10q10k10q10k.net

What changed in DATA I/O CORP's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of DATA I/O CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+170 added−185 removedSource: 10-K (2025-04-01) vs 10-K (2024-03-27)

Top changes in DATA I/O CORP's 2024 10-K

170 paragraphs added · 185 removed · 136 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

39 edited+8 added−18 removed37 unchanged
Biggest changeOur SentriX system revenue typically comes from per part use fees, set-up or minimum quarterly fees, consumables, non-recurring engineering fees, service fees and the sale of equipment related to SentriX. 4 Table of Contents Sales Percentage of Total Sales Breakdown by Type Sales Type 2023 2022 Drivers Equipment Sales 58% 57% Capacity, Process improvement, Technology Adapter Sales 29% 30% Capacity utilization, New customer products Software and Maintenance Sales 13% 13% Installed base, Added capabilities Total 100 % 100 % The table below presents our main products and the key features that benefit our customers: Products Key Features Customer Benefits PSV Systems: Off-line (Automated) · Fast program and verify speeds · Up to 112 programming sites · Up to 3000 devices per hour throughput · UFS Support · Supports LumenX and FlashCORE III programmers · Supports multiple media types · Supports quality options – fiber laser marking, 2D inspection, 3D coplanarity · ConneX Service Software enables connected factory integration and automation · Managed and secure programming · High throughput for high-density flash memory programming · Flexible I/O options (tray, tape, tube), marking/labeling and vision for coplanarity inspection · Scalable solutions for low to high-volume manufacturing · Access to system data for connected factory machine learning and AI applications SentriX Security Deployment System · Unique ability to securely provision keys and certificates one device at a time · Broad set of secure devices supported with wide range of silicon partners · Software license model allows easy upgrades from deployed data programming systems · Pay per use model · Create secure IoT devices across a global network · Maintain IP control over their product’s lifecycle · Secure supply chain and flexible key management architecture LumenX Programmer (Non-automated) · Extensible architecture for fast program, verify and download speeds · Supports UFS memory, microcontrollers, serial flash, secure elements and other device types · Large file size support · Secure job creation · Eight sockets with tool-less changeover with single-socket adapters · Managed and secure programming · Fast setup and job changeover · Highest yield and low total cost of programming · High performance FlashPAK III programmer: (Non-automated) · Scalability · Network control via Ethernet · Stand-alone operation or PC compatible · Parallel programming · Four sockets · Universal device support · Validate designs before moving down the firmware supply chain · Unmatched ease of use in manual production systems 5 Table of Contents Customers/Markets We sell our solutions to customers worldwide, many of whom are world-class manufacturers of electronic devices used in a broad range of industries, as described in the following table: OEMs EMS Programming Centers Automotive Electronics IoT, Industrial, Consumer Electronics, including Wireless Contract Manufacturers Notable end customers Borg Warner, Bosch, Alps Alpine, Visteon, Kostal, JVCKenwood, Harman, Hitachi, Denso Ten, Continental, Aptiv Panasonic, Magna, Marelli, Tesla, Desay, BYD LG, TCL, Siemens, Danfoss, Philips, Schneider, Endress+Hauser, Insta, Sony, UTEC, Nokia Pegatron, Flex, Jabil, Wistron, Sanmina SCI, Foxconn, Salcomp, Calcomp, Plexus Arrow, Avnet, BTV, CPS, Semitron, NOA Leading Business drivers Infotainment, Advanced Driver Assist (ADAS), electrification, connectivity, and security Higher functionality driven by increasing electronic content.
Biggest changeDevice support is a critical aspect of our business and consists of writing software algorithms for devices and developing socket adapters to hold and connect to the device for programming. 4 Table of Contents Sales Percentage of Total Sales Breakdown by Type Sales Type 2024 2023 Drivers Equipment Sales 51% 58% Capacity, Process improvement, Technology Adapter Sales 33% 29% Capacity utilization, New customer products Software and Maintenance Sales 16% 13% Installed base, Added capabilities Total 100% 100% The table below presents our main products and the key features that benefit our customers: Products Key Features Customer Benefits PSV Systems: Off-line · Fast program and verify speeds · Managed and secure programming (Automated) · · Up to 112 programming sites Up to 3000 devices per hour throughput · High throughput for high-density flash memory programming · · UFS Support Supports LumenX and FlashCORE III programmers · Flexible I/O options (tray, tape, tube), marking/labeling and vision for coplanarity inspection · · Supports multiple media types Supports quality options – fiber laser marking, ink dot marking, 2D inspection, 3D coplanarity · · Scalable solutions for low to high-volume manufacturing Access to system data for connected factory and traceability · ConneX Service Software enables connected factory integration and automation LumenX Programmer (Non-automated) · Extensible architecture for fast programming, verify and download speeds · · Managed and secure programming Fast setup and job changeover · Supports UFS memory, microcontrollers, serial flash, secure elements and other device types · · Highest yield and low total cost of programming High performance · · Large file size support Secure job creation · Create and validate designs before moving down the firmware supply chain · Eight sockets with tool-less changeover with single-socket adapters FlashPAK III programmer: (Non-automated) · · Scalability Network control via Ethernet · Create and validate designs before moving down the firmware supply chain · Stand-alone operation or PC compatible · Unmatched ease of use in manual production systems · Parallel programming · Four sockets · Universal device support SentriX Security Deployment System · Unique ability to securely provision keys and certificates one device at a time · · Create secure IoT devices across a global network Maintain IP control over their product’s lifecycle · Broad set of secure devices supported with wide range of silicon partners · Secure supply chain and flexible key management architecture · Software license model allows easy upgrades from deployed PSV data programming systems · Pay per use model 5 Table of Contents Customers/Markets We sell our solutions to customers worldwide, many of whom are world-class manufacturers of electronic devices used in a broad range of industries, as described in the following table: OEMs EMS Programming Centers Automotive Electronics IoT, Industrial, Consumer Electronics, including Wireless Contract Manufacturers Notable end customers Borg Warner, Bosch, Alps Alpine, Visteon, Kostal, JVCKenwood, Harman, Hitachi, Denso Ten, Continental, Aptiv Panasonic, Magna, Marelli, Tesla, Desay, BYD LG, TCL, Siemens, Danfoss, Philips, Schneider, Endress+Hauser, Insta, Sony, UTEC, Nokia Pegatron, Flex, Jabil, Wistron, Sanmina SCI, Foxconn, Salcomp, Calcomp, Plexus Arrow, Avnet, BTV, CPS, Semitron, NOA Leading Business drivers Infotainment, Advanced Driver Assist (ADAS), electrification, connectivity, and security Higher functionality driven by increasing electronic content.
Because of the rapidly changing technology in the semiconductor, electronic equipment and software industries, portions of our products might infringe upon existing patents or copyrights, and we may be required to obtain licenses or discontinue the use of the infringing technology.
Because of the rapidly changing technology in the semiconductor, electronic equipment and software industries, portions of our products might infringe upon existing patents or copyrights, and we may be required to obtain licenses or discontinue the use of infringing technology.
The size of backlog at any particular date is not necessarily a meaningful indicator of the trend of our business. 8 Table of Contents Research and Development We believe that continued investment in research and development is critical to our future success. We continue to develop new technologies and products and enhance existing products.
The size of backlog at any date is not necessarily a meaningful indicator of the trend of our business. 8 Table of Contents Research and Development We believe that continued investment in research and development is critical to our future success. We continue to develop new technologies and products and enhance existing products.
Our device programming solutions currently target two high volume, growing markets: automotive electronics and IoT systems, including industrial and consumer devices. 6 Table of Contents Growth drivers for automotive electronics · Consumers desire advanced car features requiring higher levels of sophistication, including autonomous cars, infotainment options (audio, radio, dashboard displays, navigation), ADAS, wireless connectivity and electrification · Proliferation of programmable microcontrollers to support the next-generation electronic car systems · Increasing use of high-density flash to provide memory for advanced applications · Increasing complexity to support autonomous vehicles · Increasing need for security solutions for a secure supply chain and lifecycle firmware integrity · Growing software size Growth drivers for IoT, including industrial, consumer electronics and wireless · Securely controlling groups of connected devices through a secure supply chain and lifecycle firmware integrity management · Adding intelligence and processing into devices · Connecting previously unconnected devices to networks and the internet (such as smart home, including intelligent thermostats and lighting) · Emergence of new devices and applications (such as health and wellness wearable devices and applications) Diversification of accounts receivable and net sales During 2023, we sold products to approximately 200 customers throughout the world.
Our device programming solutions currently target two high volume growing markets: automotive electronics and IoT systems, including industrial and consumer devices. 6 Table of Contents Growth drivers for automotive electronics · Consumers desire advanced car features requiring higher levels of sophistication, including autonomous cars, infotainment options (audio, radio, dashboard displays, navigation), ADAS, wireless connectivity and electrification · Proliferation of programmable microcontrollers to support the next-generation electronic car systems · Increasing use of high-density flash to provide memory for advanced applications · Increasing complexity to support autonomous vehicles · Increasing need for security solutions for a secure supply chain and lifecycle firmware integrity · Growing software size Growth drivers for IoT, including industrial, consumer electronics and wireless · Securely controlling groups of connected devices through a secure supply chain and lifecycle firmware integrity management · Adding intelligence and processing into devices · Connecting previously unconnected devices to networks and the internet (such as smart home, including intelligent thermostats and lighting) · Emergence of new devices and applications (such as health and wellness wearable devices and applications) Diversification of accounts receivable and net sales During 2024, we sold products to approximately 197 customers throughout the world.
However, any claim of infringement, with or without merit, could be costly and a diversion of management’s attention, and an adverse determination could adversely affect our reputation, potentially preclude us from offering certain products, and subject us to substantial liability. As of December 31, 2023, we were not subject to any pending actions regarding infringement claims.
However, any claim of infringement, with or without merit, could be costly and a diversion of management’s attention, and be an adverse determination could adversely affect our reputation, potentially preclude us from offering certain products, and subject us to substantial liability. As of December 31, 2024, we were not subject to any pending actions regarding infringement claims.
We make foreign sales through our wholly-owned subsidiaries in Germany and China, as well as through independent distributors and sales representatives operating in 46 countries. Our independent foreign distributors purchase our products for resale and we generally recognize the sale at the time of shipment to the distributor.
We make foreign sales through our wholly-owned subsidiaries in Germany and China, as well as through independent distributors and sales representatives operating in 32 countries. Our independent foreign distributors purchase our products for resale and we generally recognize the sale at the time of shipment to the distributor.
Process improvement and simplification as well as new product rollouts, memory and new technology, security New contracts from OEMs, programming solutions specified by OEMs Capacity utilization of their installed base of equipment, small parts handling, security Buying criteria Quality, throughput, reliability, configuration control, traceability, global support, IP protection, security Quality, reliability, configuration control, traceability, global support, IP protection, security Lowest equipment procurement cost, throughput, global support Flexibility, lowest lifecycle cost per programmed part, low changeover time; use of multiple vendors provides negotiating leverage, device support availability Security Deployment End-customer focus End-customer focus End-customer and partner focus Partner focus of our SentriX deployments Our solutions address the data programming and security deployment needs of programmable semiconductor devices.
Process improvement and simplification as well as new product rollouts, memory and new technology, security New contracts from OEMs, programming solutions specified by OEMs Large algorithm device support library, contract wins, capacity utilization of their installed base of equipment, small parts handling, security Buying criteria Quality, throughput, reliability, configuration control, traceability, global support, IP protection, security Quality, reliability, configuration control, traceability, global support, IP protection, security Lowest equipment procurement cost, throughput, global support Flexibility, lowest lifecycle cost per programmed part, low changeover time; use of multiple vendors provides negotiating leverage, device support availability Security Deployment End-customer focus End-customer focus End-customer and partner focus Partner focus of our SentriX deployments Our solutions address the data programming and security deployment needs of programmable semiconductor devices.
We are currently focusing our research and development efforts on strategic growth markets, including automotive electronics, IoT and security deployment. We are continuing to develop technology for security deployment to program new categories of semiconductors, including Secure Elements, TPMs, Authentication Chips, and Secure Microcontrollers.
We are currently focusing our research and development efforts on strategic growth markets, including automotive electronics, IoT and security deployment. We are continuing to develop technology for manual and automated systems to program new categories of semiconductors, including Secure Elements, TPMs, Authentication Chips, and Secure Microcontrollers.
Patents, Copyrights, Trademarks and Licenses We rely on a combination of patents, copyrights, trade secrets and trademarks to protect our IP, as well as product development and marketing skill to establish and protect our market position. We continue to apply for and add new patents to our patent portfolio as we develop strategic new technologies.
Patents, Copyrights, Trademarks and Licenses We rely on a combination of patents, copyrights, trade secrets and trademarks to protect our IP, as well as product development and marketing skills to establish and protect our market position and will continue to apply for and add new patents to our patent portfolio as we develop strategic new technologies.
When their business grows, they buy more semiconductors which, in turn, requires additional programming equipment to maintain production speeds or program new device technologies.
When their business grows, they buy more semiconductors which, in turn, require additional programming equipment to maintain production speeds or program new device technologies.
None of these actions have had a material financial impact. Recent developments to climate regulations and guidelines have increased customer demands for climate disclosures on their timelines as opposed to regulations applicability to the Company. Data I/O is also committed to giving back to our local communities through volunteer and internship programs.
None of these actions have had a material financial impact. Recent developments to climate regulations and guidelines have increased customer demands for climate disclosures on their timelines as opposed to regulations applicability to the Company. Data I/O is also committed to giving back to our local communities through volunteer and internship programs. The Company provide employees time-off to volunteer.
Additionally, the Company started to purchase only sustainable (green) electric power (in our China & U.S. facilities in 2023; German facility in prior years) and started to purchase offsets for its carbon emissions from natural gas use in the U.S. facility. For our vehicles, we have been replacing turned in cars with hybrid or electric vehicles.
Additionally, the Company started to purchase only sustainable (green) electric power (in our China & U.S. facilities in 2023; German facility in prior years) and started to purchase offsets for its carbon emissions from natural gas use in the U.S. facility. For our vehicles, we have been replacing company-owned cars with hybrid or electric vehicles where feasible.
Future growth is, to a large extent, dependent upon the timely development and introduction of new products, as well as the development of technology and algorithms to support the latest programmable devices. Where possible, we may pursue partnerships and other strategic relationships to add new products, capabilities and services, particularly in security deployment.
Future growth is largely dependent upon the timely development and introduction of new products, as well as the development of technology and algorithms to support the latest programmable devices. Where possible, we may pursue partnerships and other strategic relationships to add new products, capabilities and services, particularly in security deployment.
Our research and development efforts have resulted in the release of significant new products and product enhancements over the past several years. During 2023, 2022 and 2021, we made expenditures for research and development of (in millions) $6.5, $6.1 and $6.6, respectively, representing 23%, 25% and 26% of net sales, respectively. Research and development costs are generally expensed as incurred.
Our research and development efforts have resulted in the release of significant new products and product enhancements over the past several years. During 2024, 2023 and 2022, we made expenditures for research and development of (in millions) $6.2, $6.5 and $6.1, respectively, representing 29%, 23% and 25% of net sales, respectively. Research and development costs are generally expensed as incurred.
Net sales in the U.S. for 2023, 2022 and 2021 were (in millions) $2.8, $1.8 and $2.6, respectively. Some of our customers’ orders delivered internationally are heavily influenced by U.S. sales-based efforts. 7 Table of Contents International Sales International sales represented approximately 90%, 93% and 90% of net sales in 2023, 2022 and 2021, respectively.
Net sales in the U.S. for 2024, 2023 and 2022 were (in millions) $1.4, $2.8 and $1.8, respectively. Some of our customers’ orders delivered internationally are heavily influenced by U.S. sales-based efforts. 7 Table of Contents International Sales International sales represented approximately 94%, 90% and 93% of net sales in 2024, 2023 and 2022, respectively.
Our PSV family of handlers has won multiple industry awards for technical excellence and innovation and has a large global installed base. Our automated systems have list selling prices ranging from $62,000 to $690,000 and our manual systems have list selling prices ranging from $12,000 to $48,000.
Our PSV family of handlers has won multiple industry awards for technical excellence and innovation and has a large global installed base. Our automated systems have list selling prices ranging from approximately $62,000 to $690,000 and our manual systems have list selling prices ranging from approximately $10,000 to $20,000.
Most orders are scheduled for delivery within 1 to 90 days after receipt of the order. Our backlog of pending orders was approximately (in millions) $2.8, $4.8 and $2.9 as of December 31, 2023, 2022 and 2021, respectively.
Most orders are scheduled for delivery within 1 to 90 days after receipt of the order. Our backlog of pending orders was approximately (in millions) $3.5, $2.8 and $4.8 as of December 31, 2024, 2023 and 2022, respectively.
As with U.S. sales representatives, sales made by international sales representatives are on an agency basis, with sales made directly to the customer by us. Net international sales for 2023, 2022 and 2021 were (in millions) $25.3, $22.4 and $23.2, respectively.
As with U.S. sales representatives, sales made by international sales representatives are on an agency basis, with sales made directly to the customer by us. Net international sales for 2024, 2023 and 2022 were (in millions) $20.4, $25.3 and $22.4, respectively.
The following represented greater than 10% of net sales for the applicable year: Percentage of Net Sales 2023 2022 2021 Number of customers 2 1 1 Approximate percentage of net sales 24 % 23 % 14 % Percentage of each 13 % 23 % 14 % Percentage of each 11 % n/a n/a The following represented greater than 10% of our consolidated accounts receivable for the applicable year: Percentage of Consolidated Accounts Receivable 2023 2022 2021 Number of customers 3 3 3 Approximate percentage of consolidated accounts receivable balance 47 % 39 % 36 % Percentage of each 18 % 15 % 13 % Percentage of each 16 % 13 % 12 % Percentage of each 13 % 11 % 11 % Geographic Markets and Distribution We market and sell our products through a combination of direct sales, indirect sales representatives and distributors, as well as services through programming centers.
The following represented greater than 10% of net sales for the applicable year: Percentage of Net Sales 2024 2023 2022 Number of customers 2 2 1 Approximate percentage of net sales 34 % 24 % 23 % Percentage of each 19 % 13 % 23 % Percentage of each 15 % 11 % n/a The following represented greater than 10% of our consolidated accounts receivable for the applicable years: Percentage of Consolidated Accounts Receivable 2024 2023 2022 Number of customers 2 3 3 Approximate percentage of consolidated accounts receivable balance 43 % 47 % 39 % Percentage of each 30 % 18 % 15 % Percentage of each 13 % 16 % 13 % Percentage of each - 13 % 11 % Geographic Markets and Distribution We market and sell our products through a combination of direct sales, indirect sales representatives and distributors, as well as services through programming centers.
The Company provides employees time-off to volunteer and also coordinates group projects. In addition, the Company provides internships to local high school and college students through STEM and technical colleges. Compliance with environmental laws has not had, nor is it currently expected to have, a material effect on our capital expenditures, financial position, results of operations or competitive position.
In addition, the Company provides internships to local high school and college students through STEM and technical colleges. Compliance with environmental laws has not had, nor is it currently expected to have, a material effect on our capital expenditures, financial position, results of operations or competitive position.
Employees - Human Capital As of December 31, 2023, we had a total of 100 employees, of which 46 were located outside the U.S. and 9 of which were part time. We also utilize independent contractors for specialty work, primarily in research and development, and utilize temporary workers to adjust capacity to fluctuating demand and for special projects.
Employees - Human Capital As of December 31, 2024, we had a total of 95 employees, of which 45 were located outside the U.S. and 7 of which were part time. We also utilize independent contractors for specialty work, primarily in research and development, and utilize temporary workers to adjust capacity to fluctuating demand and for special projects.
We attempt to protect our software, including Lumen®X software, FlashCORE software, TaskLink software, ConneX smart programming software and other software products, by retaining the title to and copyright of the software and documentation, by including appropriate contractual restrictions on use and disclosure in our licenses, and by requiring our employees to execute non-disclosure agreements.
We attempt to protect our rights in proprietary systems (architecture, implementations, software) including Lumen®X, FlashCORE, TaskLink, ConneX, SentriX and other software products, by retaining the title to and copyright of the software and documentation, by including appropriate contractual restrictions on use and disclosure in our licenses, and by requiring our employees to execute non-disclosure agreements.
Potential regulations regarding climate change measurements and disclosures could require significant effort and costs. 9 Table of Contents Executive Officers of the Registrant Set forth below is certain information concerning the executive officers of Data I/O as of March 18, 2024: Name Age Position Anthony Ambrose 62 President and Chief Executive Officer Gerald Y.
Potential regulations regarding climate change measurements and disclosures could require significant effort and costs. Executive Officers of the Registrant Set forth below is certain information concerning the executive officers of Data I/O as of March 18, 2025: Name Age Position William Wentworth 59 President and Chief Executive Officer Gerald Y.
This strategy allows opportunity to mitigate some of the risks of having only one location, as well as enabling tariff and tax optimization strategies. We use a combination of standard components and fabricated parts manufactured to our specifications.
As a resilient supply chain strategy, we manufacture various products in both of our production facilities. This strategy allows opportunity to mitigate some of the risks of having only one location, as well as enabling tariff and tax optimization strategies. We use a combination of standard components and fabricated parts manufactured to our specifications.
The tight labor markets that we experienced in 2022 returned to more normal in 2023. Environmental, Social and Governance (“ESG”) Data I/O is committed to the responsibilities associated with modern age ESG. The Company’s key pillars for ESG support a framework for sustainable growth and include Leadership & Governance, Environment, Innovation, Human Capital, Social Capital, and Financial Excellence.
Environmental, Social and Governance (“ESG”) Data I/O is committed to the responsibilities associated with modern age ESG. The Company’s key pillars for ESG support a framework for sustainable growth and include Leadership & Governance, Environment, Innovation, Human Capital, Social Capital, and Financial Excellence.
We experienced stronger orders the second half of 2023 from our automotive electronics customers and the labor strikes have been resolved. 3 Table of Contents Industry Background We enable companies to improve productivity, increase supply-chain security and reduce costs by providing device data programming and security deployment solutions that allow our customers to take IP (large design and data files) and protect and program it into memory, microcontroller, security and logic devices quickly and cost-effectively.
Industry Background We enable companies to improve productivity, increase supply-chain security and reduce costs by providing device data programming and security deployment solutions that allow our customers to take IP (large design and data files) and protect and program it into memory, microcontroller, security and logic devices quickly and cost-effectively.
Initiatives within these areas apply to the company’s daily global operations as well as within its supply chains. We believe we are the only supplier in our industry with a published conflict mineral policy and public company governance. Our facilities are subject to numerous laws and regulations concerning the discharge of materials or otherwise relating to the environment.
Initiatives within these areas apply to the Company’s daily global operations as well as within its supply chains. Our facilities are subject to numerous laws and regulations concerning the discharge of materials or otherwise relating to the environment.
In addition to this commitment, the company has a track record of meeting its ESG regulatory obligations, being a solid corporate citizen, delivering superior value to its customers and partners, and demonstrating corporate stewardship including returning capital to shareholders through past share buybacks.
In addition to this commitment, the Company has a track record of meeting its ESG regulatory obligations, being a solid corporate citizen, delivering superior value to its customers and partners, and demonstrating corporate stewardship including returning capital to shareholders through past share buybacks. 9 Table of Contents As the largest and only publicly traded company in its sector, according to our internal analysis, Data I/O has led its industry in disclosing significant operational and financial information.
We primarily assemble and test our products at our principal facilities in Redmond, Washington and Shanghai, China. Both of these locations are ISO 9001:2015 certified. We outsource our circuit board manufacturing and fabrication. As a resilient supply chain strategy, we manufacture various products in both of our production facilities.
Manufacturing, Raw Materials and Backlog We strive to manufacture and provide the best solutions for advanced programming. We primarily assemble and test our products at our principal facilities in Redmond, Washington and Shanghai, China. Both of these locations are ISO 9001:2015 certified. We outsource our circuit board manufacturing and fabrication.
Gerry brings a wealth of experience in finance and treasury functions, business development, financial planning & forecasting, monthly reporting and business compliance. He was previously CFO for Kymeta Corporation, a broadband satellite and cellular networks communication company, and prior to that, held CFO titles at FUJIFILM SonoSite, Inc. and Fluke Networks.
He was previously CFO for Kymeta Corporation, a broadband satellite and cellular networks communication company, and prior to that, held CFO titles at FUJIFILM SonoSite, Inc. and Fluke Networks.
Traditionally, our programming market opportunity focused on the number of semiconductor devices to be programmed, but because of the rapid increase in the density of devices, and increasing demands for supply-chain security, the focus has shifted in many cases, from the number and type of devices, to the number and type of bits per device to be programmed or securely provisioned.
Trends of increasing device densities, shrinking device packages, increased demands for security, and customers increasing their software content file sizes, combined with the increasing numbers of intelligent devices such as automotive electronics and IoT applications, are driving demand for our solutions. 3 Table of Contents Traditionally, our programming market opportunity focused on the number of semiconductor devices to be programmed, but because of the rapid increase in the density of devices, and increasing demands for supply-chain security, the focus has shifted in many cases, from the number and type of devices to the number and type of bits per device to be programmed or securely provisioned.
Our direct competition competes primarily based on price. Typically, their equipment meets a “good enough” standard, but with reduced quality, traceability, upgradability, security and other software features. Many of these competitors compete on a regional basis. Although competition in the security deployment market is developing, we expect competition in the market to increase as security deployment becomes more important.
Our direct competition competes primarily based on price. Many of these competitors compete on a regional basis. Although competition in the security deployment market is developing, we expect competition in the market to increase as security deployment becomes more important. There are alternative security deployment solutions such as software-based security, rather than the hardware-based security of our SentriX equipment.
While we are not aware of any published industry market information covering the programming systems or security deployment market, according to our internal analysis of competitors’ revenues, we believe we continue to be the largest supplier in the programming systems market. Manufacturing, Raw Materials and Backlog We strive to manufacture and provide the best solutions for advanced programming.
In addition, new security devices may be required to be programmed using device-specific programmers developed by the semiconductor manufacturer. While we are not aware of any published industry market information covering the programming systems or security deployment market, according to our internal analysis of competitors’ revenues, we believe we continue to be the largest supplier in the programming systems market.
As the largest and only publicly traded company in its sector, according to our internal analysis, Data I/O has led its industry in disclosing significant operational and financial information. The Company's Board currently includes Data I/O's CEO and four Independent Directors. It is diverse in gender, education, professional experience and differences in viewpoints and skills.
The Company's Board currently includes Data I/O's CEO and four Independent Directors. It is diverse in gender, education, professional experience and differences in viewpoints and skills.
There are alternative security deployment solutions such as software-based security, rather than the hardware-based security of our SentriX equipment. In addition, we compete with multiple substitute forms of device programming including “home grown” solutions. Programming after device placement may be done with In Circuit Test (“ICT”), In System Programming (“ISP”), and End of Line Downloading (“EOL”).
In addition, we compete with multiple substitute forms of device programming including “home grown” solutions. Programming after device placement may be done with In Circuit Test (“ICT”), In System Programming (“ISP”), and End of Line Downloading (“EOL”). Some automotive products may also be programmed over the air (“OTA”). IoT devices may also be programmed with ICT, ISP, EOL or OTA.
Gerry holds a Masters of Business Administration from Northwestern University – Kellogg School of Management and a Bachelor of Arts Finance and Accounting from the University of Washington. Rajeev Gulati joined Data I/O in July 2013 and is our Chief Technology Officer and Vice President of Engineering.
Gerry holds a Masters of Business Administration from Northwestern University – Kellogg School of Management and a Bachelor of Arts Finance and Accounting from the University of Washington. 10 Table of Contents
Data I/O was incorporated in the State of Washington in 1969 and its business was founded in 1972. Our website address is www.dataio.com . COVID-19 In 2023, most of the direct implications of COVID-19 had passed, and we were dealing with the follow-on impacts or indirect impacts from COVID-19 and the policies put in place to mitigate the disease.
Data I/O was incorporated in the State of Washington in 1969 and its business was founded in 1972. Our website address is www.dataio.com .
Ng 62 Vice President, Chief Financial Officer, Secretary and Treasurer Rajeev Gulati 60 Chief Technology Officer, Vice President of Engineering Michael Tidwell 55 Vice President of Marketing and Corporate Business Development Anthony Ambrose joined Data I/O on October 25, 2012, and is our President and Chief Executive Officer (“CEO”), and a member of the Board of Directors.
Ng 63 Vice President, Chief Financial Officer, Secretary and Treasurer William Wentworth joined Data I/O as a member of the Board of Directors on May 2023 and assumed the President position on September 1,2024 and Chief Executive Officer (“CEO”) position on October 1, 2024.
He has completed the Stanford Graduate School of Business Director Symposium and earned the Carnegie Mellon University Certificate in Cybersecurity Oversight. 10 Table of Contents Gerald Y. Ng joined Data I/O in July 2023 as Data I/O's Vice President of Finance and, effective August 16, 2023, became Data I/O's Vice President and Chief Financial Officer.
Ng joined Data I/O in July 2023 as Data I/O's Vice President of Finance and, effective August 16, 2023, became Data I/O's Vice President and Chief Financial Officer. Gerry brings a wealth of experience in finance and treasury functions, business development, financial planning & forecasting, monthly reporting and business compliance.
Removed
We continued to manage inflation, supply chain impacts and shortages, and the post lock down economic transitions in China and elsewhere. Other Major Impacts on 2023 In 2022, the war in Ukraine started, while having little direct impact on us from Russia or Ukraine, did affect our supply chains, European economic uncertainty and energy concerns. Inflation impacted everyone.
Added
Major Impacts on 2024 Due to economic and automotive electronics uncertainties and slower customer capacity expansion, shipments of the Company’s automated systems in the Americas and Europe were lower which was partially offset by revenue growth in Asia.
Removed
We believe we were able to adequately address inflation with pricing adjustments such that our margins were mostly maintained. The strengthening of the dollar in 2022 created headwinds for revenues, as typically over 90% of our business is international.
Added
COVID-19 impacts in past years were no longer an operational challenge with personnel staffing, inventory levels, supply chain and operational activities returning to normal levels. However, late in 2024 with the new incoming United States Administration, geo-political, economic and trade uncertainties have increased. The resulting future impact on the Company’s markets, customers, supply chain and operations are uncertain.
Removed
Interest rate hikes by central banks were a concern, especially for cyclical industries with resulting worries about capital spending and planning for recessionary impacts. Certain labor markets were tight during the year causing recruiting challenges. The impact of semiconductor chip shortages, that began mid-2021 and continued well into 2022, are not completely resolved yet in 2023.
Added
We will leverage the experience gained from the impacts of COVID-19, along with the expertise of our leadership and operational teams, to effectively navigate and mitigate these potential challenges.
Removed
For 2023, many of the issues described have caused supply chain disruptions and lead-time unreliability, which we have managed carefully by maintaining and increasing key inventory levels. We believe there is less risk exposure on these issues and we are now reducing inventory levels.
Added
After a period of stability which lasted over a decade, a key organizational leadership transition occurred in the fourth quarter of 2024 with the planned retirement of Anthony Ambrose and the appointment of a new CEO and President, William Wentworth. Subsequent changes have also occurred in the leadership of the Sales, Marketing and Engineering functions.
Removed
The economic challenges resulting from the war in Ukraine and inflation have likely caused Germany to enter into a recession in 2023. We believe that this, and challenges related to the expected shift from Internal Combustion Engines (ICE) to Electric Vehicles (EV), have impacted short-term demand in Germany.
Added
Bill Wentworth brings a wealth of industry experience spanning over 35 years, including private equity and M&A exposure.
Removed
In the United States, we believe uncertainty related to automotive labor strikes softened demand and pushed out expected end-of-the-quarter orders.
Added
As the CEO of Source Electronics, the global market share leader in programming and test services, he was a Data I/O customer and led the sale of controlling interest of Source Electronics to HIG Capital in 2001 and the company’s subsequent sale to Avnet in 2008 with significant investor return.
Removed
Trends of increasing device densities, shrinking device packages, increased demands for security, and customers increasing their software content file sizes, combined with the increasing numbers of intelligent devices such as automotive electronics and IoT applications, are driving demand for our solutions.
Added
Under Bill's leadership, Source developed compelling programming solutions for the automotive and consumer industries, expanding the business and limiting its industry and customer concentration.
Removed
Device support is a critical aspect of our business and consists of writing software algorithms for devices and developing socket adapters to hold and connect to the device for programming. Our products have both an upfront solution sale and recurring revenue element. Adapters are a consumable item and software and maintenance are typically recurring under subscription contracts.
Added
For the years prior to joining Data I/O, as President and owner of Wentworth Advisors, he has consulted in the programming, IT, and private equity markets, focusing on expanding deal flow, performing due diligence and Board service. Gerald Y.
Removed
Some automotive products may also be programmed over the air (“OTA”). IoT devices may also be programmed with ICT, ISP, EOL or OTA. In addition, new security devices may be required to be programmed using device-specific programmers developed by the semiconductor manufacturer.
Removed
We believe patent protection enforcement may be increasingly important in our security provisioning business and we have approximately 25 U.S. and international awarded patents related to the SentriX platform and security provisioning architecture, processes, and methods. We attempt to protect our rights in proprietary systems (architecture, implementations, software), including the SentriX Security Deployment System.
Removed
Prior to Data I/O, Mr. Ambrose was Owner and Principal of Cedar Mill Partners, LLC, a strategy consulting firm since 2011. From 2007 to 2011, he was Vice President and General Manager at RadiSys Corporation, a leading provider of embedded wireless infrastructure solutions, where he led all product divisions and worldwide engineering.
Removed
Until 2007, he was general manager and held several other progressively responsible positions at Intel Corporation, where he led development and marketing of standards-based telecommunications platforms, and grew the industry standard server business to over $1B in revenues. He is Chair of the EvergreenHealth Foundation Board of Trustees. He previously served as a board member of SideChannel, Inc.
Removed
(OTCQB: SDCH) until February 2024 having been retained after their 2022 merger with Cipherloc Corporation (OTCQB: CLOK) where he joined the board in 2019 and had also been lead independent director since 2019. Mr. Ambrose has a Bachelor of Science in Engineering from Princeton University.
Removed
Prior to Data I/O, Rajeev served as Director of Software Engineering for AMD responsible for tools, compiler strategy and execution from 2006 to 2013. He has an extensive background in software, systems and applying technology to develop new markets.
Removed
Previously, he served as Director of Strategy and Planning at Freescale from 2004 to 2006; as Director of Embedded Products at Metrowerks (acquired by Motorola) from 2000 to 2004 and Director of Compilers, Libraries & Performance Tools from 1997 to 2000; and engineering and programmer positions at Apple Computer, IBM and Pacific-Sierra Research.
Removed
Rajeev holds a Master of Science in Electrical & Computer Engineering from the University of Texas, Austin and a BE in Electrical Engineering from Delhi College of Engineering, New Delhi. Michael Tidwell joined Data I/O in May 2019 and is our Vice President of Marketing and Corporate Business Development.
Removed
Prior to Data I/O, he was Vice President of Marketing & Business Development at Tignis, an AI and machine learning startup. From 2012 to 2018 Michael was head of Marketing and Business Development at Sansa Security, a leading software security IP provider that was sold to ARM Holdings.
Removed
Prior to Sansa, Michael was Vice President of Business and Market Development at BSQUARE Corporation. Michael has a Master of Science in Electrical Engineering from the University of Washington and a Bachelor of Electrical Engineering (Summa Cum Laude) from Georgia Institute of Technology.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+3 added−11 removed55 unchanged
Biggest changeInternational sales may fluctuate due to various factors, including: · the impact of COVID-19, the coronavirus and variants of it, or other viruses; 15 Table of Contents · fluctuations in foreign currency exchange rates because 90% of our sales are to international markets, volatile exchange rates may also impact our competitiveness and margins, especially where we have subsidiary operations; · economic uncertainty related to the European energy cost increases; · China economic challenges, as this is a major market for our products and a significant production location; · migration of manufacturing to low cost geographies; · unexpected changes in regulatory requirements; · tariffs and taxes; · bi-lateral and multi-lateral trade agreements; · difficulties in staffing and managing foreign operations; · longer average payment cycles and difficulty in collecting accounts receivable; · compliance with applicable export licensing requirements and the Foreign Corrupt Practices Act; · product safety and other certification requirements; · difficulties in integrating foreign and outsourced operations; · war, civil unrest, political and economic instability, including the Russian invasion of Ukraine and the Israel – Hamas war; · ability to protect our intellectual property in multiple patent jurisdictions; and/or · ability to move cash freely from subsidiaries.
Biggest changeInternational sales may fluctuate due to various factors, including: · current and future global health crisis, similar to COVID-19; · economic trade barriers and constraints such as tariffs and taxes; · economic challenges in China, Europe and Latin America, as these are major markets for our products, with China being a significant production location; · foreign currency exchange rate fluctuations in our major international markets as volatile exchange rates may impact our competitiveness and margins, especially where we have subsidiary operations; · unexpected changes in regulatory requirements; · difficulties in staffing and managing foreign operations; · longer average payment cycles and difficulty in collecting accounts receivable; · compliance with applicable export licensing requirements and the Foreign Corrupt Practices Act; · product safety and other certification requirements; · ability to protect our intellectual property in multiple patent jurisdictions; and/or · ability to move cash freely from subsidiaries.
There is uncertainty regarding the tariffs expected to be imposed, and any increase in tariff rates and subjecting additional items to tariffs, could impact our costs, revenues and the competitiveness of our products due to our manufacturing locations. Trade and tariff issues are creating business uncertainty and may spread to and impact other jurisdictions.
There is uncertainty regarding the tariffs expected to be imposed, and any increase in tariff rates and subjecting additional items to tariffs could increase our costs, revenues and the competitiveness of our products due to our manufacturing locations. Trade and tariff issues are creating business uncertainty and may spread to and impact other jurisdictions.
Because of the rapidly changing technology in the semiconductor, electronic equipment and software industries, portions of our products might possibly infringe upon existing patents or copyrights, and we might be required to obtain licenses or discontinue the use of the infringing technology.
Because of the rapidly changing technology in the semiconductor, electronic equipment and software industries, portions of our products might possibly infringe upon existing patents or copyrights, and we might be required to obtain licenses or discontinue the use of infringing technology.
As applicable, our products currently meet these requirements; however, failure to obtain either a CE certification or a waiver for any product may prevent us from marketing that product in Europe.
As applicable, our products currently meet these requirements; however, failure to obtain either CE certification or a waiver for any product may prevent us from marketing that product in Europe.
As a public company, we are subject to numerous governmental and stock exchange requirements, with which we believe we are in compliance. Our failure to meet regulatory requirements and exchange listing standards may result in actions such as: the delisting of our stock, impacting our stock’s liquidity; SEC enforcement actions; and securities claims and litigation.
As a public company, we are subject to numerous governmental and stock exchange requirements which we believe, we are in compliance with. Our failure to meet regulatory requirements and exchange listing standards may result in actions such as: the delisting of our stock, impacting our stock’s liquidity; SEC enforcement actions; and securities claims and litigation.
Other factors, which may cause our quarterly operating results to fluctuate, include: · increased competition; · timing of new product announcements and timing of development expenditures; 16 Table of Contents · product or service releases and pricing changes by us or our competitors; · market acceptance or delays in the introduction of new products or services; · production constraints, including part shortages impact on us and our supply chains; · quality issues; · labor or material constraints; · timing of significant orders; · timing of installation or customer acceptance requirements; · sales channel mix of direct vs. indirect distribution; · civil unrest, war or terrorism; · health issues such as the outbreak of the coronavirus or other viruses impacting workers, suppliers, customers, travel, or our facilities; · customers’ budgets; · changes in accounting rules, tax or other legislation; · adverse movements in exchange rates, interest rates, inflation or tax rates; · cyclical and seasonal nature of demand for our customers’ products; · general economic conditions in the countries where we sell products; · expenses and delays obtaining authorizations in setting up new operations or locations; and/or · facilities relocations.
Other factors, which may cause our quarterly operating results to fluctuate, include: · increased competition; · timing of new product announcements and timing of development expenditures; · product or service releases and pricing changes by us or our competitors; 15 Table of Contents · market acceptance or delays in the introduction of new products or services; · production constraints, including part shortages impact on us and our supply chains; · quality issues; · labor or material constraints; · timing of significant orders; · timing of installation or customer acceptance requirements; · sales channel mix of direct vs. indirect distribution; · civil unrest, war or terrorism; · health issues such as the outbreak of the coronavirus or other viruses impacting workers, suppliers, customers, travel, or our facilities; · customers’ budgets; · changes in accounting rules, tax or other legislation; · adverse movements in exchange rates, interest rates, inflation or tax rates; · cyclical and seasonal nature of demand for our customers’ products; · general economic conditions in the countries where we sell products; · expenses and delays obtaining authorizations in setting up new operations or locations; and/or · facilities relocations.
Any financing we obtain may contain covenants that restrict our freedom to operate our business or may require us to issue securities that have rights, preferences or privileges senior to our Common Stock and may dilute your ownership interest. Our stock price may be volatile and, as a result, our shareholders may lose some or all of their investment.
Any financing we obtain may contain covenants that restrict our freedom to operate our business or may require us to issue securities that have rights, preferences or privileges senior to our Common Stock and may dilute your ownership interest. Our stock price may be volatile and, as a result, our shareholders may lose some or all their investment.
Our business and financial condition is sensitive to currency exchange rates and any restrictions imposed on their currencies including restrictions on repatriations of cash. A repatriation of cash has, and could in the future, result in tax costs and corresponding deferred tax assets with related tax valuation allowances.
Our business and financial condition is sensitive to currency exchange rates and any restrictions imposed on their currencies including restrictions on repatriation of cash. A repatriation of cash has, and could in the future, result in tax costs and corresponding deferred tax assets with related tax valuation allowances.
Data I/O has, and continues to work with several semiconductor manufacturers to develop best practices to minimize the impact of reflow and potential concerns about X-ray induced data loss so that preprogramming remains a supported alternative; · changes in Flash technology speeds will eventually require us to change the architecture of our programming engines; · electronics equipment manufacturing practices, such as widespread use of in-circuit programming or downloading; · adoption of proprietary security and programming protocols and additional security capabilities and requirements; 12 Table of Contents · customer software platform preferences different from those on which our products operate; · customer adoption of newer unsupported semiconductor device technologies such as NVMe memory or device interface methods, particularly if these technologies are adopted by automotive electronics, IoT or wireless customers; and/or · more rigid industry standards, which would decrease the value-added element of our products and support services.
Data I/O has, and continues to work with several semiconductor manufacturers to develop best practices to minimize the impact of reflow and potential concerns about X-ray induced data loss so that preprogramming remains a supported alternative; · changes in Flash technology speeds will eventually require us to change the architecture of our programming engines; · electronics equipment manufacturing practices, such as widespread use of in-circuit programming or downloading; · adoption of proprietary security and programming protocols and additional security capabilities and requirements; · customer software platform preferences different from those on which our products operate; · customer adoption of newer unsupported semiconductor device technologies such as NVMe memory or device interface methods, particularly if these technologies are adopted by automotive electronics, IoT or wireless customers; and/or · more rigid industry standards, which would decrease the value-added element of our products and support services.
In jurisdictions around the world, personal information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and security. The interpretation of privacy and data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions is unclear and evolving.
In jurisdictions around the world, personal information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and security. The interpretation of privacy and data protection laws and regulations regarding collection, storage, transmission, use and disclosure of such information in some jurisdictions are unclear and evolving.
In addition, overall volatility in the stock market, particularly in the technology company sector, is often unrelated to the operating performance of companies. If these market fluctuations continue in the future, they may adversely affect the price of our Common Stock.
In addition, overall volatility in the stock market, particularly in the technology sector, is often unrelated to the operating performance of companies. If these market fluctuations continue in the future, they may adversely affect the price of our Common Stock.
For example, we may encounter these problems: · technical problems in the development of a new programming and/or security deployment systems or the robotics for new automated handing systems; · inability to hire qualified personnel or turnover in existing personnel or inability to engage or retain key technology partners; · delays or failures to perform by us or third parties, including some smaller early stage or recently acquired companies, involved in our development projects; · dependence on large semiconductor companies for cooperation and support to securely provision their devices.
For example, we may encounter these problems: · technical problems in the development of a new programming and/or security deployment systems or the robotics for new automated handing systems; · inability to hire qualified personnel or turnover in existing personnel or inability to engage or retain key technology partners; · delays or failures to perform by us or third parties, including some smaller early stage or recently acquired companies, involved in our development projects; 12 Table of Contents · dependence on large semiconductor companies for cooperation and support to securely provision their devices.
Due to any of the foregoing factors, it is possible that in some future quarters, our operating results will be below the expectations of analysts and investors. We have a history of operating losses and may be unable to generate enough revenue to achieve and maintain profitability. We have incurred operating losses in four of the last ten years.
Due to any of the foregoing factors, it is possible that in some future quarters, our operating results will be below the expectations of analysts and investors. We have a history of operating losses and may be unable to generate enough revenue to achieve and maintain profitability. We have incurred operating losses in five of the last ten years.
Future acquisitions may also impact our financial position. For example, we may use significant cash or incur debt, which would weaken our balance sheet, or issue additional shares, potentially diluting existing shareholders. We may also capitalize goodwill and intangible assets acquired, the amortization or impairment of which would reduce our profitability.
Future acquisitions may also affect our financial position. For example, we may use significant cash or incur debt, which would weaken our balance sheet, or issue additional shares, potentially diluting existing shareholders. We may also capitalize goodwill and intangible assets acquired, the amortization or impairment of which would reduce our profitability.
We could be forced to incur significant expenses if we were required to modify our products, our services or our existing security and privacy procedures in order to comply with new or expanded regulations. REGULATORY REQUIREMENTS Failure to comply with increasing regulatory requirements may adversely affect our stock price and business.
We could be forced to incur significant expenses if we were required to modify our products, our services or our existing security and privacy procedures to comply with new or expanded regulations. REGULATORY REQUIREMENTS Failure to comply with increasing regulatory requirements may adversely affect our stock price and business.
Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure.
Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even if we have no local entity, employees or infrastructure.
We have no commitments for additional financing, and given a potential future unfavorable economic climate and our financial results, we may experience difficulty in obtaining funding on favorable terms, if at all.
We have no commitments for additional financing and given a potential future unfavorable economic climate and our financial results, we may experience difficulties in obtaining funding on favorable terms, if at all.
We assume that we will continue to have the status of a smaller reporting company based on the aggregate market value of the voting and non-voting shares held as of June 30, 2023.
We assume that we will continue to have the status of a smaller reporting company based on the aggregate market value of the voting and non-voting shares held as of June 30, 2024.
We endeavor to have multi-sourced manufacturing, but this is not currently practical for all products in all locations. War based restrictions, embargos, and supply chain disruptions have and are occurring as a result of the Russian invasion of Ukraine, which could have economic and other indirect impacts to our business.
We endeavor to have multi-sourced manufacturing, but this is not currently practical for all products in all locations. War based restrictions, embargos, and supply chain disruptions have and are occurring because of the Russian invasion of Ukraine, which could have economic and other indirect impacts to our business.
These problems may result in a delay or decline in sales or increased costs. 13 Table of Contents We may pursue business acquisitions that could impair our financial position and profitability. We may pursue acquisitions of complementary technologies, product lines or businesses.
These problems may result in a delay or decline in sales or increased costs. We may pursue business acquisitions that could impair our financial position and profitability. We may pursue acquisitions of complementary technologies, product lines or businesses.
Failure to adapt to increasing automotive electronics customer requirements and a rapidly changing global automotive electronics ecosystem may impact our competitiveness and result in a decline in sales or increased costs. Concentration in automotive electronics and our orders related to automotive electronics customers has been dominant in recent years at 63% in 2023, 61% in 2022 and 58% in 2021.
Failure to adapt to increasing automotive electronics customer requirements and a rapidly changing global automotive electronics ecosystem may impact our competitiveness and result in a decline in sales or increased costs. Concentration in automotive electronics and our orders related to automotive electronics customers has been dominant in recent years at 59% in 2024, 63% in 2023 and 61% in 2022.
Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek additional financing. Therefore, we may seek additional funding through public or private debt or equity financing or from other sources.
Any substantial inability to achieve our current business plan could have an adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek additional financing. 16 Table of Contents Therefore, we may seek additional funding through public or private debt or equity financing or from other sources.
In the security deployment area, we have introduced a pay per use business model and service fees that may not be accepted by our customers who are accustomed to paying for capital equipment upfront, rather than paying per use charges. Failure to adapt to technology trends in our industry may impact our competitiveness and financial results.
In the security deployment area, we have introduced a pay per use business model and service fees that may not be accepted by our customers who are accustomed to paying for capital equipment upfront, rather than paying per use charges. 11 Table of Contents Failure to adapt to new technological trends in our industry may impact our competitiveness and financial results.
As a result, we may need to generate greater revenues than we have recently in order to maintain profitability. However, we cannot provide assurance that our revenues will continue to increase and our business strategies may not be successful, resulting in future losses. The loss of key employees may adversely affect our operations.
As a result, we may need to generate greater revenues than we have recently in order to maintain profitability. However, we cannot provide assurance that our revenues will increase and our business strategies will be successful, resulting in future losses. The loss of key employees may adversely affect our operations. We have employees located in the U.S., Germany and China.
Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases, and business development initiatives including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time.
There may be tax, legal and other impediments to any repatriation actions. Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases, and business development initiatives including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time.
Conversely, our expenditures are based on investment plans and estimates of future revenues. We may, therefore, be unable to quickly reduce our spending if our revenues decline in a given quarter. As a result, operating results for that quarter will suffer. Our results of operations for any one quarter are not necessarily indicative of results for any future periods.
We may, therefore, be unable to quickly reduce our spending if our revenues decline in a given quarter. As a result, operating results for that quarter will suffer. Our operating results for any one quarter are not necessarily indicative of results for any future periods.
Our business may be adversely affected if our relationships with semiconductor manufacturers deteriorate or if semiconductor manufacturers are not willing to closely work with us on security deployment. Consolidation within the semiconductor industry may also impact us.
Our business may be adversely affected if our relationships with semiconductor manufacturers deteriorate or if semiconductor manufacturers are not willing to closely work with us on security deployment. Consolidation within the semiconductor industry may also impact us. As we develop more security deployment solutions, we will need to partner more closely with semiconductor manufacturers.
Unfortunately, increased regulations pushed onto public companies may have a disproportionate impact to smaller public companies. 18 Table of Contents The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (SEC) have requirements that we may fail to meet or we may fall out of compliance with, such as the internal controls auditor attestation required under Section 404 of the Sarbanes-Oxley Act of 2002, with which we are not currently required to comply as we are a smaller reporting company.
The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (SEC) have requirements that we may fail to meet or we may fall out of compliance with, such as the internal controls auditor attestation required under Section 404 of the Sarbanes-Oxley Act of 2002, with which we are not currently required to comply as we are a smaller reporting company.
For example, due to geopolitical considerations, we may not be able to obtain a sufficient quantity of these products if and when needed or the quality of these parts or options may not meet our standards, which may result in lost sales.
For example, due to geopolitical considerations, we may not be able to obtain sufficient quantity of these products if and when needed or the quality of these parts or options may not meet our standards, which may result in lost sales. If we are unable to attract and retain qualified third-party distributors and representatives, our business may be adversely affected.
Our international operations may expose us to additional risks that may adversely affect our business. International sales represented approximately 90%, 93% and 90% of net sales in 2023, 2022 and 2021, respectively. We expect that international sales will continue to be a significant portion of our net revenue.
International sales represented approximately 94%, 90% and 93% of net sales in 2024, 2023 and 2022, respectively. We expect that international sales will continue to be a significant portion of our net revenue.
These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us.
These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us. This discussion is permitted by the Private Securities Litigation Reform Act of 1995.
If we are unable to generate sufficient cash flows from operations or to obtain funds through additional debt, lease or equity financing, we may have to reduce some or all of our development and sales and marketing efforts and limit the expansion of our business. 17 Table of Contents We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through at least the next one-year period.
If we are unable to generate sufficient cash flows from operations or to obtain funds through additional debt, lease or equity financing, we may have to reduce some or all of our development and sales and marketing efforts and limit the expansion of our business.
Their ability to operate, timely pay us, and to acquire any necessary financing may be affected by the current economic climate. Highly skilled professional engineers use most of our products.
We utilize an internal sales force and third-party distributors and representatives. Therefore, the financial stability of these distributors and representatives is important. Their ability to operate, timely pay us, and to acquire any necessary financing may be affected by the current economic climate. Highly skilled professional engineers use most of our products.
While we have policies and procedures in place designed to prevent corruption and bribery, because our business is significantly international, violations of the Foreign Corrupt Practices Act (FCPA) could have a significant adverse effect on our business due to the disruption and distraction of an investigation, financial penalties and criminal penalties.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. 17 Table of Contents While we have policies and procedures in place designed to prevent corruption and bribery, because our business is significantly international, violations of the Foreign Corrupt Practices Act (FCPA) could have a significant adverse effect on our business due to the disruption and distraction of an investigation, financial penalties and criminal penalties.
In addition, many semiconductor manufacturers recommend our managed and secure programming systems for use by users of their programmable devices. These working relationships enable us to keep our programming systems product lines up to date and provide end-users with broad and current programmable device support.
These working relationships enable us to keep our programming systems product lines up to date and provide end-users with broad and current programmable device support.
The collection, storage, transmission, use and disclosure of user data and personal information, if accessed improperly, could give rise to liabilities or additional costs as a result of laws, governmental regulations and evolving views of personal privacy rights. Cybersecurity attacks may increase as a result of the Russian invasion of Ukraine, and/or deterioration of the geopolitical environment.
The collection, storage, transmission, use and disclosure of user data and personal information, if accessed improperly, could give rise to liabilities or additional costs as a result of laws, government regulations and evolving views of personal privacy rights. Cybersecurity attacks may increase due to geo-political disagreements with countries and regions such as Russia, China, Korea and the Middle East.
As we develop more security deployment solutions, we will need to partner more closely with semiconductor manufacturers. 14 Table of Contents Our reliance on a small number of suppliers may result in a shortage of key components, which may adversely affect our business, and our suppliers may experience financial difficulties which could impact their ability to service our needs.
Our reliance on a small number of suppliers may result in a shortage of key components, which may adversely affect our business, and our suppliers may experience financial difficulties which could impact their ability to service our needs.
Currency exchange fluctuations in these countries may adversely affect our investment in our subsidiaries. OPERATIONS Quarterly fluctuations in our operating results may adversely affect our stock price. Our operating results tend to vary from quarter to quarter. Our revenue in each quarter substantially depends upon orders received within that quarter.
OPERATIONS Fluctuations in our quarterly operating results may adversely affect our stock price. Our operating results tend to vary from quarter to quarter. Our revenue in each quarter substantially depends upon orders received within that quarter. Conversely, our expenditures are based on investment plans and estimates of future revenues.
Many of our employees are highly skilled, and our continued success will depend in part upon our ability to attract and retain employees who can be in great demand within the industry.
We also utilize independent contractors for specialty work, primarily in research and development, and utilize temporary workers to adjust capacity to fluctuating demand. Many of our employees are highly skilled, and our continued success will depend in part upon our ability to attract and retain employees who can be in great demand within the industry.
Some of our sockets, parts, subassemblies and boards are currently manufactured to our specifications by third-party foreign contract manufacturers and we are sourcing certain parts or options from foreign manufacturers, particularly in China.
Part shortages impact availability, lead times and pricing that may be disruptive to our production plans, lead times, margins and may result in lost sales. Some of our sockets, parts, subassemblies and boards are currently manufactured to our specifications by third-party foreign contract manufacturers and we are sourcing certain parts or options from foreign manufacturers, particularly in China.
Technological advances have reduced the barriers of entry into the market in which we compete. We expect competition to increase from both established and emerging companies. If we fail to compete successfully against current and future sources of competition, our profitability and financial performance will be adversely impacted.
Technological advances have reduced the barriers of entry into the market in which we compete. We expect competition to increase from both established and emerging companies.
Climate focused regulations and related disclosures are a similar evolving regulatory area and we may be required to invest in systems, processes and personnel to address new requirements in the ESG area. These will require significant costs, work and reputational risk for failing to meet requirements, with miniscule impact to the global environment. Item 1B. Unresolved Staff Comments None.
These will require significant costs, work and reputational risk for failing to meet requirements, with miniscule impact to the global environment. Item 1B. Unresolved Staff Comments None.
We may need to incur additional costs and invest additional resources, including management’s time, in order to comply with the new regulations and anticipated additional reporting and disclosure obligations.
We may need to incur additional costs and invest additional resources, including management’s time, to comply with the new regulations and additional reporting and disclosure obligations. Climate focused regulations and related disclosures are a similar evolving regulatory area, and we may be required to invest in systems, processes and personnel to address new requirements in the ESG area.
This discussion is permitted by the Private Securities Litigation Reform Act of 1995. 11 Table of Contents RISK FACTORS: TARIFFS AND TRADE ISSUES Changes in tariffs and trade issues may adversely affect our business, including revenues and/or gross margins. We produce products in the United States and China.
RISK FACTORS: TARIFFS AND TRADE ISSUES Changes in tariffs and trade issues may adversely affect our business, including revenues and/or gross margins. We produce products in the United States and China. Currently, certain of our products are subject to tariffs imposed by one country on goods manufactured in the other country.
The industries are highly cyclical and are characterized by rapid technological change, short product life cycles and fluctuations in manufacturing capacity and pricing and gross margin pressures.
The industries are highly cyclical and are characterized by rapid technological change, short product life cycles and fluctuations in manufacturing capacity and pricing and gross margin pressures. In a difficult economic climate, it may take us longer to receive payments from our customers and some of our customers’ business may fail, resulting in non-payment.
In the event we require additional cash for U.S. operations or other needs, we may choose to repatriate some, or all, of the cash held in our foreign subsidiaries. There may be tax, legal and other impediments to any repatriation actions.
We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through at least the next one-year period. In the event we require additional cash for U.S. operations or other needs, we may choose to repatriate some, or all, of the cash held in our foreign subsidiaries.
In a difficult economic climate, it may take us longer to receive payments from our customers and some of our customers’ business may fail, resulting in non-payment. Our market growth forecasts and related business decisions may be wrong. These factors could have a material adverse effect on our business and financial condition.
Our market growth outlook and related business decisions may be wrong. These factors could have a material adverse effect on our business and financial condition. 14 Table of Contents Our international operations may expose us to additional risks that may adversely affect our business.
THIRD PARTY RELATIONSHIPS If we do not develop and enhance our relationships with semiconductor manufacturers, our business may be adversely affected. We work closely with most semiconductor manufacturers to ensure that our data programming and security deployment systems comply with their requirements.
We work closely with most semiconductor manufacturers to ensure that our data programming and security deployment systems comply with their requirements. In addition, many semiconductor manufacturers recommend our managed and secure programming systems for use by users of their programmable devices.
Because we rely on a small number of suppliers for certain parts, we are subject to possible price increases by these suppliers. As experienced in 2022, we have seen more part shortages and larger price increases than in recent years.
Because we rely on a small number of suppliers for certain parts, we are subject to possible price increases by these suppliers. Also, we may be unable to accurately forecast our production schedule. If we underestimate our production schedule, suppliers may be unable to meet our demand for components.
Removed
Currently, certain of our products are subject to tariffs imposed by one country on goods manufactured in the other country. This has materially impacted our gross margins negatively.
Added
If we fail to compete successfully against current and future sources of competition, our profitability and financial performance will be adversely impacted. 13 Table of Contents THIRD PARTY RELATIONSHIPS If we do not develop and enhance our relationships with semiconductor manufacturers, our business may be adversely affected.
Removed
While this has returned to a stable situation in 2023, our volumes typically are not high enough to maintain multiple suppliers. Also, we may be unable to accurately forecast our production schedule. If we underestimate our production schedule, suppliers may be unable to meet our demand for components.
Added
Current and future public health crise, geo-political conflicts, and economic barriers, tariffs and constraints can adversely impact the Company’s financial performance. Our business is highly impacted by capital spending plans and other economic cycles that affect the users and manufacturers of integrated circuits.
Removed
Part shortages, especially semiconductor parts as experienced in 2021 and 2022, impact availability, lead times, and pricing that may be disruptive to our production plans, lead times, margins and may result in lost sales.
Added
Unfortunately, increased regulations pushed onto public companies may have a disproportionate impact to smaller public companies.
Removed
If we are unable to attract and retain qualified third-party distributors and representatives, our business may be adversely affected. We have an internal sales force and also utilize third-party distributors and representatives. Therefore, the financial stability of these distributors and representatives is important.
Removed
The coronavirus derivatives or similar items may affect economic and market conditions as surges and spreads. Global impacts of the Russian invasion of Ukraine continue to evolve with sanctions and trade issues. Our business is highly impacted by capital spending plans and other economic cycles that affect the users and manufacturers of integrated circuits.
Removed
As we experienced in this and recent prior years, our operations may in the future reflect substantial fluctuations from period-to-period as a consequence of these industry patterns, general economic conditions affecting the timing of orders from major customers, and other factors affecting capital spending.
Removed
We have employees located in the U.S., Germany and China. We also utilize independent contractors for specialty work, primarily in research and development, and utilize temporary workers to adjust capacity to fluctuating demand.
Removed
Additionally, securities of certain companies have recently experienced significant and extreme volatility in stock price due to short sellers of shares of common stock, known as a “short squeeze.” These short squeezes have caused extreme volatility in both the stock prices of those companies and in the market, and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company.
Removed
Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment, as in many cases the price per share has declined steadily as interest in those stocks have abated.
Removed
While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we won’t be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
Removed
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

6 edited+1 added−2 removed2 unchanged
Biggest changeThe IT infrastructure team monitors the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of the cybersecurity function, including the operation of the Company’s incident response plans, which include appropriate escalation to the CFO, CEO and the Audit Committee. 19 Table of Contents CYBERSECURITY RISK MANAGEMENT AND STRATEGY The Company has processes in place to identify, assess, and monitor material risks from cybersecurity threats, which are part of the Company’s overall cybersecurity risk management and have been embedded in the information systems operating procedures and internal controls.
Biggest changeCYBERSECURITY RISK MANAGEMENT AND STRATEGY The Company has processes in place to identify, assess, and monitor material risks from cybersecurity threats, which are part of the Company’s overall cybersecurity risk management and have been embedded in the information systems operating procedures and internal controls.
As part of it’s oversight role, the Audit Committee receives reporting about the Company’s cybersecurity program, activities, threats and incidents (if any) through periodic updates. The cybersecurity program is managed by our outsourced IT infrastructure team with oversight and coordination by our CFO, who reports directly to our CEO.
As part of its oversight role, the Audit Committee receives reporting about the Company’s cybersecurity program, activities, threats and incidents (if any) through periodic updates. The cybersecurity program is managed by our outsourced IT infrastructure team with oversight and coordination by our CFO, who reports directly to our CEO.
Item 1C. Cybersecurity CYBERSECURITY GOVERNANCE The Company’s Board of Directors, as a whole, has oversight responsibility for our strategic and operational risks. The Audit Committee of the Board of Directors is responsible for board-level oversight of cybersecurity risk, however the full Board is typically present for Information Technology (IT) and Cybersecurity briefings.
Item 1C. Cybersecurity CYBERSECURITY GOVERNANCE The Company’s Board of Directors has oversight responsibility for our strategic and operational risks. The Audit Committee of the Board of Directors is responsible for board-level oversight of cybersecurity risk; however, the full Board is typically present for Information Technology (IT) and Cybersecurity briefings.
Employees with access to the Company’s network receive annual training on topics such as phishing, malware, and other cybersecurity risks. Training is administered and tracked through online learning modules with ongoing follow-up testing. All employees and contractors enter into non-disclosure confidentiality agreements.
The Company has also established cybersecurity and information security awareness training programs. Employees with access to the Company’s network receive annual training on topics such as phishing, malware, and other cybersecurity risks. Training is administered and tracked through online learning modules with ongoing follow-up testing. All employees and contractors enter into non-disclosure confidentiality agreements.
Our IT function manages IT operations and continually evolves and enhances our systems to meet the constantly changing digital environment. Periodic cybersecurity risk assessments are performed to identify, assess, and prioritize potential risks to information, data assets, infrastructure and third party vendors.
Our IT function manages IT operations and continually evolves and enhances our systems to meet the constantly changing digital environment. Periodic cybersecurity risk assessments are performed to identify, assess, and prioritize potential risks to information, data assets, infrastructure and third-party vendors. The Company addresses significant risks through corrective or mitigating actions as necessary.
We work to continually evolve our systems to meet the constantly changing digital environment and continue to invest in the cybersecurity and resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain.
We work to continually evolve our systems to meet the constantly changing digital environment and continue to invest in the cybersecurity and resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain. 18 Table of Contents There have been no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition.
Removed
Additionally, a third-party review and testing of the financial controls over IT as part of our Sarbanes-Oxley internal controls testing is performed annually. The Company addresses significant risks through corrective or mitigating actions as necessary. The Company has also established cybersecurity and information security awareness training programs.
Added
The IT infrastructure team monitors the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of the cybersecurity function, including the operation of the Company’s incident response plans, which include appropriate escalation to the CFO, CEO and the Audit Committee.
Removed
There have been no risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed1 unchanged
Biggest changeThe lease payment increase in 2023 was due primarily to lease abatement incentives for lease renewals in 2022 and standard rate increase in 2023. The Redmond, Washington headquarters facility lease runs to January 31, 2026 at approximately 20,460 square feet. The lease for the facility located in Shanghai, China runs to October 31, 2024 at approximately 19,400 square feet.
Biggest changeThe Redmond lease was renewed and extended by 3.75 years and the Shanghai, China lease was renewed and extended by 3 years. The Redmond, Washington headquarters facility lease runs to October 31, 2029, at approximately 20,460 square feet. The lease for the facility located in Shanghai, China runs to October 31, 2027, at approximately 19,400 square feet.
Item 2. Properties The company has three facilities with our headquarters and primary engineering and operational functions located in Redmond, Washington. Our two subsidiary facilities in Munich, Germany and Shanghai, China provide extended worldwide sales, service, engineering and operations services. The total annual gross or base lease payments during 2023 and 2022 were approximately $823,000 and $713,000, respectively.
Item 2. Properties The Company has three facilities with our headquarters and primary engineering and operational functions located in Redmond, Washington. Our two subsidiary facilities in Munich, Germany and Shanghai, China provide extended worldwide sales, service, engineering and operations services. The total annual gross or base lease payments during 2024 and 2023 were approximately $795,000 and $823,000, respectively.
Added
The lease payment decrease in 2024 was due primarily to a reduction in lease rates for our Redmond, Washington and Shanghai, China facilities. The lower rates reflect the real estate market conditions as part of the lease extensions which occurred in the fourth quarter of 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed1 unchanged
Biggest changeAs of December 31, 2023, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position. Item 4 .
Biggest changeAs of December 31, 2024, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in management’s opinion, individually or in aggregate, would have a material adverse effect on our results of operations or financial position. Item 4 .
Mine Safety Disclosures Not Applicable. 20 Table of Contents PART II
Mine Safety Disclosures Not Applicable. 19 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed1 unchanged
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is listed on the NASDAQ Capital Market (NASDAQ symbol is DAIO). The closing price was $2.94 on December 29, 2023. The approximate number of shareholders of record as of March 18, 2024 was 369.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is listed on the NASDAQ Capital Market (NASDAQ symbol is DAIO). The closing price was $2.77 on December 31, 2024. The approximate number of shareholders of record as of March 18, 2025 was 350.
Except for special cash dividend of $4.15 per share paid on March 8, 1989, we have not paid cash dividends on our Common Stock and do not anticipate paying regular cash dividends in the foreseeable future. No sales of unregistered securities were made by us during the periods ended December 31, 2023, 2022 or 2021.
Except for special cash dividend of $4.15 per share paid on March 8, 1989, we have not paid cash dividends on our Common Stock and do not anticipate paying regular cash dividends in the foreseeable future. No sales of unregistered securities were made by us during the periods ended December 31, 2024, 2023 or 2022.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

36 edited+21 added−18 removed24 unchanged
Biggest changeEmployee Stock Purchase Plan (“ESPP”) shares were issued under provisions that do not require us to record any equity compensation expense. 23 Table of Contents Results of Operations: Net Sales Net sales by product line 2023 Change 2022 (in thousands) Automated programming systems $ 22,806 20.5 % $ 18,926 Non-automated programming systems 5,258 (0.6 %) 5,291 Total programming systems $ 28,064 15.9 % $ 24,217 Net sales by location 2023 Change 2022 (in thousands) United States $ 2,799 57.8 % $ 1,774 % of total 10.0 % 7.3 % International $ 25,265 12.6 % $ 22,443 % of total 90.0 % 92.7 % Net sales by type 2023 Change 2022 (in thousands) Equipment Sales $ 16,343 18.4 % $ 13,803 Adapter Sales 8,154 11.2 % 7,336 Software and Maintenance Sales 3,567 15.9 % 3,078 Total $ 28,064 15.9 % $ 24,217 Net sales for the year ended December 31, 2023 increased approximately 16%, to $28.1 million, compared to 2022, primarily as a result of COVID-19 China shutdown in the first half of 2022, economic uncertainty resulting from the war in Ukraine, semiconductor shortages and a stronger dollar, offset in part during the second half of the 2022 and continuing in 2023 by fulfilling the backlog built up during the shutdown, improved semiconductor supply, and higher demand in automotive electronics and industrial/IoT.
Biggest changeEmployee Stock Purchase Plan (“ESPP”) shares were issued under provisions that do not require us to record any equity compensation expense. 23 Table of Contents RESULTS OF OPERATIONS: NET SALES Net sales by product line 2024 Change 2023 (in thousands) Automated programming systems $ 16,940 (25.7%) $ 22,806 Non-automated programming systems 4,829 (8.2%) 5,258 Total programming systems $ 21,769 (22.4%) $ 28,064 Net sales by location 2024 Change 2023 (in thousands) United States $ 1,377 (50.8%) $ 2,799 % of total 6.3 % 10.0 % International $ 20,392 (19.3%) $ 25,265 % of total 93.7 % 90.0 % Net sales by type 2024 Change 2023 (in thousands) Equipment Sales $ 10,985 (32.8%) $ 16,343 Adapter Sales 7,250 (11.1%) 8,154 Software and Maintenance Sales * 3,534 (0.9%) 3,567 Total $ 21,769 (22.4%) $ 28,064 * includes an insignificant amount of service and parts sales Net sales for the year ended December 31, 2024 decreased approximately 22%, to $21.8 million, compared to 2023.
The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
The evidence that these systems could be deemed accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek possible additional financing. OFF-BALANCE SHEET ARRANGEMENTS Except as noted in the accompanying consolidated financial statements in Note 7, “Other Commitments”, we had no material off-balance sheet arrangements.
Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditure and/or seek possible additional financing. OFF-BALANCE SHEET ARRANGEMENTS Except as noted in the accompanying consolidated financial statements in Note 7, “Other Commitments” we had no material off-balance sheet arrangements.
SHARE REPURCHASE PROGRAMS Data I/O did not have a share repurchase program in 2023 or 2022. NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURES Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA excluding equity compensation and impairment & related charges (non-cash, one-time items) are set forth below.
SHARE REPURCHASE PROGRAMS Data I/O did not have a share repurchase program in 2024 or 2023. NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) FINANCIAL MEASURES Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and Adjusted EBITDA excluding equity compensation and impairment & related charges (non-cash, one-time items) are set forth below.
The transaction gains resulted primarily from translation adjustments to foreign inter-company accounts and U.S. Dollar accounts held by foreign subsidiaries and sales by our German subsidiary to certain customers, which were invoiced in U.S. Dollars. Because approximately 90% of our sales are to international markets, volatile exchange rates may also impact our competitiveness and margins.
The transaction gains resulted primarily from translation adjustments to foreign inter-company accounts and U.S. Dollar accounts held by foreign subsidiaries and sales by our German subsidiary to certain customers, which were invoiced in U.S. Dollars. Because approximately 94% of sales are to international markets, volatile exchange rates may also impact our competitiveness and margins.
Share-based Compensation: We account for share-based awards made to our employees and directors, including employee stock option awards, performance stock unit awards and restricted stock unit awards, using the estimated grant date fair value method of accounting. For options, we estimate the fair value using the Black-Scholes valuation model and an estimated forfeiture rate.
Share-based Compensation: We account for share-based awards provided to our employees and directors, including employee stock option awards, performance stock unit awards and restricted stock unit awards, using the estimated grant date fair value method of accounting. For options, we estimate the fair value using the Black-Scholes valuation model and an estimated forfeiture rate.
We have implemented or have initiatives to implement geographic shifts in our operations, optimize real estate usage, adjusting pricing for cost inflation, lower unit costs, lower tariff expenses, reduce exposure to the impact of currency volatility, increase product development differentiation, and reduce other costs.
We have implemented or have initiatives to implement geographic shifts in our operations, optimize real estate usage, adjust pricing for cost inflation, lower unit costs, lower tariff expenses, reduce exposure to the impact of currency volatility, increase product development differentiation, and reduce other costs.
We establish a reserve for sales returns based on historical trends in product returns and estimates for new items. Payment terms are generally 30 to 60 days from shipment. 22 Table of Contents We transfer certain products out of service from their internal use and make them available for sale.
We establish a reserve for sales returns based on historical trends in product returns and estimates for new items. Payment terms are generally 30 to 60 days from shipment. We transfer certain products out of service from their internal use and make them available for sale.
We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through the next one-year period, and beyond. If this belief is incorrect, we may require additional cash at the U.S. headquarters, which could cause potential repatriation of cash that is held in our foreign subsidiaries.
We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through the next one-year period, and beyond. We may require additional cash at the U.S. headquarters, which could cause potential repatriation of cash that is held in our foreign subsidiaries.
Income tax (expense) in 2023 and 2022 is primarily the result of foreign subsidiary income tax and minimal U.S. state income tax. The effective tax rate for 2023 of 28.6% and 2022 of (156.3%) differed from the statutory tax rates in our tax reporting jurisdictions primarily due to subsidiary income with consolidated losses and the effect of valuation allowances.
Income tax (expense) in 2024 and 2023 is primarily the result of foreign subsidiary income tax and minimal U.S. state income tax. The effective tax rate for 2024 of (14.3%) and 2023 of 28.6% differed from the statutory tax rates in our tax reporting jurisdictions primarily due to subsidiary income with consolidated losses and the effect of valuation allowances.
These product units often involve refurbishing and an equipment warranty, and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value, and the sale transaction is accounted for as revenue and cost of goods sold.
These product units often involve refurbishing with standard equipment warranty provided and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value, and the sale transaction is accounted for as revenue and cost of goods sold.
Inflation and changes in Foreign currency exchange rates Sales and expenses incurred by foreign subsidiaries are denominated in the subsidiary’s local currency and translated into U.S. Dollar amounts at average rates of exchange during the year. We recognized foreign currency transaction gains of $42,000 in 2023 and $221,000 in 2022.
INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES Sales and expenses incurred by foreign subsidiaries are denominated in the subsidiary’s local currency and translated into U.S. Dollar amounts at average rates of exchange during the year. We recognized foreign currency transaction gains of $58,000 in 2024 and $42,000 in 2023.
In particular, statements herein regarding economic outlook, impact of COVID-19 including recovery from the shutdown in Shanghai, China; industry prospects and trends; expected business recovery; industry partnerships; future results of operations or financial position; future spending; expected expenses, breakeven revenue point; expected market decline, bottom or growth; market acceptance of our newly introduced or upgraded products or services; the sufficiency of our cash to fund future operations and capital requirements; development, introduction and shipment of new products or services; changing foreign operations; taxes, trade issues and tariffs; expected inventory levels; expectations for unsupported platform or product versions and related inventory and other charges; Russian invasion of Ukraine impacts; Israel – Hamas war impacts; supply chain expectations; semiconductor chip shortages and recovery; and any other guidance on future periods are forward-looking statements.
In particular, statements herein regarding industry prospects and trends; expected business recovery; industry partnerships; future results of operations or financial position; future spending; expected expenses, breakeven revenue point; expected market decline, bottom or growth; market acceptance of our newly introduced or upgraded products or services; the sufficiency of our cash to fund future operations and capital requirements; development, introduction and shipment of new products or services; changing foreign operations; taxes, trade issues and tariffs; expected inventory levels; expectations for unsupported platform or product versions and related inventory and other charges; Russian invasion of Ukraine impacts; Israel – Hamas war impacts; supply chain expectations; semiconductor chip shortages and recovery; and any other guidance on future periods are forward-looking statements.
ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
Allowance for Credit Losses: We base the allowance for credit losses on our assessment of the losses collectively expected for the future, as well as collectability of specific customer accounts and the aging of accounts receivable.
Allowance for Credit Losses: Allowance for credit losses is based on our assessment of the losses collectively expected for the future, as well as collectability of specific customer accounts and the aging of accounts receivable.
We have a valuation allowance of $8.7 million and $9.3 million as of December 31, 2023 and 2022, respectively. Our deferred tax assets and valuation allowance have increased by approximately $430,000 and $422,000 associated with the requirements of accounting for uncertain tax positions as of December 31, 2023 and 2022, respectively.
We have a valuation allowance of $8.2 million and $8.7 million as of December 31, 2024 and 2023, respectively. Our deferred tax assets and valuation allowance have increased by approximately $442,000 and $430,000 associated with the requirements of accounting for uncertain tax positions as of December 31, 2024 and 2023, respectively.
Tax Valuation Allowances: Given the uncertainty created by our loss history, as well as the current and ongoing cyclical and COVID-19 related uncertain economic outlook for our industry and capital and geographic spending, as well as income and current net deferred tax assets by entity and country, we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances.
Tax Valuation Allowances: Given the uncertainty created by our loss history capital and geographic spending, as well as income and current net deferred tax assets by entity and country, we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances.
Although we have no significant external capital expenditure plans currently, we expect to continue to carefully make and manage capital expenditures to support our business. We plan to increase our internally developed rental, security provisioning, sales demonstration and test equipment as we develop and release new products.
Although we have no significant external capital expenditure plans currently, we expect to continue to carefully make and manage capital expenditures to support our business. We plan to increase our internally developed rental, sales demonstration and test equipment as we develop and release new products. Capital expenditures are currently expected to be funded by existing and internally generated funds.
If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments, and our gross margin could be adversely affected.
If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments, and our gross margin could be adversely affected. 22 Table of Contents Warranty Accruals: We accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations.
Capital expenditures are currently expected to be funded by existing and internally generated funds. As a result of our cyclical and seasonal industry, significant product development, factory resilience strategies, customer support and selling and marketing efforts, we require substantial working capital to fund our operations.
As a result of our cyclical and seasonal industry, significant product development, factory resilience strategies, customer support and selling and marketing efforts, we require substantial working capital to fund our operations.
We increased prices in response to cost increases caused by inflation and part shortages. 25 Table of Contents FINANCIAL CONDITION: LIQUIDITY AND CAPITAL RESOURCES 2023 Change 2022 (in thousands) Working capital $ 18,425 $ 846 $ 17,579 At December 31, 2023, our principal sources of liquidity consisted of existing cash and cash equivalents.
Product and service price increases have been increased in response to cost increases caused by inflation, tariffs and part shortages. 25 Table of Contents FINANCIAL CONDITION: LIQUIDITY AND CAPITAL RESOURCES 2024 Change 2023 (in thousands) Working capital $ 16,085 ($2,340) $ 18,425 At December 31, 2024, our principal sources of liquidity consisted of existing cash and cash equivalents.
It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer.
It generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers when control over the promised goods or services are transferred to the customer. 21 Table of Contents We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year.
Cash at December 31, 2023 and 2022 was $12.3 million and $11.5 million, respectively. Our working capital increased by $846,000 during 2023 due primarily to revenue growth and operating profit improvement. Our current ratio was 4.0 and 3.8 for December 31, 2023 and 2022, respectively. The company continues to have no debt.
Cash at December 31, 2024 and 2023 was $10.3 million and $12.3 million, respectively. Working capital decreased by $2.3 million during 2024 due primarily to the revenue decline and resulting operating loss. Our current ratio improved and was 4.2 and 4.0 for December 31, 2024 and 2023, respectively. The company continues to have no debt.
Our strong cash position and balance sheet, combined with our long-term view of the market, gives us the financial flexibility to make these investments. 21 Table of Contents CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.
CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.
The increase was primarily related contracted services and incentive compensation. We believe it is essential to invest in R&D to significantly enhance our existing products and to create new products as markets develop and technologies change. During 2023, we continued strategically investing in supporting SentriX, ConneX and our LumenX programmer capabilities.
The decrease was primarily related to contracted services and incentive compensation. 24 Table of Contents We believe it is essential to invest in R&D to significantly enhance our existing solutions and create new products as markets develop and technologies change.
We exclude sales, use, value added, some excise taxes and other similar taxes from the measurement of the transaction price. We recognize revenue upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We recognize revenue upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our results and facilitate the comparison of results. 26 Table of Contents A reconciliation of net income to EBITDA and Adjusted EBITDA follows: For Year Ended December 31, 2023 2022 (in thousands) Net Income (loss) $ 486 $ (1,120 ) Interest (income) (190 ) (34 ) Taxes 194 683 Depreciation and amortization 608 560 EBITDA $ 1,098 $ 89 Equity compensation 1,190 1,176 Adjusted EBITDA, excluding equity compensation $ 2,288 $ 1,265 NEW ACCOUNTING PRONOUNCEMENTS - STANDARDS ISSUED AND IMPLEMENTED In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326).
We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our results and facilitate the comparison of results. 26 Table of Contents A reconciliation of net income to EBITDA and Adjusted EBITDA follows: For Year Ended December 31, 2024 2023 (in thousands) Net Income (loss) $ (3,093 ) $ 486 Interest (income) (273 ) (190 ) Taxes 386 194 Depreciation and amortization 565 608 EBITDA $ (2,415 ) $ 1,098 Equity compensation 976 1,190 Adjusted EBITDA, excluding equity compensation $ (1,439 ) $ 2,288 NEW ACCOUNTING PRONOUNCEMENTS - STANDARDS ISSUED AND IMPLEMENTED Effective January 1, 2024, the Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.
INCOME TAXES 2023 Change 2022 (in thousands) Income tax (expense) benefit $ (194 ) (71.6 %) $ (683 ) Income tax (expense) decreased by $489,000 for the year ended December 31, 2023 compared to 2022. The decrease was primarily a result of the withholding tax of $442,000 on the repatriation of cash from subsidiaries in 2022.
INCOME TAXES 2024 Change 2023 (in thousands) Income tax (expense) benefit $ (386 ) 99.0 % $ (194 ) Income tax (expense) increased by $192,000 for the year ended December 31, 2024 compared to 2023. The increase was primarily a result of the withholding tax of $337,000 on the repatriation of cash from China subsidiary in 2024.
Warranty Accruals: We accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations. If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be adversely affected.
If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be adversely affected.
We are under no duty to update any of these forward-looking statements after the date of this Annual Report. The Reader should not place undue reliance on these forward-looking statements. The following discussions and the section entitled “Risk Factors - Cautionary Factors That May Affect Future Results” describes some, but not all, of the factors that could cause these differences.
We are under no duty to update any of these forward-looking statements after the date of this Annual Report. The Reader should not place undue reliance on these forward-looking statements.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted.
NEW ACCOUNTING PRONOUNCEMENTS - STANDARDS ISSUED AND NOT YET IMPLEMENTED In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.
Gross Margin 2023 Change 2022 (in thousands) Gross margin $ 16,186 22.5 % $ 13,210 Percentage of net sales 57.7 % 54.5 % Gross margin as a percentage of sales for the year ended December 31, 2023 was 57.7%, compared to 54.5% in 2022.
Additionally, deferred revenue was approximately $1.6 million on December 31, 2024. GROSS MARGIN 2024 Change 2023 (in thousands) Gross margin $ 11,606 (28.3%) $ 16,186 Percentage of net sales 53.3 % 57.7 % Gross margin as a percentage of sales for the year ended December 31, 2024, was 53.3%, compared to 57.7% in 2023.
The increase was primarily related to higher sales commissions, contracted services and incentive compensation. Cost control measures remain in effect. Interest 2023 Change 2022 (in thousands) Interest income $ 190 458.8 % $ 34 Interest income was higher for the year ended December 31, 2023 compared to 2022 primarily due to higher average interest rates and higher invested balances.
INTEREST 2024 Change 2023 (in thousands) Interest income $ 273 43.7 % $ 190 Interest income was higher for the year ended December 31, 2024 compared to 2023 primarily due to higher average interest rates and higher invested balances.
In addition to product development, a significant part of R&D spending is on creating software and support for new devices introduced by the semiconductor companies. We are currently focusing our research development efforts on strategic growth markets, including automotive electronics and IoT.
During 2024, we continued to invest in the creation of new and enhancement of existing capabilities for our PSV family of automated systems, LumenX and FlashPAK family of non-automated programmers and related software. In addition to product development, a significant part of R&D spending is on creating algorithm software and support for new devices introduced by the semiconductor companies.
The increase in gross margin percentage was due to the impact of sale volume relative to fixed costs; product mix, channel mix, and lower inventory levels (which contributed to lower freight, tariffs, and obsolescence costs.) Research and Development 2023 Change 2022 (in thousands) Research and development $ 6,524 7.2 % $ 6,083 Percentage of net sales 23.2 % 25.1 % Research and development (“R&D”) expense increased $441,000 for the year ended December 31, 2023 compared to 2022.
RESEARCH AND DEVELOPMENT 2024 Change 2023 (in thousands) Research and development $ 6,240 (4.4%) $ 6,524 Percentage of net sales 28.7 % 23.2 % Research and development (“R&D”) expense decreased $284,000 for the year ended December 31, 2024 compared to 2023.
Our R&D spending fluctuates based on the number, type, and the development stage of our product initiatives and projects. 24 Table of Contents Selling, General and Administrative 2023 Change 2022 (in thousands) Selling, general & administrative $ 9,214 17.0 % $ 7,876 Percentage of net sales 32.8 % 32.5 % Selling, General and Administrative (“SG&A”) expenses increased approximately $1.3 million for the year ended December 31, 2023 compared to 2022.
SELLING, GENERAL AND ADMINISTRATIVE 2024 Change 2023 (in thousands) Selling, general & administrative $ 8,404 (8.8%) $ 9,214 Percentage of net sales 38.6 % 32.8 % Selling, General and Administrative (“SG&A”) expenses decreased approximately $810,000 thousand for the year ended December 31, 2024 compared to 2023.
Removed
OVERVIEW In 2023, most of the direct implications of COVID-19 had passed, and we were dealing with the follow-on impacts or indirect impacts from COVID-19 and the policies put in place to mitigate the disease. We continued to manage inflation, supply chain impacts and shortages, and the post lock down economic transitions in China and elsewhere.
Added
The following discussions and the section entitled “Risk Factors - Cautionary Factors That May Affect Future Results” describes some, but not all, of the factors that could cause these differences. 20 Table of Contents OVERVIEW The automotive and industrial electronics industry is cyclical.
Removed
The strong dollar impact that started to reverse during the fourth quarter of 2022, provided tail winds for revenue in the first and second quarter of 2023, especially versus the Euro. During the second half of 2023, the U.S. dollar strengthened again causing revenue head winds. However, we managed to achieve profitability for the year.
Added
With increased market uncertainty and customer capacity expansion slowing in 2024, automated systems shipments declined in the Americas and Europe which was partially offset by revenue growth in Asia. Automotive electronics represented 59% of 2024 bookings compared to 63% for 2023.
Removed
Macroeconomic news, while improving, continued to be fairly negative. On a more positive note, inflation, while still elevated, is diminishing. Interest rates continue to be higher, but an anticipated recession has not occurred outside of Germany with a current soft landing outlook causing expectations for avoiding a U.S. recession.
Added
While automotive system sales were below expectations, the Company continues to expand its sales to service providers (franchise distribution, contract manufacturers and independent providers) and reoccurring revenue offerings. For the full year, consumable adapters and services revenue remained steady, representing 50% of total revenue and helping mitigate the decline in system sales.
Removed
COVID-19, semiconductor shortages, shipping & supply chain issues, and domestic labor tightness are improving situations. Travel, trade shows, and face-to-face customer meetings are happening. We believe our new supplier resilience, inventory holdings and production in multiple locations, and ability to leverage remote and virtual services, are capabilities to retain and build upon.
Added
COVID-19 impacts in past years were no longer an operational challenge with personnel staffing, inventory levels and supply chain and operational activities returning to normal levels. However late in 2024 with the new incoming United States Administration, geo-political, economic and trade uncertainties have increased. The resulting future impact on the Company’s markets, customers, supply chain and operations are uncertain.
Removed
We continue to focus on managing our costs carefully and growth-oriented strategies. We are focusing our research and development efforts in our strategic growth markets, namely automotive electronics and IoT new programming technologies, secure supply chain solutions, automated programming systems and their enhancements for the manufacturing environment and software.
Added
However, the operational and manufacturing resiliencies gained from the COVID-19 impact and the experience of leadership and operational teams can be leveraged to navigate and mitigate these potential future challenges. As our customers shift their supply chain and manufacturing locations to address changing economic and trade constraints, we will have the capacity and ability to adjust accordingly.
Removed
At Data I/O, we are investing for the long-term to retain and extend our leadership position in automotive electronics and security deployment. We are continuing to develop technology to securely provision newer categories of semiconductors, including Secure Microcontrollers, Authentication Chips, and Secure Elements.
Added
After a period of stability which lasted over a decade, key organizational leadership transition occurred in the fourth quarter of 2024 with the appointment of a new CEO and President, William Wentworth. Subsequent changes have also occurred in the leadership of the Sales, Marketing and Engineering functions and corresponding changes in the strategic and operational direction of these groups.
Removed
We continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices, including various configurations of NAND Flash, eMMC, UFS and microcontrollers on our newer products.
Added
We believe these changes will drive improved revenue growth, higher product innovation, greater operational efficiency and improved financial performance. We continue to make investments in technologies, products and services to maintain market leadership in our Unified Programming Strategy. This strategy supports our customers’ preprogramming supply chain needs, from design to manufacturing and beyond.
Removed
Our customer focus has been on global and strategic high-volume manufacturers in key market segments like automotive electronics, IoT, industrial controls and consumer electronics, as well as programming centers.
Added
Our manual programmer offerings, such as LumenX and FlashCore, provide preprogramming solutions for our customers’ design, engineering, new product introduction, low-to-medium production, and test needs while our PSV system of products support medium-to-high volume production needs. Our strong cash position and balance sheet, combined with our long-term view of the market, gives us financial flexibility to make these investments.
Removed
Although the long-term prospects for our strategic growth markets should remain good, these markets and our business have been, and are likely to continue to be, adversely impacted by global political and economic factors.
Added
During 2024 and 2023, the impact of capitalization of incremental costs for obtaining contracts was immaterial. We exclude sales, use, value added, some excise taxes and other similar taxes from the measurement of the transaction price.
Removed
In particular, the continued outlook by industry analysts for automotive electronics, which remains our primary market focus, remains strong based on the long-term forecast for a decade. On the product side, we continue to invest with a long-term focus towards expanding our markets and creating unique value for our customers.
Added
In 2024, automotive electronics uncertainty persisted and customer capacity expansion slowed, resulting in lower system shipments in the Americas and Europe which were partially offset by growth in Asia. Automotive electronics represented 59% of 2024 bookings compared to 63% for 2023.
Removed
This is true for both our traditional core business as well as the emerging security deployment business.
Added
While automotive system sales were below expectations, the Company continues to expand its sales to service providers (franchise distribution, contract manufacturers and independent providers) and reoccurring revenue offerings. For the full year, consumable adapters and services revenue remained steady, representing 50% of total revenue and helping mitigate the decline in system sales.
Removed
We expense contract acquisition costs, primarily sales commissions, for contracts with terms of one year or less and will capitalize and amortize incremental costs with terms that exceed one year. During 2023 and 2022, the impact of capitalization of incremental costs for obtaining contracts was immaterial.
Added
Order bookings were $22.5 million in 2024, down approximately 12.6% compared to $25.8 million in 2023 due to similar market challenges noted for revenue. The order backlog on December 31, 2024, was $3.5 million, up $0.7 million from the fourth quarter of 2023, which will benefit revenue recognition in the first half of 2025 as systems are shipped.
Removed
Order bookings were $25.8 million in 2023, down approximately 2% compared to $26.4 million in 2022. Automotive Electronics were 63% of total bookings, up 2% from 61% in 2022. Backlog at December 31, 2023 and 2022 was $2.8 million and $4.8 million, respectively. Deferred revenue was $1.6 million at December 31, 2023 compared to $1.8 million at December 31, 2022.
Added
The decrease in gross margin as a percentage of sales primarily reflects lower sales volume and lower related absorption of fixed manufacturing and service operating costs. Actual 2024 production and service spending decreased by $250,000 or 4% from the prior year.
Removed
We are developing technology and the SentriX product line to securely program new categories of semiconductors, including Secure Microcontrollers, Secure Elements, and Authentication Chips.
Added
Our R&D spending fluctuates based on the number, type, and the development stage of our product initiatives and projects.
Removed
Topic 326 is effective (Smaller Reporting Company) for reporting periods beginning after December 15, 2022. Topic 326 replaces the incurred loss impairment methodology under current Generally Accepted Accounting Principles ("GAAP") with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments.
Added
The decrease was primarily related to lower sales commissions on lower revenue and lower outside services from efficiency improvements and cost controls. Cost control measures remain in effect. Salary and wages remained flat with lower headcount savings offset by staff separation charges of approximately $430,000 in the fourth quarter of 2024.
Removed
We adopted the new credit loss standard on January 1, 2023. The new credit loss standard has not had a material impact on our financial condition, results of operations and cash flows, or financial statement disclosures.
Added
In the second quarter of 2024, we completed a $3.4 million dividend distribution from our China subsidiary operation, incurring a $337,000 foreign tax withholding expense.
Removed
NEW ACCOUNTING PRONOUNCEMENTS - STANDARDS ISSUED AND NOT YET IMPLEMENTED In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.
Added
This was undertaken to optimize the cash position and operating needs of each subsidiary, increase the interest earning potential of our cash holdings and ensure available liquidity at the U.S. headquarters to support future strategic and operational initiatives.
Removed
We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.
Added
This update requires entities, including those with a single reportable segment, to disclose significant segment expenses regularly provided to the Chief Operating Decision Maker (CODM) and included in the reported measure of segment profit or loss. The Company operates as a single reportable segment.
Added
The CODM evaluates the Company's performance based on operating income, as presented in the consolidated statements of operations. Significant segment expenses are those that are already disclosed in operating income and regularly reviewed by the CODM for purposes of assessing performance and allocating resources. Additional significant single segment expense categories are provided in Note 13 – Segment Information.
Added
In November 2024, FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation (Subtopic 220-40), which requires disclosure of specific information about costs and expenses within relevant expense captions on the face of the income statement, qualitative descriptions for expense captions not specifically disaggregated quantitatively, and the total amount and definition of selling expenses for interim and annual reporting periods.
Added
This standard is effective for the annual reporting period beginning January 1, 2027 and interim reporting periods beginning January 1, 2028 and should be applied retrospectively to all comparative periods. Early adoption is permitted. The Company is currently evaluating the effects of adopting this new accounting guidance. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.

Other DAIO 10-K year-over-year comparisons