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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Or the transition period from ___________ to ______________
Commission File No. 0-10394
DATA I/O CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0864123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10525 Willows Road N.E., Redmond, Washington, 98052
(Address of principal executive offices, Zip Code)
(425) 881-6444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
7,664,408 shares of no par value or the Registrant's Common Stock were issued
and outstanding as of July 30, 2002.
DATA I/O CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 2002
INDEX
Part I - Financial Information Page
Item 1. Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 13
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 18
Exhibit 99.1 Certification by Chief Executive Officer 19
Exhibit 99.2 Certification by Chief Financial Officer 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
June 30, Dec. 31,
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,270 $2,656
Marketable securities 1,851 3,236
Trade accounts receivable, less allowance for
doubtful accounts of $308 and $350 4,644 5,666
Inventories 5,601 6,388
Other current assets 631 485
----------- -------------
TOTAL CURRENT ASSETS 15,997 18,431
Property and equipment - net 1,476 1,741
Other assets 127 168
----------- -------------
TOTAL ASSETS $17,600 $20,340
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,712 $1,599
Accrued compensation 790 848
Deferred revenue 1,686 1,686
Other accrued liabilities 1,545 1,871
Accrued costs of business restructuring 34 88
Income taxes payable 446 329
----------- -------------
TOTAL CURRENT LIABILITIES 6,213 6,421
Deferred gain on sale of property 1,600 1,765
----------- -------------
TOTAL LIABILITIES 7,813 8,186
COMMITMENTS - -
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none - -
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 7,664,408
and 7,613,754 shares 18,576 18,500
Accumulated deficit (8,792) (6,173)
Accumulated other comprehensive loss 3 (173)
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,787 12,154
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,600 $20,340
=========== =============
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarters Ended Six Months Ended
- ------------------------------------------------------------------------ ------------------------ -- ---------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ------------
(in thousands, except per share data)
Net sales $4,796 $6,487 $10,186 $14,370
Cost of goods sold 2,792 3,677 5,679 8,825
---------- ---------- ----------- ------------
Gross margin 2,004 2,810 4,507 5,545
Operating expenses:
Research and development 1,398 1,765 2,706 3,703
Selling, general and administrative 1,972 2,450 4,267 5,446
Net provision for business restructuring - 460 - 460
---------- ---------- ----------- ------------
Total operating expenses 3,370 4,675 6,973 9,609
---------- ---------- ----------- ------------
Operating loss (1,366) (1,865) (2,466) (4,064)
Non-operating income (expense):
Interest income 23 51 49 117
Interest expense (5) (3) (8) (10)
Foreign currency exchange (3) (83) (58) (90)
---------- ---------- ----------- ------------
Total non-operating income (expense) 15 (35) (17) 17
---------- ---------- ----------- ------------
Loss from operations before income taxes (1,351) (1,900) (2,483) (4,047)
Income tax expense 18 20 41 22
---------- ---------- ----------- ------------
Net loss ($1,369) ($1,920) ($2,524) ($4,069)
========== ========== =========== ============
Basic and diluted loss per share:
Total basic and diluted loss per share ($0.18) ($0.25) ($0.33) ($0.54)
========== ========== =========== ============
Weighted average and potential shares outstanding 7,664 7,560 7,664 7,560
========== ========== =========== ============
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
June 30, June 30,
For the six months ended 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Loss from operations ($2,524) ($4,069)
Adjustments to reconcile loss from operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 508 1,192
Net loss on dispositions 227 73
Amortization of deferred gain on sale (165) (164)
Net change in:
Deferred revenue - (331)
Trade accounts receivable 1,011 2,736
Inventories 792 1,986
Recoverable income taxes - 18
Other current assets (141) 178
Accrued costs of business restructuring (54) 63
Accounts payable and accrued liabilities (147) (1,428)
----------- --------------
Net cash provided by (used in) operating activities (493) 254
INVESTING ACTIVITIES:
Purchases of property and equipment (430) (825)
Net from purchase and sale of marketable securities 1,386 263
----------- --------------
Net cash provided by (used in) investing activities 956 (562)
FINANCING ACTIVITIES:
Sale of common stock 76 117
----------- --------------
Net cash provided by financing activities 76 117
----------- --------------
Increase/(decrease) in cash and cash equivalents 539 (191)
Effects of exchange rate changes on cash 75 (50)
Cash and cash equivalents at beginning of year 2,656 3,133
----------- --------------
Cash and cash equivalents at end of quarter $3,270 $2,892
=========== ==============
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
The financial statements as of June 30, 2002 and June 30, 2001, have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). These statements are unaudited but, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the results for the
periods presented. The balance sheet at December 31, 2001 has been derived from
the audited financial statements at that date. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such SEC rules and regulations.
Operating results for the six months ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. These financial statements should be read in conjunction with the annual
audited financial statements and the accompanying notes included in the
Company's Form 10-K for the year ended December 31, 2001.
NOTE 2 - INVENTORIES
Inventories consisted of the following components (in thousands):
June 30, Dec. 31,
2002 2001
-------------- ----------------
Raw material $2,675 $3,588
Work-in-process 1,452 1,354
Finished goods 1,474 1,446
-------------- ----------------
$5,601 $6,388
============== ================
The Company increased its reserve for excess and obsolete inventory by $662
during the second quarter. This increase in the reserve reflects the lower usage
of materials due to lower sales, work-in-process inventory of units nearly
completed, and anticipated obsolete inventory generated from the development of
product enhancements and replacements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following components (in thousands):
June 30, Dec. 31,
2001 2001
---------------- ----------------
Leasehold improvements $ 238 $ 229
Equipment 12,056 12,188
---------------- ----------------
12,294 12,417
Less accumulated depreciation 10,818 10,676
---------------- ----------------
Property and equipment - net $ 1,476 $ 1,741
================ ================
NOTE 4 - BUSINESS RESTRUCTURING PROGRESS
In the second quarter of 2001, the Company recorded a restructuring charge of
$460,000 associated with actions taken to reduce the Company's breakeven point
and realign the Company with growth activities. This operational repositioning
was mandated by the impact which the economic slowdown and decline in capital
spending across a high number of customer groups had on general demand for
programming equipment.
The four components of the Company's second quarter repositioning included a
reduction in the Company's global workforce of approximately 40 persons or 20%
of the workforce; discontinuance or reallocation of numerous projects and
activities not essential to the Company's long-term goals; streamlining of
activities to decrease discretionary marketing, distribution and promotional
expenses; and consolidation of numerous functions across the organization to
create a team which was more productive and able to respond faster to global
customer needs.
During its third quarter of 2001, the Company announced that it would take
further strategic actions to reduce its breakeven point, which included the
following actions: closure of a facility in Germany and moving its operations to
other locations within the Company; combining the Company's four product
families into two business groups; consolidating service groups across the
organization to create a team more responsive to global customer needs; and
targeting certain other expense reductions for the third quarter, including a
closure of the Company's Redmond facility for one week. A restructuring charge
of $499,000 was recorded in the third quarter.
In the fourth quarter of 2001, the Company reduced its staff by 29 persons. The
actions were taken to reduce the Company's breakeven point and bring it closer
to forecasted revenues, and to maintain the cash position of the Company. The
Company incurred restructuring costs of $252,000 during the fourth quarter.
At June 30, 2002 all restructuring expenses associated with the activities
detailed above had been paid except for approximately $34,000. Subsequent to the
end of the quarter, the Company announced its intention to reduce its workforce
by approximately 25% to further reduce its breakeven point. A restructuring
charge of approximately $500,000 is expected to be taken in the third quarter
relating to these actions.
An analysis of the restructuring is as follows (in thousands):
Reserve 2002 Reserve
Balance at 2002 Payments/ Balance at
Description Dec. 31, 2001 Adjust. Write-offs June 30, 2002
-------------- ----------------- ----------- ------------- ------------------
Downsizing U.S. Operations:
Employee severance $ 4 $ 10 $ 10 $ 4
Redmond facility consolidation 45 - 28 17
Consulting and legal expenses 20 (10) 6 4
Downsizing Foreign Operations 19 - 10 9
----------------- ----------- ------------- ------------------
Total $ 88 $ - $ 54 $ 34
================= =========== ============= ==================
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
Second Quarter First Six Months
----------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------- ----------- -----------
Numerator for basic and diluted loss per share:
Net loss ($1,369) ($1,920) ($2,524) ($4,069)
----------- ------------- ----------- -----------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,664 7,560 7,657 7,560
Employee stock options (1) - - - -
----------- ------------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions of stock options 7,664 7,560 7,657 7,560
----------- ------------- ----------- -----------
Basic and diluted loss per share
Total basic and diluted loss per share ($0.18) ($0.25) ($0.33) ($0.54)
=========== ============= =========== ===========
(1) At June 30, 2002 and 2001 there were 1,327,919 and 1,174,594 shares
respectively, of potentially issueable common stock. Because of the net
loss for the three months and six months ended June 30, 2002 and 2001,
potentially issueable common stock was not included in the calculation of
diluted loss per share as their inclusion would be anti-dilutive.
NOTE 6 - ACCOUNTING FOR INCOME TAXES
The Company's effective tax rate for the first six months of 2002 differed from
the statutory 34% tax rate primarily due to operating losses for which no tax
benefit was recorded. The tax valuation allowance increased by approximately
$490,000 during the quarter ended June 30, 2002. As of June 30, 2002 the Company
has tax valuation allowances of $9,955,000.
NOTE 7 - COMPREHENSIVE INCOME
During the second quarter and the first sixth months of 2002 and 2001, total
comprehensive income (loss) was comprised of the following (in thousands):
For the Second Quarter For the Six Months
------------------------------- ----------------------------------
2002 2001 2002 2001
------------- -------------- ------------- -----------------
Net loss ($1,369) ($1,920) ($2,524) ($4,069)
Foreign currency translation gain (loss) 95 (76) 79 (78)
------------- -------------- ------------- -----------------
Total comprehensive loss ($1,274) ($1,996) ($2,445) ($4,147)
============= ============== ============= =================
NOTE 8 - CHANGE IN FISCAL YEAR
Prior to 2001, the Company reported on a fifty-two, fifty-three week basis. The
last reporting period using this fiscal period was the year ended December 28,
2000. The Company's Board of Directors approved a resolution on March 12, 2001
to change the Company's reporting period to a calendar year and calendar quarter
basis effective for the current fiscal year. The first quarter of 2001 covered
the period December 29, 2000 to March 31, 2001. The second quarter covered the
period April 1, 2001 to June 30, 2001.
NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES
Assets and liabilities of foreign subsidiaries are translated at the exchange
rate on the balance sheet date. Revenues, costs and expenses of foreign
subsidiaries are translated at average rates of exchange prevailing during the
year. Translation adjustments resulting from this process are charged or
credited to stockholders' equity, net of taxes. Realized and unrealized gains
and losses resulting from the effects of changes in exchange rates on assets and
liabilities denominated in foreign currencies are included in non-operating
expense as foreign currency transaction gains and losses.
In June 1998, the Company adopted SFAS No. 133, Accounting for Derivatives and
Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of derivatives as
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. The adoption of this standard by the Company
did not materially impact its consolidated financial statements.
The Company utilizes forward foreign exchange contracts to reduce the impact of
foreign currency exchange rate risks where natural hedging strategies cannot be
effectively employed. All hedging instruments held by the Company are fair value
hedges. Generally, these contracts have maturities less than one year and
require the Company to exchange foreign currencies for U.S. dollars at maturity.
The change in fair value of the open hedge contracts as of June 30, 2002 is an
unrealized loss of $154,000 and is included in accounts payable on the balance
sheet.
The Company does not hold or issue derivative financial instruments for trading
purposes. The purpose of the Company's hedging activities is to reduce the risk
that the valuation of the underlying assets, liabilities and firm commitments
will be adversely affected by changes in exchange rates. The Company's
derivative activities do not create foreign currency exchange rate risk because
fluctuations in the value of the instruments used for hedging purposes are
offset by fluctuations in the value of the underlying exposures being hedged.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves as long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact made
in this Quarterly Report on Form 10-Q are forward-looking. In particular,
statements herein regarding industry prospects; future results of operations or
financial position; changes in gross margin percentages; integration of acquired
products and operations; market acceptance of the Company's newly introduced or
upgraded products; development, introduction and shipment of new products;
expected spending levels; and any other guidance on future periods are
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from management's expectations. The following
discussions and discussions under the caption "Business - Cautionary Factors
That May Affect Future Results" in Item 1 in the Company's Annual report on Form
10-K for the year ended December 31, 2001, describe some, but not all, of the
factors that could cause these differences.
Results of Operations
Net Sales
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Second Quarter First Six Months
----------------------------------------- ------------------------------------------
Net sales by product line 2002 % Change 2001 2002 % Change 2001
----------------------------------------------------------------------------------- ------------------------------------------
Non-automated programming systems $2,762 (23.9%) $3,630 $5,490 (34.0%) $8,320
Automated programming systems 2,034 (28.8%) 2,857 4,696 (22.4%) 6,050
----------------------------------------- ------------------------------------------
Total Sales $4,796 (26.1%) $6,487 $10,186 (29.1%) $14,370
========================================= ==========================================
Second Quarter First Six Months
----------------------------------------- ------------------------------------------
Net sales by location 2002 % Change 2001 2002 % Change 2001
----------------------------------------------------------------------------------- ------------------------------------------
United States $2,118 (10.2%) $2,358 $3,907 (26.0%) $5,278
% of total 44.2% 36.3% 38.4% 36.7%
International $2,678 (35.1%) $4,129 $6,279 (30.9%) $9,092
% of total 55.8% 63.7% 61.6% 63.3%
-------------------------------------------------------------------------------------------------------------------------------
Revenues for the second quarter of 2002 decreased $1.7 million or 26% compared
to the second quarter of 2001. Sales were lower for both automated and
non-automated programming systems. The decline in revenues is due to a reduction
in orders for programming equipment that the Company believes is due to the
continued general economic sluggishness of the electronics industry and the
capital equipment market in particular. The Company believes its largest
customer group, the wireless handset manufacturers, as well as contract
manufacturers and other sectors of the electronics industry continue to defer
capital equipment purchases.
For the six-month period ending June 30, 2002 sales are down by $4.2 million or
29.1% from the same period the prior year. Sales to Europe and Asia have been
very slow the first six months, but increased sales in mainland China have
offset a portion of the sales decline.
While the sales amounts were lower than the prior year, the Company's sales
funnel continues to grow beyond levels not seen for several quarters.
Gross Margin
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Gross Margin $2,004 $2,810 $4,507 $5,545
Percentage of net sales 41.8% 43.3% 44.2% 38.6%
- ----------------------------------------------------------------------------------------------------------------------
Gross margins decreased in dollars and as a percentage of sales for the second
quarter of 2002 compared with the same period of 2001, primarily due to lower
sales volumes and additional inventory related reserves charged during the
quarter. Partially offsetting the decrease are reduced costs resulting from the
Company's restructuring actions taken during the last year.
Research and Development
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Research and development $1,398 $1,765 $2,706 $3,703
Percentage of net sales 29.1% 27.2% 26.6% 25.8%
---------------------------------------------------------------------------------------------------------------------
The decrease in research and development (R&D) spending for the first half of
2002 as compared to the first half of 2001 reflects lower headcount and lower
development spending. Spending on R&D projects has been reduced to control costs
in view of the lower sales volumes.
Selling, General and Administrative
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Selling, general & administrative $1,972 $2,450 $4,267 $5,446
Percentage of net sales 41.1% 37.8% 41.9% 37.9%
---------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative (SG&A) expenses decreased $0.5 million in
the second quarter of 2002 versus 2001 and $1.2 million for the first 6 months
of 2002 versus last year, including the provision for business restructuring.
Tight internal spending controls, coupled with the benefits of the restructuring
activities undertaken during 2001 has led to a significant reduction in SG&A
spending. An $80,000 reduction in the Bad Debt Reserve was taken in the second
quarter due to the lower accounts receivable balance as a result of the lower
sales volumes. This further reduced the SG&A spending for the quarter.
SG&A spending as a percentage of sales is higher in 2002 versus 2001 as a result
of the lower sales volume in 2002.
Interest
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2001 2001
---------------------------------------------------------------------------------------------------------------------
Interest income $23 $51 $49 $117
Interest expense ($5) ($3) ($8) ($10)
---------------------------------------------------------------------------------------------------------------------
Income Taxes
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Income tax expense from operations $18 $20 $41 $22
---------------------------------------------------------------------------------------------------------------------
The income tax provision relates to foreign taxes.
Financial Condition
Liquidity and Capital Resources
June 30, Dec. 31,
(in thousands) 2002 Change 2001
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital $9,784 ($2,226) $12,010
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first six months of 2002 primarily due to
funding of the losses for the period. Cash, cash equivalents and marketable
securities decreased approximately $0.8 million during the period, inventory
decreased $0.8 million, and accounts receivable decreased $1.0 million. As of
June 30, 2002 and 2001, the Company had no debt outstanding.
The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 2002 will be between $300,000 and $700,000.
The Company's future capital requirements will depend on a number of factors
including; costs associated with R&D, successful launch of new products and the
potential use of funds for strategic purposes. Capital expenditures are expected
to be funded from existing and internally generated funds or may be leased.
Management believes that the Company has sufficient working capital available to
fund its operations and capital requirements for at least 12 months. The Company
established a foreign line of credit for 50,000 Euros in February 2002. The
sub-tenant who was leasing the bottom floor of the building in Redmond vacated
the premises during the second quarter at the end of the sub-tenant's lease. The
Company has the spaced listed with a broker and is actively marketing the space.
Restructuring
In the second quarter of 2001, the Company recorded a restructuring charge of
$460,000 associated with actions taken to reduce the Company's breakeven point
and realign the Company with growth activities. This operational repositioning
was mandated by the impact which the economic slowdown and decline in capital
spending across a high number of customer groups had on general demand for
programming equipment.
The Company's second quarter repositioning included the following four
components: a reduction in the Company's global workforce of approximately 40
persons or 20% of the workforce; discontinuance or reallocation of numerous
projects and activities not essential to the Company's long-term goals;
streamlining of activities to decrease discretionary marketing, distribution and
promotional expenses; and consolidation of numerous functions across the
organization to create a team which was more productive and able to respond
faster to global customer needs.
On July 12, 2001, during its third quarter, the Company announced that it would
take further strategic actions to reduce its breakeven point, which included the
following actions: closure of a facility in Germany and moving its operations to
other locations within the Company; combining the Company's four product
families into two business groups; consolidating service groups across the
organization to create a team more responsive to global customer needs; and
targeting certain other expense reductions for the third quarter, including a
closure of the company's Redmond facility for one week. A restructuring charge
of $499,000 was recorded in the third quarter.
In the fourth quarter of 2001, the Company reduced its staff by 29 persons. The
actions taken were meant to reduce the Company's breakeven point and bring it
closer to forecasted revenues, and to maintain the cash position of the Company.
The Company incurred restructuring costs of $252,000 during the fourth quarter.
At June 30, 2002, all restructuring expenses associated with the activities
detailed above were paid except for approximately $34,000 which was primarily
associated with facility consolidation, and consulting and legal fees.
Subsequent to the end of the quarter, the Company announced its intention to
reduce its workforce by approximately 25% to further reduce its breakeven point.
A restructuring charge of approximately $500,000 is expected to be taken in the
third quarter relating to these actions.
General
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced no material changes in market risk. The Company
currently uses only foreign currency hedge derivative instruments, which are not
material as of June 30, 2002. However, the Company is exposed to interest rate
risks. The Company generally invests in high-grade commercial paper with
original maturity dates of twelve months or less and conservative money market
funds to minimize its exposure to interest rate risk on its marketable
securities, which are classified as available-for-sale as of June 30, 2002 and
December 31, 2001.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 15, 2002, there were
present in person or by proxy the holders of 7,418,240 (96.79%) shares
of Common Stock of the Corporation thereby constituting a quorum.
Following are the matters ratified and the voting results:
(a) Election of a Board of Directors consisting of the following six
(6)directors:
Name Votes For Votes Withheld
Glen F. Ceiley 6,780,865 637,375
Daniel A. DiLeo 6,847,914 570,326
Paul A. Gary 6,850,515 567,725
Frederick R. Hume 6,848,014 570,226
Edward D. Lazowska 6,850,315 567,925
Steven M. Quist 6,847,914 570,326
(b) Approval to amend the Data I/O Corporation Stock Incentive
Compensation Plan as described in the Proxy Statement for the 2002
Annual Meeting. The amendment passed by the following vote counts:
5,909,761 votes for; 1,470,394 against; 38,085 abstain.
(c) The proposal to ratify the selection of Grant Thornton LLP as the
company's independent auditors passed with the following vote
results: 7,376,490 for; 28,955 against; and 12,795 abstain.
Item 5. Other Information
The Company received a letter dated August 6, 2002 from NASDAQ indicating that
the Company's common stock has closed below the minimum $1.00 per share
requirement for continued inclusion under Marketplace Rule 4450(a)(5) and that
the Company will be provided 90 Calendar days, or until November 4, 2002, to
regain compliance.
On August 1, 2002, the Company announced its intention to reduce its workforce
by approximately 25% to further reduce its breakeven point. As a part of these
actions, Irene Bjorklund will no longer be an officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any director
or executive officer of the Company is a participant, unless the method of
allocation of benefits thereunder is the same for management and non-management
participants:
(1) Amended and Restated 1982 Employee Stock Purchase Plan. See Exhibit 10.7.
(2) Retirement Plan and Trust Agreement. See Exhibit 10.2, 10.3, 10.4, 10.11,
10.14, 10.15, and 10.16.
(3) Summary of Management Incentive Compensation Plan. See Exhibit 10.12.
(4) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit 10.1.
(5) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.19.
(6) Form of Change in Control Agreements. See Exhibit 10.5.
(7) 1996 Director Fee Plan. See Exhibit 10.6 and 10.17.
(8) Letter Agreement with Frederick R. Hume. See Exhibit 10.21.
(9) Letter Agreement with Irene Bjorklund. See Exhibit 10.25.
3 Articles of Incorporation:
3.1 The Company's restated Articles of Incorporation filed
November 2, 1987 (Incorporated by reference to Exhibit 3.1
of the Company's 1987 Annual Report on Form 10-K (File No.
0-10394)).
3.2 The Company's Bylaws as amended and restated as of March 2001
(Incorporated by reference to the Company's 2001 Annual Report
on Form 10-K (File No. 0-10394)).
3.3 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 1 of the Company's
Registration Statement on Form 8-A filed March 13, 1998
(File No. 0-10394)).
4 Instruments Defining the Rights of Security Holders, Including
Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data
I/O Corporation and ChaseMellon Shareholder Services,
L.L.C. as Rights Agent, which includes: as Exhibit A
thereto, the Form of Right Certificate; and, as Exhibit B
thereto, the Summary of Rights to Purchase Series A Junior
Participating Preferred Stock (Incorporated by reference
to the Company's Current Report on Form 8-K filed on
March 13, 1998).
4.2 Rights Agreement, dated as of March 31, 1988, between Data
I/O Corporation and First Jersey National Bank, as Rights
Agent, as amended by Amendment No. 1 thereto, dated as of
May 28, 1992 and Amendment No. 2 thereto, dated as of
July 16, 1997 (Incorporated by reference to the Company's
Report on Form 8-K filed on March 13, 1998).
4.3 Amendment No. 1, dated as of February 10, 1999, to Rights
Agreement, dated as of April 4, 1998, between Data I/O
Corporation and ChaseMellon Shareholder Services, L.L.C. as
Rights Agent (Incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A/A dated February 10, 1999).
10 Material Contracts:
10.1 Amended and Restated 1983 Stock Appreciation Rights Plan dated
February 3, 1993 (Incorporated by reference to Exhibit 10.23
of the Company's 1992 Annual Report on Form 10-K (File No.
0-10394)).
10.2 Amended and Restated Retirement Plan and Trust Agreement
(Incorporated by reference to Exhibit 10.26 of the Company's
1993 Annual Report on Form 10-K (File No. 0-10394)).
10.3 First Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.21 of the Company's
1994 Annual Report on Form 10-K (File No. 0-10394)).
10.4 Second Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.26 of the Company's
1995 Annual Report on Form 10-K (File No. 0-10394)).
10.5 Form of Change in Control Agreements (Incorporated by reference
to Exhibit 10.20 of the Company's 1994 Annual Report on
Form 10-K (File No. 0-10394)).
10.6 Data I/O Corporation 1996 Director Fee Plan (Incorporated
by reference to Exhibit 10.27 of the Company's 1995 Annual
Report on Form 10K (File No. 0-10394)).
10.7 Data I/O Corporation 1982 Employee Stock Purchase Plan
Amended and Restated December 11, 1996 (Incorporated by
reference to Exhibit 10.1 to the Company's Registration
Statement of Form S-8 (File No. 333-20657, filed
January 29, 1997)).
10.8 Purchase and Sale Agreement dated as of July 9, 1996
(Relating to the sale of Data I/O Corporation's headquarters
property in Redmond, Washington consisting of approximately 79
acres of land and an approximately 96,000 square foot building.
(Portions of this exhibit have been omitted pursuant to an
application for an order granting confidential treatment. The
omitted portions have been separately filed with the
Commission) (Incorporated by reference to Exhibit 10.32 of the
Company's 1996 Annual Report on Form 10-K (File No. 0-10394)).
10.9 Letter dated as of December 20, 1996, First Amendment and
extension of the Closing Date under that certain Purchase and
Sale Agreement dated as of July 9, 1996. (Portions of this
exhibit have been omitted pursuant to an application for an
order granting confidential treatment. The omitted portions
have been separately filed with the Commission)(Incorporated by
reference to Exhibit 10.33 of the Company's 1996 Annual Report
on Form 10-K (File No. 0-10394)).
10.10 Letter dated as of February 17, 1997, Second Amendment and
extension of the Closing Date under that certain Purchase and
Sale Agreement dated as of July 9, 1996. (Portions of this
exhibit have been omitted pursuant to an application for an
order granting confidential treatment. The omitted portions
have been separately filed with the Commission)(Incorporated
by reference to Exhibit 10.34 of the Company's 1996 Annual
Report on Form 10-K (File No. 0-10394)).
10.11 Third Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.35 of the Company's
1996 Annual Report on Form 10-K (File No. 0-10394)).
10.12 Amended and Restated Management Incentive Compensation Plan
dated January 1, 1997 (Incorporated by reference to
Exhibit 10.25 of the Company's 1997 Annual Report on Form 10-K
(File No. 0-10394)).
10.13 Amended and Restated Performance Bonus Plan dated
January 1, 1997 (Incorporated by reference to Exhibit 10.26 of
the Company's 1997 Annual Report on Form 10-K
(File No. 0-10394)).
10.14 Fourth Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.27 of the Company's
1997 Annual Report on Form 10-K (File No. 0-10394)).
10.15 Fifth Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.28 of the Company's
1997 Annual Report on Form 10-K (File No. 0-10394)).
10.16 Sixth Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.29 of the Company's
1997 Annual Report on Form 10-K (File No. 0-10394)).
10.17 Amended and Restated Data I/O Corporation 1996 Director Fee
Plan (Incorporated by reference to Exhibit 10.32 of the
Company's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.18 Amended and Restated Data I/O Corporation 1996 Director Fee
Plan (Incorporated by reference to Exhibit 10.32 of the
Company's 1997 Annual Report on 10-K (File No. 0-10394)).
10.19 Amended and Restated 1986 Stock Option Plan dated May 12,
1998 (Incorporated by reference to Exhibit 10.37 of the
Company's 1998 Annual Report on Form 10-K (File No. 0-10394)).
10.20 Sublease dated December 22, 1999 between Data I/O
Corporation and Imandi.com, Inc. (Incorporated by
reference to Exhibit 10.34 of the Company's 1999 Annual
Report on Form 10-K (File No. 0-10394)).
10.21 Letter Agreement with Fred R. Hume dated January 29, 1999
(Incorporated by reference to Exhibit 10.35 of the
Company's 1999 Annual Report on Form 10-K (File 0-10394)).
10.22 Letter Agreement dated May 28, 1999, among Data I/O
Corporation, JTAG Technologies B.V., and JTAG Holding B.V.
(Incorporated by reference to Exhibit 10.36 of the Company's
1999 Annual Report on Form 10-K (File No. 0-10394)).
10.23 Amended and Restated 2000 Stock Compensation Incentive
Plan dated May 19, 2000 (Incorporated by reference to the
Company's 2000 Proxy Statement dated March 27, 2000.).
10.24 Amended and Restated 1982 Employee Stock Purchase Plan dated
May 16,2001 (Incorporated by reference to the Company's 2001
Proxy Statement dated March 28, 2001.).
10.25 Letter Agreement with Irene Bjorklund dated March 13, 2001
(Incorporated by reference to Exhibit 10.25 of the Company's
2001 Annual Report on Form 10-K (File No. 0-10394).
16.1 Letter regarding change in certifying accountant (Incorporated
by reference to Exhibit 16.1 of the Company's Form 8-K filed
on November 21, 2001.).
99.1 Certification by Chief Executive Officer 19
99.2 Certification by Chief Financial Officer 20
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DATA I/O CORPORATION
(REGISTRANT)
DATED: August 2, 2002
By://S//Joel S. Hatlen
Joel S. Hatlen
Vice President - Finance
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and Duly Authorized Officer)
By://S//Frederick R. Hume
Frederick R. Hume
President
Chief Executive Officer
Exhibit 99.1
Certification by Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly Report of Data I/O Corporation (the "Company")
on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Frederick R. Hume,
Chief Executive Officer of the Company, certify, that pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Frederick R. Hume
Frederick R. Hume
Chief Executive Officer
August 2, 2002
Exhibit 99.2
Certification by Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly Report of Data I/O Corporation (the "Company")
on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Joel S. Hatlen, Chief
Financial Officer of the Company, certify, that pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
August 2, 2002