed interest		(82	)
Total operating lease liabilities	$	1,289

Supplemental Balance Sheet Information

	Balance at March 31, 2024		Balance at December 31, 2023
(in thousands)
Right-of-use assets (Long-term other assets)	$	1,162	$	1,363
Lease liability-short term (Other accrued liabilities)		727		798
Lease liability-long term (Operating lease liabilities)		562		703

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2024

EARNINGS PER SHARE

Schedule of Earnings (loss) Per Share

	Three Months Ended
	March 31, 2024			March 31, 2023
(in thousands except per share data)
Numerator for basic and diluted earnings (loss) per share:
Net income (loss)	$	(807	)	$	95
Denominator for basic earnings (loss) per share:
Weighted-average shares		9,023			8,818
Employee stock options and awards		-			211
Denominator for diluted earnings (loss) per share:
Adjusted weighted-average shares & assumed conversions of stock options		9,023			9,029
Basic and diluted
earnings (loss) per share:
Basic earnings (loss) per share	$	(0.09	)	$	0.01
Diluted earnings (loss) per share	$	(0.09	)	$	0.01

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SHARE-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2024

SHARE-BASED COMPENSATION

Impact On Operations Of Recording Share-based Compensation

	Three Months Ended
	March 31, 2024		March 31, 2023
(in thousands)
Cost of goods sold	$	23	$	18
Research and development		65		48
Selling, general and administrative		193		183
Total share-based compensation	$	281	$	249

Schedule of Equity Award Activity

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		-		10,000

Future Equity Compensation Expense

	Three Months Ended
	March 31, 2024		March 31, 2023
Unamortized future equity compensation expense (in thousands)	$	2,035	$	1,823
Remaining weighted average amortization period (in years)		2.29		2.37

Schedule to compute earnings (loss) per share

	Three Months Ended
	March 31, 2024		March 31, 2023
Restricted Stock Units		118,903		210,545
Performance Stock Units		2,935		0
Stock Options		174		234

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Revenue	$ 6,099	$ 7,231
Revenue change in percentage	(15.70%)
Equipment [Member]
Revenue	$ 3,366	4,051
Revenue change in percentage	(16.90%)
Adapter [Member]
Revenue	$ 1,846	2,267
Revenue change in percentage	(18.60%)
Software and Maintenance [Member]
Revenue	$ 887	$ 913
Revenue change in percentage	(2.80%)

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Deferred revenue	$ 1.8	$ 2.0
Short term portion of deferred revenue	$ 1.6	$ 1.7
Minimum [Member]
Payment terms	30 days
Maximum [Member]
Payment terms	60 days

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INVENTORIES (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
INVENTORIES
Raw material	$ 3,405	$ 3,328
Work-in-process	1,720	1,596
Finished goods	1,247	951
Inventories	$ 6,372	$ 5,875

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PROPERTY PLANT AND EQUIPMENT NET (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
PROPERTY PLANT AND EQUIPMENT NET
Leasehold improvements	$ 389	$ 394
Equipment	4,822	4,977
Sales demonstration equipment	969	1,396
Property and equipment gross	6,180	6,767
Less accumulated depreciation	5,136	5,408
Property and equipment, net	$ 1,044	$ 1,359

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OTHER ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
OTHER ACCRUED LIABILITIES
Lease liability - short term	$ 727	$ 798
Product warranty	417	449
Sales return reserve	32	32
Other taxes	38	69
Other	57	90
Other accrued liabilities	$ 1,271	$ 1,438

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OTHER ACCRUED LIABILITIES (Details 1) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
OTHER ACCRUED LIABILITIES
Liability, beginning balance	$ 449	$ 425
Net expenses	246	902
Warranty claims	(246)	(902)
Accrual revisions	(32)	24
Liability, ending balance	$ 417	$ 449

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OPERATING LEASE COMMITMENTS (Details) $ in Thousands	Mar. 31, 2024 USD ($)
OPERATING LEASE COMMITMENTS
2024 (remaining)	$ 614
2025	583
2026	127
2027	47
2028 & Thereafter	0
Total	1,371
Less: imputed interest	(82)
Total operating lease liability	$ 1,289

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OPERATING LEASE COMMITMENTS (Details 1) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
OPERATING LEASE COMMITMENTS
Right-of-use assets (Long-term other assets)	$ 1,162	$ 1,363
Lease liability-short term (Other accrued liabilities)	727	798
Lease liability-long term (Operating lease liabilities)	$ 562	$ 703

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OPERATING LEASE COMMITMENTS (Details Narrative)	3 Months Ended
	Mar. 31, 2024 USD ($) ft²	Mar. 31, 2023 USD ($)
Weighted average remaining lease term	1 year 11 months 23 days
Weighted average discount rate	5.00%
Operating lease costs | $	$ 213,000	$ 215,000
Short-term lease costs | $	$ 8,000	$ 7,000
China [Member]
Maturity date	Oct. 31, 2024
Area of lease	19,400
Washington [Member]
Area of lease	20,460
Maturity dates	January 31, 2026
Germany [Member]
Area of lease	4,895
Maturity dates	August 2027

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OTHER COMMITMENTS (Details Narrative)	Mar. 31, 2024 USD ($)
OTHER COMMITMENTS
Other Commitment, to be Paid, Year One	$ 174,000
After 2024	$ 251,000

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INCOME TAXES (Details Narrative) - USD ($)	3 Months Ended	9 Months Ended
	Mar. 31, 2024	Sep. 30, 2022
INCOME TAXES
Change in valuation allowance for deferred tax assets	$ 434,000	$ 429,000
Valuation allowance	$ 8,900,000

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
EARNINGS PER SHARE
Net income (loss)	$ (807)	$ 95
Denominator for basic earnings (loss) per share: weighted average shares	9,023	8,818
Employee stock options and awards	$ 0	$ 211
Denominator for diluted earnings (loss) per share: adjusted weighted-average shares and assumed conversions of stock options	9,023	9,029
Basic earnings (loss) per share	$ (0.09)	$ (0.01)
Diluted earnings (loss) per share	$ (0.09)	$ (0.01)

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EARNINGS PER SHARE (Details Narrative) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
EARNINGS PER SHARE
Anti dilutive options to purchase shares	12,500	12,500

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SHARE BASED COMPENSATION (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Share based compensation	$ 281	$ 249
Cost of Goods Sold
Share based compensation	23	18
Research and Development
Share based compensation	65	48
Selling, General and Administrative
Share based compensation	$ 193	$ 183

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SHARE BASED COMPENSATION (Details 1) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Restricted Stock Award
Restricted stock units	0	10,000

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SHARE BASED COMPENSATION (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
SHARE-BASED COMPENSATION
Unamortized future equity compensation expense (in thousands)	$ 2,035	$ 1,823
Remaining weighted average amortization period (in years)	2 years 3 months 14 days	2 years 4 months 13 days

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SHARE BASED COMPENSATION (Details 3) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Stock Options [Member]
Weighted average number of shares outstanding	174	234
Performance Stock Units [Member]
Weighted average number of shares outstanding	2,935	0
Restricted Stock Units [Member]
Weighted average number of shares outstanding	118,903	210,545