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 September 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
7,767,630 shares of no par value or the Registrant's Common Stock were issued
and outstanding as of Nov. 11, 2002.
DATA I/O CORPORATION
FORM 10-Q
For the Quarter Ended September 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 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 4. Controls and Procedures 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 13
Signatures 17
Chief Executive Officer Section 302(a) Certification 18
Chief Financial Officer Section 302(a) Certification 19
Exhibit 10.26 Letter Agreement with John Vicklund 20
Exhibit 99.1 Chief Executive Officer Section 906 Certification 21
Exhibit 99.2 Chief Financial Officer Section 906 Certification 22
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31,
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,439 $2,656
Marketable securities 1,087 3,236
Trade accounts receivable, less allowance for
doubtful accounts of $271 and $372 5,346 5,666
Inventories 4,718 6,388
Other current assets 505 485
----------- -------------
TOTAL CURRENT ASSETS 15,095 18,431
Property and equipment - net 1,389 1,741
Other assets 107 168
----------- -------------
TOTAL ASSETS $16,591 $20,340
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,602 $1,599
Accrued compensation 664 848
Deferred revenue 1,693 1,686
Other accrued liabilities 1,714 1,871
Accrued costs of business restructuring 158 88
Income taxes payable 250 329
----------- -------------
TOTAL CURRENT LIABILITIES 6,081 6,421
Deferred gain on sale of property 1,517 1,765
----------- -------------
TOTAL LIABILITIES 7,598 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, 7,767,630
and 7,613,754 shares 18,638 18,500
Accumulated deficit (9,530) (6,173)
Accumulated other comprehensive loss (115) (173)
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,993 12,154
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,591 $20,340
=========== =============
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarters Ended Nine Months Ended
- ------------------------------------------------------------------------ ------------------------ -- --------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- -----------
(in thousands, except per share data)
Net sales $6,443 $6,479 $16,629 $20,849
Cost of goods sold 3,172 3,124 8,851 11,949
---------- ---------- ----------- -----------
Gross margin 3,271 3,355 7,778 8,900
Operating expenses:
Research and development 1,430 1,450 4,136 5,153
Selling, general and administrative 2,109 2,011 6,376 7,457
Net provision for business restructuring 497 499 497 959
---------- ---------- ----------- -----------
Total operating expenses 4,036 3,960 11,009 13,569
---------- ---------- ----------- -----------
Operating loss (765) (605) (3,231) (4,669)
Non-operating income (expense):
Interest income 20 77 69 195
Interest expense (4) (2) (12) (13)
Foreign currency exchange (121) 29 (179) (61)
---------- ---------- ----------- -----------
Total non-operating income (expense) (105) 104 (122) 121
---------- ---------- ----------- -----------
Loss from operations before income taxes (870) (501) (3,353) (4,548)
Income tax expense (benefit) (37) 70 4 92
---------- ---------- ----------- -----------
Net loss ($ 833) ($571) ($3,357) ($4,640)
========== ========== =========== ===========
Basic and diluted loss per share:
Total basic and diluted loss per share ($0.11) ($0.08) ($0.44) ($0.61)
========== ========== =========== ===========
Weighted average and potential shares outstanding 7,733 7,596 7,682 7,572
========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
Sept. 30, Sept 30,
For the nine months ended 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Loss from operations ($3,357) ($4,640)
Adjustments to reconcile loss from operations to net cash provided by
(used in) operating activities:
Depreciation and amortization 783 1,720
Net loss on dispositions 233 141
Amortization of deferred gain on sale (247) (247)
Net change in:
Deferred revenue 7 (584)
Trade accounts receivable 335 4,477
Inventories 1,658 2,448
Recoverable income taxes - 91
Other current assets (22) 50
Accrued costs of business restructuring 69 271
Accounts payable and accrued liabilities (436) (569)
----------- --------------
Net cash provided by (used in) operating activities (977) 3,158
INVESTING ACTIVITIES:
Purchases of property and equipment (600) (687)
Net from purchase and sale of marketable securities 2,148 537
----------- --------------
Net cash provided by (used in) investing activities 1,548 (150)
FINANCING ACTIVITIES:
Sale of common stock 137 209
----------- --------------
Net cash provided by financing activities 137 209
----------- --------------
Increase/(decrease) in cash and cash equivalents 708 3,217
Effects of exchange rate changes on cash 75 (15)
Cash and cash equivalents at beginning of year 2,656 3,133
----------- --------------
Cash and cash equivalents at end of quarter $3,439 $6,335
=========== ==============
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 September 30, 2002 and September 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 nine months ended September 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):
Sept. 30, Dec. 31,
2002 2001
---------------- ----------------
Raw material $2,471 $3,588
Work-in-process 1,068 1,354
Finished goods 1,179 1,446
---------------- ----------------
$4,718 $6,388
================ ================
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following components (in thousands):
Sept. 30, Dec.31,
2002 2001
----------------- ----------------
Leasehold improvements $ 239 $ 229
Equipment 12,029 12,188
----------------- ----------------
12,268 12,417
Less accumulated depreciation 10,879 10,676
---------------- ----------------
Property and equipment - net $ 1,389 $ 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 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 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 of 2001.
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 September 30, 2002 all restructuring expenses associated with the actions
prior to the third quarter of 2002 detailed above had been paid except for
approximately $15,000.
In the third quarter of 2002, the Company reduced its staff by 33 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 recorded a restructuring charge of $497,000 in the third quarter of
2002. This charge relates to severance and benefits, consulting and professional
services, and facility costs. The Company has planned a restructure charge in
the fourth quarter of 2002 of approximately $30,000.
An analysis of the restructuring is as follows (in thousands):
Reserve August 2002 Reserve
Balance at 2002 Payments/ Balance at
Description Dec. 31, 2001 Adj. Write-offs Sept. 30, 2002
-------------- ----------------- ----------- ------------- ------------------
Downsizing U.S. Operations:
Employee severance $ 4 $ 428 $ 326 $ 106
Redmond facility consolidation 46 11 44 13
Consulting and legal expenses 19 50 43 26
Downsizing Foreign Operations 19 8 14 13
----------------- ----------- ------------- ------------------
Total $ 88 $ 497 $ 427 $ 158
================= =========== ============= ==================
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):
Third Quarter First Nine Months
----------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------- ----------- -----------
Numerator for basic and diluted earnings (loss) per share:
Net loss ($ 833) ($ 571) ($3,357) ($4,640)
----------- ------------- ----------- -----------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,733 7,596 7,682 7,572
Employee stock options (1) - - - -
----------- ------------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions of stock options 7,733 7,596 7,682 7,572
----------- ------------- ----------- -----------
Basic and diluted earnings (loss) per share
Total basic and diluted earnings (loss) per share ($0.11) ($0.08) ($0.44) ($0.61)
=========== ============= =========== ===========
(1) At September, 30 2002 and 2001 there were 1,222,438 and 1,168,125
shares respectively, of outstanding options potentially issueable as
common stock. Because of the net loss for the three months and nine
months ended September 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 nine 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
$284,000 during the quarter ended September 30, 2002. As of September 30, 2002
the Company has a valuation allowance of $10,239,000.
NOTE 7 - COMPREHENSIVE INCOME
During the third quarter and the first nine months of 2002 and 2001 total
comprehensive income (loss) was comprised of the following (in thousands):
For the Third Quarter For the Nine Months
------------------------------- ----------------------------------
2002 2001 2002 2001
------------- -------------- ------------- -----------------
Net income (loss) ($833) ($571) ($3,357) ($4,640)
Foreign currency translation gain (loss) (21) 171 58 93
------------- -------------- ------------- -----------------
Total comprehensive income (loss) ($854) ($400) ($3,299) ($4,547)
============= ============== ============= =================
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 September 30, 2002 is
an unrealized loss of $15,500 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.
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," on April 30,
2002. Statement No. 145 rescinds Statement No.4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of Statement No. 145, companies will be required to apply the criteria
in APB Opinion No. 30, "Reporting the Results of Operations - reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments of debt.
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Company is currently evaluating the requirements and impact of this
statement on its results of operations and financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company is currently evaluating the requirements and impact of
this statement on its results of operations and financial position.
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; breakeven 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. Moreover, neither the Company nor anyone else assumes
responsibility for the accuracy and completeness of the Company's
forward-looking statements. The Company is under no duty to update any of its
forward-looking statements after the date of this report. You should not place
undue reliance on our forward-looking statements. 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.
Critical Accounting Policy Judgements and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States 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, the Company evaluates its estimates, including those related
to sales returns, bad debts, inventories, investments, intangible assets, income
taxes, warranty obligations, restructuring charges, contingencies such as
litigation, and contract terms that have multiple elements and other
complexities typical in the telecommunications equipment industry. The Company
bases its estimates on historical experience and other assumptions that it
believes are reasonable under the circumstances. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of its financial
statements.
Revenue Recognition: Sales of the Company's semiconductor programming equipment
products requiring installation by the Company that is other than perfunctory
are recorded when installation is complete, or at the later of customer
acceptance or installation, if an acceptance clause is specified in the sales
terms. Revenue from other product sales is recognized at the time of shipment.
Revenue from the sale of service and update contracts is recorded as deferred
revenue and recognized on a straight-line basis over the contractual period,
which is typically one year. A reserve for sales returns is established based on
historical trends in product returns and estimates for new items. If the actual
future returns differ from historical levels, the Company's revenue could be
adversely affected.
Allowance for Doubtful Accounts: The allowance for doubtful accounts receivable
is based on the Company's assessment of the collectibility of specific customer
accounts and the aging of accounts receivable. If there is a deterioration of a
major customer's credit worthiness or actual defaults are higher than historical
experience, the Company's estimates of the recoverability of amounts due us
could be adversely affected.
Inventory Provisions: Inventory purchases and commitments are based upon future
demand forecasts and historic usage. If there is a significant decrease in
demand for the Company's products or there is a higher risk of inventory
obsolescence because of rapidly changing technology and customer requirements,
the Company may be required to increase its inventory provision adjustments and
its gross margin could be adversely affected.
Warranty Accruals: The Company accrues for warranty costs based on the expected
material and labor costs to fulfill its warranty obligations. If the Company
experiences an increase in warranty claims, which are higher than its historical
experience, its gross margin could be adversely affected.
Deferred Taxes: The Company has incurred tax losses in each of the last four
years and has net operating loss and tax credit carryforwards that begin
expiring in 2020. The Company has provided a full valuation allowance against
its tax assets, given the uncertainty as to their realization. In future years,
these benefits are available to reduce or eliminate taxes on future taxable
income.
Results of Operations
Net Sales
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Third Quarter First Nine Months
----------------------------------------- ------------------------------------------
Net sales by product line 2002 % Change 2001 2002 % Change 2001
----------------------------------------------------------------------------------- ------------------------------------------
Non-automated programming systems $3,059 (2.8%) $3,147 $8,607 (6.4%) $ 9,196
Automated programming systems 3,384 1.6% 3,332 8,022 (31.2%) 11,653
----------------------------------------- ---------------------------------------------
Total programming systems $6,443 (0.5%) $6,479 $16,629 (20.2%) $20,849
========================================= ==========================================
Third Quarter First Nine Months
----------------------------------------- ------------------------------------------
Net sales by location 2002 % Change 2001 2002 % Change 2001
----------------------------------------------------------------------------------- ------------------------------------------
United States $2,057 (2.8%) $2,116 $ 5,964 (19.3%) $ 7,394
% of total 31.9% 32.7% 35.9% 35.5%
International $4,386 0.5% $4,363 $10,665 (20.7%) $13,455
% of total 68.1% 67.3% 64.1% 64.5%
-------------------------------------------------------------------------------------------------------------------------------
Revenues for the third quarter of 2002 decreased slightly compared to the third
quarter of 2001. Sales were lower for non-automated programming systems with the
decline primarily due to lower sales of products for use in manufacturing and
lower contract sales. Offsetting this were higher sales of PS series automated
programming systems. A significant number of new products were introduced during
the quarter, including the PS 300 FlashCORE; TF-20 Tray Feeder System; High
Insertion Socket Adapters; ProLINE- RoadRunner Variable Capacity options; and
ProWriter desktop programmers. For the first nine months of 2002 as compared to
the same period 2001, 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.
Orders were stronger with $7.1 million in bookings for the third quarter. The
Company continues to experience a trend in its sales mix towards increased
international sales and believes that, with the economic situation in the United
States and with the electronics industry trend toward offshore and outsourced
manufacturing, this trend is likely to continue. The Company believes that a
significant part of its manufacturing capital equipment orders during the
quarter were received to support its customers' holiday season manufacturing
capacity and, given the economic uncertainty, is not sure if the rebound in
orders is temporary or if it establishes a trend. While significant economic
uncertainty remains in its forecast, the Company believes that for the fourth
quarter of 2002, revenues will be about the same as in the third quarter.
Gross Margin
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Gross Margin $3,271 $3,355 $7,778 $8,900
Percentage of net sales 50.8% 51.8% 46.8% 42.7%
- ----------------------------------------------------------------------------------------------------------------------
Gross margins decreased slightly in dollars and as a percentage of sales for the
third quarter of 2002 compared with the same period of 2001, primarily due to
sales mix changes. Partially offsetting the decrease are reduced costs resulting
from the Company's restructuring actions taken during the last year. No
significant changes were made to the inventory- or warranty-related reserves
during the quarter.
For the first nine months of 2002 as compared to the same period 2001, the
decrease in gross margin is due to the lower sales volume, partially offset by
cost reductions due to restructure-related savings.
Research and Development
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Research and development $1,430 $1,450 $4,136 $5,153
Percentage of net sales 22.2% 22.4% 24.9% 24.7%
---------------------------------------------------------------------------------------------------------------------
Research and development ("R&D") spending for the third quarter 2002 as compared
to the third quarter 2001 was relatively flat in dollars and as a percentage of
sales. During the third quarter, the Company's R&D focus was on the new PS300
FlashCore automated programming system which was integrated in the programming
architecture first introduced in the ProLINE-RoadRunner. The savings from the
Company's restructuring actions were mostly offset by higher R&D materials and
new product development costs in the third quarter of 2002.
The decline in R&D spending for the first nine months 2002 as compared to the
same period 2001 reflects the lower headcount primarily related to the Company's
restructuring actions over the past year.
Selling, General and Administrative
Third Quarter First Nine Months
---------------------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Selling, general & administrative $2,109 $2,011 $6,376 $7,457
Percentage of net sales 32.7% 31.0% 38.3% 35.8%
---------------------------------------------------------------------------------------------------------------------
Selling, general and administrative ("SG&A") expenses for the third quarter of
2002 compared with the same period in 2001 were relatively flat with increases
in rent expense, due to rental rate increases and the expiration of a sublease,
along with higher marketing and new product launch costs being mostly offset by
the Company's reduced costs from restructuring actions. The sub-tenant leasing
the bottom floor of the corporate headquarters' building in Redmond vacated the
premises during the second quarter at the end of the sub-tenant's lease. The
Company has the space listed with a broker and is actively marketing the space,
but the Company believes the local market for subleased space is not very
favorable at this time.
For the nine months 2002 as compared to the same period 2001, savings from the
restructuring actions were the primary reason for the lower SG&A expense levels.
Interest
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Interest income $20 $77 $69 $195
Interest expense ($4) ($2) ($12) ($13)
---------------------------------------------------------------------------------------------------------------------
Interest income decreased in the third quarter and first nine months of 2002
compared to the same periods in 2001 due to lower interest rates and lower
levels of invested funds.
Income Taxes
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) ($37) $70 $4 $92
---------------------------------------------------------------------------------------------------------------------
Tax expense recorded for both the third quarter and first nine months of 2002
was due to foreign taxes. Tax valuation reserves increased by approximately
$284,000 during the quarter. The Company has valuation reserves of $10,239,000
and $8,779,000 as of September 30, 2002 and September 30, 2001, respectively.
Financial Condition
Liquidity and Capital Resources
Sept. 30, Dec. 31,
(in thousands) 2002 Change 2001
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital $9,014 ($2,996) $12,010
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first nine months of 2002 primarily due to
funding of the losses for the period. Cash, cash equivalents and marketable
securities decreased approximately $1.4 million during this period, inventory
decreased $1.7 million, and accounts receivable decreased $0.3 million. As of
September 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 less than $250,000 other than in
connection with any strategic purposes. 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 under its operating plan to
fund its operations and capital requirements for at least 12 months. The
sub-tenant leasing the bottom floor of the corporate headquarters' building in
Redmond vacated the premises during the second quarter at the end of the
sub-tenant's lease. The Company has the space listed with a broker and is
actively marketing the space, but the Company believes the local market for
subleased space is not very favorable at this time.
The Company established a foreign line of credit for 50,000 Euros in February
2002. In July, 2002 the Company established a $100,000 line of credit with
Accelerated Transportation Solutions to handle purchasing card and travel &
entertainment credit card purchases.
General
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 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 of 2001.
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 September 30, 2002 all restructuring expenses associated with the actions
prior to the third quarter of 2002 detailed above had been paid except for
approximately $15,000.
In the third quarter of 2002, the Company reduced its staff by 33 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 recorded a restructuring charge of $497,000 in the third quarter of
2002. This charge relates to severance and benefits, consulting and professional
services, and facility costs. As of September 30, 2002, all expenses associated
with this restructure have been paid with the exception of approximately
$143,000. The Company has planned a restructure charge in the fourth quarter of
approximately $30,000.
New Accounting Pronouncements
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," on April 30,
2002. Statement No. 145 rescinds Statement No.4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of Statement No. 145, companies will be required to apply the criteria
in APB Opinion No. 30, "Reporting the Results of Operations - reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments of debt.
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Company is currently evaluating the requirements and impact of this
statement on its results of operations and financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company is currently evaluating the requirements and impact of
this statement on its results of operations and financial position.
Fourth Quarter 2002 Forward-Looking Statement
While significant economic uncertainty remains in its forecast, the Company
believes that for the fourth quarter of 2002, revenues will be about the same as
in the third quarter. The Company continues to focus on efforts to increase
revenues and control costs. The restructuring actions taken in the third quarter
are expected to reduce costs and lower the breakeven point in the fourth
quarter. As a result, the Company announced it expects to record a profit of
approximately $0.03 per share for the fourth quarter of 2002.
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 September 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 September 30, 2002
and December 31, 2001.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-14(c) and Rule 15d-14(c) under
the Exchange Act) as of a date (the "Evaluation Date") within 90 days prior to
the filing date of this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures were effective in timely
alerting them to the material information relating to the Company (or its
consolidated subsidiaries) required to be included in its periodic SEC filings
and Form 8-K reports.
(b) Changes in internal controls.
There were no significant changes made in the Company's internal controls or, to
our knowledge, in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
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
None
Item 5. Other Information
Effective November 1, 2002, the NASDAQ National Market continued listing
requirement changed from a minimum $4,000,000 net tangible assets requirement to
a minimum $10,000,000 stockholder's equity requirement. The Company does not
currently meet the new requirement and expects that NASDAQ will notify the
Company of this deficiency and address the Company's options, which could
include transferring the Company to the NASDAQ SmallCap Market.
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.
(10) Letter Agreement with John Vicklund. See Exhibit 10.26.
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)
10.26 Letter Agreement with John Vicklund dated
December 13, 2000 21
99 Other Exhibits
99.1 Chief Executive Officer Section 906 Certification 22
99.2 Chief Financial Officer Section 906 Certification 23
(b) Reports on Form 8-K
The Company furnished a Form 8-K on September 10, 2002 regarding a copy of a web
site posting to be made entitled "President's Perspective" at www.dataio.com
providing a business update and outlook for Data I/O Corporation. The
information in the Form 8K furnished pursuant to Item 9 shall not be deemed to
be filed under the Securities Exchange Act of 1934, as amended.
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: November 13, 2002
By://S//Joel S. Hatlen
Joel S. Hatlen
Vice President - Finance
Chief Financial Officer
Secretary and Treasurer
(Principal Financial Officer and Duly Authorized Officer)
By://Frederick R. Hume By://S//Frederick R. Hume
Frederick R. Hume
President
Chief Executive Officer
(Principal Chief Executive Officer and Duly Authorized Officer)
I, Frederick R. Hume, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2) Based on my knowledge, this quarterly 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, 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 in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Frederick R. Hume
Frederick R. Hume
Chief Executive Officer
(Principal Executive Officer)
I, Joel S. Hatlen, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2) Based on my knowledge, this quarterly 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, 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 in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
(Principal Financial Officer)
Exhibit 10.26
Letter Agreement with John Vicklund dated December 13, 2000
December 13, 2000
John Vicklund
19515 94th Pl. West
Edmonds, WA 98020
Re: Offer of Employment
Dear John,
Welcome to Data I/O Corporation!
This letter confirms our offer of the VP of Human Resources
position, reporting to Fred Hume. As agreed, your start date
will be January 2, 2001. The total annual cash compensation
for this offer is comprised of two elements, an annual base
salary of $90,000 per year (or $7,500 per month) plus
participation in the 2001 Management Incentive Compensation
Plan (prorated from your start date for year 2001) at 25% of
your base pay for performance at team target.
You will also receive 10,000 shares of stock options. These
options are priced at the average Fair Market Value of our
stock on your start date, with 4 year vesting (25% per year).
You will be eligible for all company benefit programs as
outlined in the Team Member Handbook. Your medical, dental,
vision, and life insurance benefits are effective on your
first day of employment. You will have 30 days after you begin
work to choose the type of coverage you would like. In order
for us to expedite the benefits enrollment process, please
complete the attached documents and return them to Human
Resources with your acceptance of this offer.
Your employment is conditional upon execution of our
Employment Agreement (see attached) and completion of an I-9
Form. In order to comply with the Immigration Reform and
Control Act of 1986, we must make sure that all new team
members have the right to legally work in the United States.
Please bring sufficient documents to complete the I-9 Form on
your first day of work (e.g.: (1) passport (2) drivers license
and social security card, or (3) drivers license and original
birth certificate).
While this offer does not express or imply an employment
contract between you and Data I/O for any specific period of
time, we believe that the relationship will be productive and
mutually beneficial.
Your signature below indicates acceptance of this offer. The
terms and conditions outlined above are all of the terms and
conditions of this offer. Please return one copy of this
letter by December 18, 2000. The second copy is provided for
your records. If you have any questions concerning this offer,
please contact Denise Wrisley, she can be reached at
425-867-6938.
Sincerely,
Brenda Rempel
Human Resources
enclosures
================================================================================
I agree to the offer as stated above.
Signed /s/ John Vicklund Date 12/31/00
------------------------------ --------------
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
September 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
(Principal Executive Officer)
November 13, 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
September 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
(Principal Financial Officer)
November 13, 2002