-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EUdbeZwERVF+2FDnkVVfSB4d4rLqi/RTocyaue5pqR5Cx4qDRn04YdmqAJti2idb Rrzjbk3QS7WGsSZiUAh+Ig== 0000351998-02-000006.txt : 20020814 0000351998-02-000006.hdr.sgml : 20020814 20020814181045 ACCESSION NUMBER: 0000351998-02-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA I/O CORP CENTRAL INDEX KEY: 0000351998 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 910864123 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10394 FILM NUMBER: 02738142 BUSINESS ADDRESS: STREET 1: 10525 WILLOWS RD NE STREET 2: P O BOX 97046 CITY: REDMOND STATE: WA ZIP: 98073-9746 BUSINESS PHONE: 4258676922 MAIL ADDRESS: STREET 1: P O BOX 97046 STREET 2: 10525 WILLOWS RD NE CITY: REDMOND STATE: WA ZIP: 98073-9746 10-Q 1 f10q-qtr22002.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Or the transition period from ___________ to ______________ Commission File No. 0-10394 DATA I/O CORPORATION (Exact name of registrant as specified in its charter) Washington 91-0864123 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10525 Willows Road N.E., Redmond, Washington, 98052 (Address of principal executive offices, Zip Code) (425) 881-6444 (Registrant's telephone number, including area code) 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 X No 7,664,408 shares of no par value or the Registrant's Common Stock were issued and outstanding as of July 30, 2002. DATA I/O CORPORATION FORM 10-Q For the Quarter Ended June 30, 2002 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 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Part II - Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 18 Exhibit 99.1 Certification by Chief Executive Officer 19 Exhibit 99.2 Certification by Chief Financial Officer 20 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DATA I/O CORPORATION CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------- June 30, Dec. 31, 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- (in thousands, except share data) (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $3,270 $2,656 Marketable securities 1,851 3,236 Trade accounts receivable, less allowance for doubtful accounts of $308 and $350 4,644 5,666 Inventories 5,601 6,388 Other current assets 631 485 ----------- ------------- TOTAL CURRENT ASSETS 15,997 18,431 Property and equipment - net 1,476 1,741 Other assets 127 168 ----------- ------------- TOTAL ASSETS $17,600 $20,340 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $1,712 $1,599 Accrued compensation 790 848 Deferred revenue 1,686 1,686 Other accrued liabilities 1,545 1,871 Accrued costs of business restructuring 34 88 Income taxes payable 446 329 ----------- ------------- TOTAL CURRENT LIABILITIES 6,213 6,421 Deferred gain on sale of property 1,600 1,765 ----------- ------------- TOTAL LIABILITIES 7,813 8,186 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, 7,664,408 and 7,613,754 shares 18,576 18,500 Accumulated deficit (8,792) (6,173) Accumulated other comprehensive loss 3 (173) ----------- ------------- TOTAL STOCKHOLDERS' EQUITY 9,787 12,154 ----------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,600 $20,340 =========== ============= See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarters Ended Six Months Ended - ------------------------------------------------------------------------ ------------------------ -- --------------------------- June 30, June 30, June 30, June 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ------------ (in thousands, except per share data) Net sales $4,796 $6,487 $10,186 $14,370 Cost of goods sold 2,792 3,677 5,679 8,825 ---------- ---------- ----------- ------------ Gross margin 2,004 2,810 4,507 5,545 Operating expenses: Research and development 1,398 1,765 2,706 3,703 Selling, general and administrative 1,972 2,450 4,267 5,446 Net provision for business restructuring - 460 - 460 ---------- ---------- ----------- ------------ Total operating expenses 3,370 4,675 6,973 9,609 ---------- ---------- ----------- ------------ Operating loss (1,366) (1,865) (2,466) (4,064) Non-operating income (expense): Interest income 23 51 49 117 Interest expense (5) (3) (8) (10) Foreign currency exchange (3) (83) (58) (90) ---------- ---------- ----------- ------------ Total non-operating income (expense) 15 (35) (17) 17 ---------- ---------- ----------- ------------ Loss from operations before income taxes (1,351) (1,900) (2,483) (4,047) Income tax expense 18 20 41 22 ---------- ---------- ----------- ------------ Net loss ($1,369) ($1,920) ($2,524) ($4,069) ========== ========== =========== ============ Basic and diluted loss per share: Total basic and diluted loss per share ($0.18) ($0.25) ($0.33) ($0.54) ========== ========== =========== ============ Weighted average and potential shares outstanding 7,664 7,560 7,664 7,560 ========== ========== =========== ============ See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------- June 30, June 30, For the six months ended 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) OPERATING ACTIVITIES: Loss from operations ($2,524) ($4,069) Adjustments to reconcile loss from operations to net cash provided by (used in) operating activities: Depreciation and amortization 508 1,192 Net loss on dispositions 227 73 Amortization of deferred gain on sale (165) (164) Net change in: Deferred revenue - (331) Trade accounts receivable 1,011 2,736 Inventories 792 1,986 Recoverable income taxes - 18 Other current assets (141) 178 Accrued costs of business restructuring (54) 63 Accounts payable and accrued liabilities (147) (1,428) ----------- -------------- Net cash provided by (used in) operating activities (493) 254 INVESTING ACTIVITIES: Purchases of property and equipment (430) (825) Net from purchase and sale of marketable securities 1,386 263 ----------- -------------- Net cash provided by (used in) investing activities 956 (562) FINANCING ACTIVITIES: Sale of common stock 76 117 ----------- -------------- Net cash provided by financing activities 76 117 ----------- -------------- Increase/(decrease) in cash and cash equivalents 539 (191) Effects of exchange rate changes on cash 75 (50) Cash and cash equivalents at beginning of year 2,656 3,133 ----------- -------------- Cash and cash equivalents at end of quarter $3,270 $2,892 =========== ============== See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - FINANCIAL STATEMENT PREPARATION The financial statements as of June 30, 2002 and June 30, 2001, have been prepared by the Company pursuant 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, 2001 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in the Company's Form 10-K for the year ended December 31, 2001. NOTE 2 - INVENTORIES Inventories consisted of the following components (in thousands): June 30, Dec. 31, 2002 2001 -------------- ---------------- Raw material $2,675 $3,588 Work-in-process 1,452 1,354 Finished goods 1,474 1,446 -------------- ---------------- $5,601 $6,388 ============== ================ The Company increased its reserve for excess and obsolete inventory by $662 during the second quarter. This increase in the reserve reflects the lower usage of materials due to lower sales, work-in-process inventory of units nearly completed, and anticipated obsolete inventory generated from the development of product enhancements and replacements. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following components (in thousands): June 30, Dec. 31, 2001 2001 ---------------- ---------------- Leasehold improvements $ 238 $ 229 Equipment 12,056 12,188 ---------------- ---------------- 12,294 12,417 Less accumulated depreciation 10,818 10,676 ---------------- ---------------- Property and equipment - net $ 1,476 $ 1,741 ================ ================ NOTE 4 - BUSINESS RESTRUCTURING PROGRESS In the second quarter of 2001, the Company recorded a restructuring charge of $460,000 associated with actions taken to reduce the Company's breakeven point and realign the Company with growth activities. This operational repositioning was mandated by the impact which the economic slowdown and decline in capital spending across a high number of customer groups had on general demand for programming equipment. The four components of the Company's second quarter repositioning included a reduction in the Company's global workforce of approximately 40 persons or 20% of the workforce; discontinuance or reallocation of numerous projects and activities not essential to the Company's long-term goals; streamlining of activities to decrease discretionary marketing, distribution and promotional expenses; and consolidation of numerous functions across the organization to create a team which was more productive and able to respond faster to global customer needs. During its third quarter of 2001, the Company announced that it would take further strategic actions to reduce its breakeven point, which included the following actions: closure of a facility in Germany and moving its operations to other locations within the Company; combining the Company's four product families into two business groups; consolidating service groups across the organization to create a team more responsive to global customer needs; and targeting certain other expense reductions for the third quarter, including a closure of the Company's Redmond facility for one week. A restructuring charge of $499,000 was recorded in the third quarter. In the fourth quarter of 2001, the Company reduced its staff by 29 persons. The actions were taken to reduce the Company's breakeven point and bring it closer to forecasted revenues, and to maintain the cash position of the Company. The Company incurred restructuring costs of $252,000 during the fourth quarter. At June 30, 2002 all restructuring expenses associated with the activities detailed above had been paid except for approximately $34,000. Subsequent to the end of the quarter, the Company announced its intention to reduce its workforce by approximately 25% to further reduce its breakeven point. A restructuring charge of approximately $500,000 is expected to be taken in the third quarter relating to these actions. An analysis of the restructuring is as follows (in thousands):
Reserve 2002 Reserve Balance at 2002 Payments/ Balance at Description Dec. 31, 2001 Adjust. Write-offs June 30, 2002 -------------- ----------------- ----------- ------------- ------------------ Downsizing U.S. Operations: Employee severance $ 4 $ 10 $ 10 $ 4 Redmond facility consolidation 45 - 28 17 Consulting and legal expenses 20 (10) 6 4 Downsizing Foreign Operations 19 - 10 9 ----------------- ----------- ------------- ------------------ Total $ 88 $ - $ 54 $ 34 ================= =========== ============= ==================
NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Second Quarter First Six Months ----------------------------- --------------------------- 2002 2001 2002 2001 ----------- ------------- ----------- ----------- Numerator for basic and diluted loss per share: Net loss ($1,369) ($1,920) ($2,524) ($4,069) ----------- ------------- ----------- ----------- Denominator: Denominator for basic earnings per share - weighted-average shares 7,664 7,560 7,657 7,560 Employee stock options (1) - - - - ----------- ------------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions of stock options 7,664 7,560 7,657 7,560 ----------- ------------- ----------- ----------- Basic and diluted loss per share Total basic and diluted loss per share ($0.18) ($0.25) ($0.33) ($0.54) =========== ============= =========== =========== (1) At June 30, 2002 and 2001 there were 1,327,919 and 1,174,594 shares respectively, of potentially issueable common stock. Because of the net loss for the three months and six months ended June 30, 2002 and 2001, potentially issueable common stock was not included in the calculation of diluted loss per share as their inclusion would be anti-dilutive.
NOTE 6 - ACCOUNTING FOR INCOME TAXES The Company's effective tax rate for the first six months of 2002 differed from the statutory 34% tax rate primarily due to operating losses for which no tax benefit was recorded. The tax valuation allowance increased by approximately $490,000 during the quarter ended June 30, 2002. As of June 30, 2002 the Company has tax valuation allowances of $9,955,000. NOTE 7 - COMPREHENSIVE INCOME During the second quarter and the first sixth months of 2002 and 2001, total comprehensive income (loss) was comprised of the following (in thousands):
For the Second Quarter For the Six Months ------------------------------- ---------------------------------- 2002 2001 2002 2001 ------------- -------------- ------------- ----------------- Net loss ($1,369) ($1,920) ($2,524) ($4,069) Foreign currency translation gain (loss) 95 (76) 79 (78) ------------- -------------- ------------- ----------------- Total comprehensive loss ($1,274) ($1,996) ($2,445) ($4,147) ============= ============== ============= =================
NOTE 8 - CHANGE IN FISCAL YEAR Prior to 2001, the Company reported on a fifty-two, fifty-three week basis. The last reporting period using this fiscal period was the year ended December 28, 2000. The Company's Board of Directors approved a resolution on March 12, 2001 to change the Company's reporting period to a calendar year and calendar quarter basis effective for the current fiscal year. The first quarter of 2001 covered the period December 29, 2000 to March 31, 2001. The second quarter covered the period April 1, 2001 to June 30, 2001. NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES Assets and liabilities of foreign subsidiaries are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses of foreign subsidiaries are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to stockholders' equity, net of taxes. Realized and unrealized gains and losses resulting from the effects of changes in exchange rates on assets and liabilities denominated in foreign currencies are included in non-operating expense as foreign currency transaction gains and losses. In June 1998, the Company adopted SFAS No. 133, Accounting for Derivatives and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments and requires recognition of derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The adoption of this standard by the Company did not materially impact its consolidated financial statements. The Company utilizes forward foreign exchange contracts to reduce the impact of foreign currency exchange rate risks where natural hedging strategies cannot be effectively employed. All hedging instruments held by the Company are fair value hedges. Generally, these contracts have maturities less than one year and require the Company to exchange foreign currencies for U.S. dollars at maturity. The change in fair value of the open hedge contracts as of June 30, 2002 is an unrealized loss of $154,000 and is included in accounts payable on the balance sheet. The Company does not hold or issue derivative financial instruments for trading purposes. The purpose of the Company's hedging activities is to reduce the risk that the valuation of the underlying assets, liabilities and firm commitments will be adversely affected by changes in exchange rates. The Company's derivative activities do not create foreign currency exchange rate risk because fluctuations in the value of the instruments used for hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged. Item 2. 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 industry prospects; future results of operations or financial position; changes in gross margin percentages; integration of acquired products and operations; market acceptance of the Company's newly introduced or upgraded products; development, introduction and shipment of new products; expected spending levels; and any other guidance on future periods are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. The Company's actual results may differ significantly from management's expectations. The following discussions and discussions under the caption "Business - Cautionary Factors That May Affect Future Results" in Item 1 in the Company's Annual report on Form 10-K for the year ended December 31, 2001, describe some, but not all, of the factors that could cause these differences. Results of Operations
Net Sales ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by product line 2002 % Change 2001 2002 % Change 2001 ----------------------------------------------------------------------------------- ------------------------------------------ Non-automated programming systems $2,762 (23.9%) $3,630 $5,490 (34.0%) $8,320 Automated programming systems 2,034 (28.8%) 2,857 4,696 (22.4%) 6,050 ----------------------------------------- ------------------------------------------ Total Sales $4,796 (26.1%) $6,487 $10,186 (29.1%) $14,370 ========================================= ========================================== Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by location 2002 % Change 2001 2002 % Change 2001 ----------------------------------------------------------------------------------- ------------------------------------------ United States $2,118 (10.2%) $2,358 $3,907 (26.0%) $5,278 % of total 44.2% 36.3% 38.4% 36.7% International $2,678 (35.1%) $4,129 $6,279 (30.9%) $9,092 % of total 55.8% 63.7% 61.6% 63.3% -------------------------------------------------------------------------------------------------------------------------------
Revenues for the second quarter of 2002 decreased $1.7 million or 26% compared to the second quarter of 2001. Sales were lower for both automated and non-automated programming systems. The decline in revenues is due to a reduction in orders for programming equipment that the Company believes is due to the continued general economic sluggishness of the electronics industry and the capital equipment market in particular. The Company believes its largest customer group, the wireless handset manufacturers, as well as contract manufacturers and other sectors of the electronics industry continue to defer capital equipment purchases. For the six-month period ending June 30, 2002 sales are down by $4.2 million or 29.1% from the same period the prior year. Sales to Europe and Asia have been very slow the first six months, but increased sales in mainland China have offset a portion of the sales decline. While the sales amounts were lower than the prior year, the Company's sales funnel continues to grow beyond levels not seen for several quarters. Gross Margin
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Gross Margin $2,004 $2,810 $4,507 $5,545 Percentage of net sales 41.8% 43.3% 44.2% 38.6% - ----------------------------------------------------------------------------------------------------------------------
Gross margins decreased in dollars and as a percentage of sales for the second quarter of 2002 compared with the same period of 2001, primarily due to lower sales volumes and additional inventory related reserves charged during the quarter. Partially offsetting the decrease are reduced costs resulting from the Company's restructuring actions taken during the last year. Research and Development
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------- Research and development $1,398 $1,765 $2,706 $3,703 Percentage of net sales 29.1% 27.2% 26.6% 25.8% ---------------------------------------------------------------------------------------------------------------------
The decrease in research and development (R&D) spending for the first half of 2002 as compared to the first half of 2001 reflects lower headcount and lower development spending. Spending on R&D projects has been reduced to control costs in view of the lower sales volumes. Selling, General and Administrative
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------- Selling, general & administrative $1,972 $2,450 $4,267 $5,446 Percentage of net sales 41.1% 37.8% 41.9% 37.9% ---------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative (SG&A) expenses decreased $0.5 million in the second quarter of 2002 versus 2001 and $1.2 million for the first 6 months of 2002 versus last year, including the provision for business restructuring. Tight internal spending controls, coupled with the benefits of the restructuring activities undertaken during 2001 has led to a significant reduction in SG&A spending. An $80,000 reduction in the Bad Debt Reserve was taken in the second quarter due to the lower accounts receivable balance as a result of the lower sales volumes. This further reduced the SG&A spending for the quarter. SG&A spending as a percentage of sales is higher in 2002 versus 2001 as a result of the lower sales volume in 2002. Interest
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2002 2001 2001 2001 --------------------------------------------------------------------------------------------------------------------- Interest income $23 $51 $49 $117 Interest expense ($5) ($3) ($8) ($10) ---------------------------------------------------------------------------------------------------------------------
Income Taxes
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------- Income tax expense from operations $18 $20 $41 $22 --------------------------------------------------------------------------------------------------------------------- The income tax provision relates to foreign taxes.
Financial Condition
Liquidity and Capital Resources June 30, Dec. 31, (in thousands) 2002 Change 2001 - ------------------------------------------------------------- --------------------- -------------------- ------------------- Working capital $9,784 ($2,226) $12,010 - ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first six months of 2002 primarily due to funding of the losses for the period. Cash, cash equivalents and marketable securities decreased approximately $0.8 million during the period, inventory decreased $0.8 million, and accounts receivable decreased $1.0 million. As of June 30, 2002 and 2001, the Company had no debt outstanding. The Company estimates that capital expenditures for property, plant and equipment during the remainder of 2002 will be between $300,000 and $700,000. The Company's future capital requirements will depend on a number of factors including; costs associated with R&D, successful launch of new products and the potential use of funds for strategic purposes. Capital expenditures are expected to be funded from existing and internally generated funds or may be leased. Management believes that the Company has sufficient working capital available to fund its operations and capital requirements for at least 12 months. The Company established a foreign line of credit for 50,000 Euros in February 2002. The sub-tenant who was leasing the bottom floor of the building in Redmond vacated the premises during the second quarter at the end of the sub-tenant's lease. The Company has the spaced listed with a broker and is actively marketing the space. Restructuring In the second quarter of 2001, the Company recorded a restructuring charge of $460,000 associated with actions taken to reduce the Company's breakeven point and realign the Company with growth activities. This operational repositioning was mandated by the impact which the economic slowdown and decline in capital spending across a high number of customer groups had on general demand for programming equipment. The Company's second quarter repositioning included the following four components: a reduction in the Company's global workforce of approximately 40 persons or 20% of the workforce; discontinuance or reallocation of numerous projects and activities not essential to the Company's long-term goals; streamlining of activities to decrease discretionary marketing, distribution and promotional expenses; and consolidation of numerous functions across the organization to create a team which was more productive and able to respond faster to global customer needs. On July 12, 2001, during its third quarter, the Company announced that it would take further strategic actions to reduce its breakeven point, which included the following actions: closure of a facility in Germany and moving its operations to other locations within the Company; combining the Company's four product families into two business groups; consolidating service groups across the organization to create a team more responsive to global customer needs; and targeting certain other expense reductions for the third quarter, including a closure of the company's Redmond facility for one week. A restructuring charge of $499,000 was recorded in the third quarter. In the fourth quarter of 2001, the Company reduced its staff by 29 persons. The actions taken were meant to reduce the Company's breakeven point and bring it closer to forecasted revenues, and to maintain the cash position of the Company. The Company incurred restructuring costs of $252,000 during the fourth quarter. At June 30, 2002, all restructuring expenses associated with the activities detailed above were paid except for approximately $34,000 which was primarily associated with facility consolidation, and consulting and legal fees. Subsequent to the end of the quarter, the Company announced its intention to reduce its workforce by approximately 25% to further reduce its breakeven point. A restructuring charge of approximately $500,000 is expected to be taken in the third quarter relating to these actions. General Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has experienced no material changes in market risk. The Company currently uses only foreign currency hedge derivative instruments, which are not material as of June 30, 2002. However, the Company is exposed to interest rate risks. The Company generally invests in high-grade commercial paper with original maturity dates of twelve months or less and conservative money market funds to minimize its exposure to interest rate risk on its marketable securities, which are classified as available-for-sale as of June 30, 2002 and December 31, 2001. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on May 15, 2002, there were present in person or by proxy the holders of 7,418,240 (96.79%) shares of Common Stock of the Corporation thereby constituting a quorum. Following are the matters ratified and the voting results: (a) Election of a Board of Directors consisting of the following six (6)directors: Name Votes For Votes Withheld Glen F. Ceiley 6,780,865 637,375 Daniel A. DiLeo 6,847,914 570,326 Paul A. Gary 6,850,515 567,725 Frederick R. Hume 6,848,014 570,226 Edward D. Lazowska 6,850,315 567,925 Steven M. Quist 6,847,914 570,326 (b) Approval to amend the Data I/O Corporation Stock Incentive Compensation Plan as described in the Proxy Statement for the 2002 Annual Meeting. The amendment passed by the following vote counts: 5,909,761 votes for; 1,470,394 against; 38,085 abstain. (c) The proposal to ratify the selection of Grant Thornton LLP as the company's independent auditors passed with the following vote results: 7,376,490 for; 28,955 against; and 12,795 abstain. Item 5. Other Information The Company received a letter dated August 6, 2002 from NASDAQ indicating that the Company's common stock has closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5) and that the Company will be provided 90 Calendar days, or until November 4, 2002, to regain compliance. On August 1, 2002, the Company announced its intention to reduce its workforce by approximately 25% to further reduce its breakeven point. As a part of these actions, Irene Bjorklund will no longer be an officer of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following list is a subset of the list of exhibits described below and contains all compensatory plans, contracts or arrangements in which any director or executive officer of the Company is a participant, unless the method of allocation of benefits thereunder is the same for management and non-management participants: (1) Amended and Restated 1982 Employee Stock Purchase Plan. See Exhibit 10.7. (2) Retirement Plan and Trust Agreement. See Exhibit 10.2, 10.3, 10.4, 10.11, 10.14, 10.15, and 10.16. (3) Summary of Management Incentive Compensation Plan. See Exhibit 10.12. (4) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit 10.1. (5) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.19. (6) Form of Change in Control Agreements. See Exhibit 10.5. (7) 1996 Director Fee Plan. See Exhibit 10.6 and 10.17. (8) Letter Agreement with Frederick R. Hume. See Exhibit 10.21. (9) Letter Agreement with Irene Bjorklund. See Exhibit 10.25. 3 Articles of Incorporation: 3.1 The Company's restated Articles of Incorporation filed November 2, 1987 (Incorporated by reference to Exhibit 3.1 of the Company's 1987 Annual Report on Form 10-K (File No. 0-10394)). 3.2 The Company's Bylaws as amended and restated as of March 2001 (Incorporated by reference to the Company's 2001 Annual Report on Form 10-K (File No. 0-10394)). 3.3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 1 of the Company's Registration Statement on Form 8-A filed March 13, 1998 (File No. 0-10394)). 4 Instruments Defining the Rights of Security Holders, Including Indentures: 4.1 Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, which includes: as Exhibit A thereto, the Form of Right Certificate; and, as Exhibit B thereto, the Summary of Rights to Purchase Series A Junior Participating Preferred Stock (Incorporated by reference to the Company's Current Report on Form 8-K filed on March 13, 1998). 4.2 Rights Agreement, dated as of March 31, 1988, between Data I/O Corporation and First Jersey National Bank, as Rights Agent, as amended by Amendment No. 1 thereto, dated as of May 28, 1992 and Amendment No. 2 thereto, dated as of July 16, 1997 (Incorporated by reference to the Company's Report on Form 8-K filed on March 13, 1998). 4.3 Amendment No. 1, dated as of February 10, 1999, to Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (Incorporated by reference to Exhibit 4.1 of the Company's Form 8-A/A dated February 10, 1999). 10 Material Contracts: 10.1 Amended and Restated 1983 Stock Appreciation Rights Plan dated February 3, 1993 (Incorporated by reference to Exhibit 10.23 of the Company's 1992 Annual Report on Form 10-K (File No. 0-10394)). 10.2 Amended and Restated Retirement Plan and Trust Agreement (Incorporated by reference to Exhibit 10.26 of the Company's 1993 Annual Report on Form 10-K (File No. 0-10394)). 10.3 First Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.21 of the Company's 1994 Annual Report on Form 10-K (File No. 0-10394)). 10.4 Second Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.26 of the Company's 1995 Annual Report on Form 10-K (File No. 0-10394)). 10.5 Form of Change in Control Agreements (Incorporated by reference to Exhibit 10.20 of the Company's 1994 Annual Report on Form 10-K (File No. 0-10394)). 10.6 Data I/O Corporation 1996 Director Fee Plan (Incorporated by reference to Exhibit 10.27 of the Company's 1995 Annual Report on Form 10K (File No. 0-10394)). 10.7 Data I/O Corporation 1982 Employee Stock Purchase Plan Amended and Restated December 11, 1996 (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement of Form S-8 (File No. 333-20657, filed January 29, 1997)). 10.8 Purchase and Sale Agreement dated as of July 9, 1996 (Relating to the sale of Data I/O Corporation's headquarters property in Redmond, Washington consisting of approximately 79 acres of land and an approximately 96,000 square foot building. (Portions of this exhibit have been omitted pursuant to an application for an order granting confidential treatment. The omitted portions have been separately filed with the Commission) (Incorporated by reference to Exhibit 10.32 of the Company's 1996 Annual Report on Form 10-K (File No. 0-10394)). 10.9 Letter dated as of December 20, 1996, First Amendment and extension of the Closing Date under that certain Purchase and Sale Agreement dated as of July 9, 1996. (Portions of this exhibit have been omitted pursuant to an application for an order granting confidential treatment. The omitted portions have been separately filed with the Commission)(Incorporated by reference to Exhibit 10.33 of the Company's 1996 Annual Report on Form 10-K (File No. 0-10394)). 10.10 Letter dated as of February 17, 1997, Second Amendment and extension of the Closing Date under that certain Purchase and Sale Agreement dated as of July 9, 1996. (Portions of this exhibit have been omitted pursuant to an application for an order granting confidential treatment. The omitted portions have been separately filed with the Commission)(Incorporated by reference to Exhibit 10.34 of the Company's 1996 Annual Report on Form 10-K (File No. 0-10394)). 10.11 Third Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.35 of the Company's 1996 Annual Report on Form 10-K (File No. 0-10394)). 10.12 Amended and Restated Management Incentive Compensation Plan dated January 1, 1997 (Incorporated by reference to Exhibit 10.25 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.13 Amended and Restated Performance Bonus Plan dated January 1, 1997 (Incorporated by reference to Exhibit 10.26 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.14 Fourth Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.27 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.15 Fifth Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.28 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.16 Sixth Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to Exhibit 10.29 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.17 Amended and Restated Data I/O Corporation 1996 Director Fee Plan (Incorporated by reference to Exhibit 10.32 of the Company's 1997 Annual Report on Form 10-K (File No. 0-10394)). 10.18 Amended and Restated Data I/O Corporation 1996 Director Fee Plan (Incorporated by reference to Exhibit 10.32 of the Company's 1997 Annual Report on 10-K (File No. 0-10394)). 10.19 Amended and Restated 1986 Stock Option Plan dated May 12, 1998 (Incorporated by reference to Exhibit 10.37 of the Company's 1998 Annual Report on Form 10-K (File No. 0-10394)). 10.20 Sublease dated December 22, 1999 between Data I/O Corporation and Imandi.com, Inc. (Incorporated by reference to Exhibit 10.34 of the Company's 1999 Annual Report on Form 10-K (File No. 0-10394)). 10.21 Letter Agreement with Fred R. Hume dated January 29, 1999 (Incorporated by reference to Exhibit 10.35 of the Company's 1999 Annual Report on Form 10-K (File 0-10394)). 10.22 Letter Agreement dated May 28, 1999, among Data I/O Corporation, JTAG Technologies B.V., and JTAG Holding B.V. (Incorporated by reference to Exhibit 10.36 of the Company's 1999 Annual Report on Form 10-K (File No. 0-10394)). 10.23 Amended and Restated 2000 Stock Compensation Incentive Plan dated May 19, 2000 (Incorporated by reference to the Company's 2000 Proxy Statement dated March 27, 2000.). 10.24 Amended and Restated 1982 Employee Stock Purchase Plan dated May 16,2001 (Incorporated by reference to the Company's 2001 Proxy Statement dated March 28, 2001.). 10.25 Letter Agreement with Irene Bjorklund dated March 13, 2001 (Incorporated by reference to Exhibit 10.25 of the Company's 2001 Annual Report on Form 10-K (File No. 0-10394). 16.1 Letter regarding change in certifying accountant (Incorporated by reference to Exhibit 16.1 of the Company's Form 8-K filed on November 21, 2001.). 99.1 Certification by Chief Executive Officer 19 99.2 Certification by Chief Financial Officer 20 (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DATA I/O CORPORATION (REGISTRANT) DATED: August 2, 2002 By://S//Joel S. Hatlen Joel S. Hatlen Vice President - Finance Chief Financial Officer Secretary and Treasurer (Principal Financial and Duly Authorized Officer) By://S//Frederick R. Hume Frederick R. Hume President Chief Executive Officer Exhibit 99.1 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 June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frederick R. Hume, Chief Executive Officer of the Company, certify, that 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; 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/ Frederick R. Hume Frederick R. Hume Chief Executive Officer August 2, 2002 Exhibit 99.2 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 June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joel S. Hatlen, Chief Financial Officer of the Company, certify, that pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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/ Joel S. Hatlen Joel S. Hatlen Chief Financial Officer August 2, 2002 -----END PRIVACY-ENHANCED MESSAGE-----