UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended MARCH 26, 1998 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
7,148,657 shares of no par value Common Stock outstanding as of April 30, 1998
Page 1 of 17
Exhibit Index on Page 17
<PAGE>
DATA I/O CORPORATION
FORM 10-Q/A
(Amendment No. 1)
For the Quarter Ended March 26, 1998
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
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
On December 18, 1998, the Company announced that it would restate its financial
results for the first quarter of 1998. At that time, the Company also announced
an estimate of the impact of the restatement on previously reported losses for
the first quarter of 1998, and that it would file amendments to its 1998
quarterly reports on Form 10-Q to reflect this restatement. This restatement is
attributable to recognition of a non-cash expense of approximately $540,000
related to options held by a former CEO of the Company.
At the time of his resignation in January 1998, the former CEO entered into a
agreement with the Company which provided, among other things, that the former
CEO's stock option awards modified so that the exercise periods of certain of
his vested options would be extended to 18 months and the vesting periods of his
unvested options would effectively be extended by 18 months. During a review of
the Company's stock option plan share status at year end it was determined that
such a modification of the former CEO's option awards in January 1998 should
have resulted in the recognition of compensation expense in that period in the
amount of $540,000, which is the difference between the option exercise prices
and the quoted market price for the stock on the date of his resignation (the
measurement date).
This filing amends the original filing on Form 10-Q to reflect the Company's
financial results for the quarter ended March 26, 1998 as filed on May 8, 1998
(the "Original Report"), and to revise Management's Discussion and Analysis of
Financial Condition and Results of Operations in light of the restated results.
This amended report is intended to speak as of the time of filing of the
Original Report as if the results for the period covered by the Original Report
as restated by this report had been known at that time. This report does not
update other disclosures in the Original Report to reflect subsequent events.
Information concerning subsequent events will be included in the Company's 1998
Annual Report on Form 10-K, which is expected to be filed by March 31, 1999. In
addition, it should be noted that in this amended report a disclosure error
within footnote five to the financial statements as originally filed has been
corrected.
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Mar. 26, Mar. 27,
For the quarters ended 1998 1997
- -------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (Restated)
Net sales $8,426 $11,867
Cost of goods sold 4,770 5,909
---------- ---------
Gross margin 3,656 5,958
Operating expenses:
Research and development 2,414 2,072
Selling, general and administrative 3,879 3,295
---------- ---------
Total operating expenses 6,293 5,367
---------- ---------
Operating income (loss) (2,637) 591
Non-operating income (expense):
Interest income 470 60
Interest expense (33) (51)
Foreign currency exchange (1) 15
Net gain on dispositions (3)
---------- ---------
Total non-operating income (expense) 433 24
---------- ---------
Income (loss) from continuing operations
before income taxes (2,204) 615
Income tax expense 29 183
---------- ---------
Income (loss) from continuing operations (2,233) 432
Income (loss) from discontinued operations, net of taxes 180 (384)
---------- ---------
Net income (loss) ($2,053) $48
========== =========
Basic and diluted earnings (loss) per share:
From continuing operations ($0.32) $0.06
From discontinued operations .03 (0.05)
---------- ---------
Total basic and diluted earnings (loss) per share ($0.29) $0.01
========== =========
Weighted average shares outstanding 7,107 6,817
========== =========
Weighted average and potential shares outstanding 7,107 6,914
========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Mar. 26, Dec. 25,
1998 1997
- --------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited) (note 1)
(Restated)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,850 $8,113
Marketable securities 26,228 24,855
Trade accounts receivable, less allowance for
doubtful accounts of $404 and $394 4,498 5,678
Inventories 8,330 8,158
Recoverable income taxes 700
Deferred income taxes 1,668 1,990
Other current assets 2,443 3,910
---------- -----------
TOTAL CURRENT ASSETS 45,717 52,704
Property, plant and equipment - net 3,935 3,389
Other assets 418 532
Deferred income taxes 731 1,111
---------- -----------
TOTAL ASSETS $50,801 $57,736
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,420 $3,760
Accrued compensation 2,837 2,958
Deferred revenue 4,231 4,795
Other accrued liabilities 2,173 3,117
Income taxes payable 661 2,848
Notes payable and current maturities of long-term debt 662 2,000
---------- -----------
TOTAL CURRENT LIABILITIES 13,984 19,478
Long-term other payables 561
Deferred gain on sale of property 3,002 3,083
---------- -----------
TOTAL LIABILITIES 16,986 23,122
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, 7,145,532
and 7,038,786 shares 17,461 16,412
Retained earnings 16,292 18,345
Unrealized loss on marketable securities (535) (732)
Cumulative translation adjustment 597 589
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 33,815 34,614
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 50,801 $57,736
========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Mar. 26, Mar. 27,
For the quarters ended 1998 1997
- -------------------------------------------------------------------------------------------------------
(in (Restated)
thousands)
OPERATING ACTIVITIES:
Income (loss) from continuing operations ($2,233) $432
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization 519 629
Deferred income taxes 702 180
Deferred revenue (564) 236
Amortization of deferred gain on sale (81)
Non-cash stock-based compensation expense 540
Net change in:
Trade accounts receivable 1,182 (1,238)
Inventories (172) 595
Recoverable income taxes (700) (123)
Other current assets 1,464 259
Business restructure (168)
Accounts payable and accrued liabilities (4,152) 130
--------- -----------
Cash provided by (used in) operating activities of (3495) 932
continuing operations
Cash provided by (used in) operating activities of 180 (43)
discontinued operations
--------- -----------
Net cash provided by (used in) operating activities (3,315) 889
INVESTING ACTIVITIES:
Additions to property, plant and equipment (948) (338)
Additions to other assets 3
Purchases of marketable securities (8,813)
Proceeds from sales of marketable securities 7,637
Net investing activities of discontinued operations (36)
--------- -----------
Cash used in investing activities (2,121) (374)
FINANCING ACTIVITIES:
Additions to (repayment of) notes payable (1,338) 397
Sale of common stock 149 178
Proceeds from exercise of stock options 361 103
--------- -----------
Cash provided by (used in) financing activities (828) 678
--------- -----------
Increase (decrease) in cash and cash equivalents (6,264) 1,193
Effects of exchange rate changes on cash 1 1
Cash and cash equivalents at beginning of year 8,113 4,048
--------- -----------
Cash and cash equivalents at end of year $1,850 $5,242
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $37 $58
Income taxes $2,163 $83
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
The financial statements as of March 26, 1998 and March 27, 1997, 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 25, 1997 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 generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Operating results for the quarter
ended March 26, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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 25, 1997. Certain prior period's balances have been reclassified to
conform to the presentation used in the current period.
As of December 26, 1997, the Company adopted SFAS 130, Reporting Comprehensive
Income. Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. Statement 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments to be included in other
comprehensive income. During the first quarter of 1998 and 1997, total
comprehensive income (loss), which includes net income and other comprehensive
income, amounted to ($1,309,000) and $12,000, respectively.
NOTE 2 - INVENTORIES
Inventories consisted of the following components (in thousands):
Mar. Dec. 25,
26, 1998 1997
-------------- -------------
Raw material $3,006 $2,965
Work-in-process 2,335 2,470
Finished goods 2,989 2,723
-------------- -------------
$8,330 $8,158
============== =============
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
Mar. 26, Dec. 25,
1998 1997
-------------- -------------
Building and improvements $ 88 $ 83
Equipment 22,106 21,493
-------------- -------------
22,194 21,576
Less accumulated depreciation 18,259 18,187
-------------- -------------
$ 3,935 $ 3,389
============== =============
<PAGE>
NOTE 4 - DISCONTINUED OPERATIONS
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, Reel-Tech(TM) Inc., to General Scanning Inc. Also in November 1997,
the Company entered into a licensing agreement and an agreement to sell certain
assets of its Synario Design Automation Division to MINC Washington
Incorporated. These transactions discontinue the Semiconductor Equipment
Division and Synario Design Automation Division operations of the Company.
However, the Company is entitled to receive and may realize certain licensing
revenues related to its Synario, ABEL and ECS products through December 31,
1999, and will recognize revenue in 1998 from source code sales as well as
training and support services provided. Operating results of these discontinued
divisions are classified as discontinued operations in the financial statements.
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):
<TABLE>
<CAPTION>
<S> <C> <C>
For the first quarter
1998 1997
----------- -----------
Numerator for basic and diluted earnings per share:
Income from continuing operations ($2,233) $432
Income (loss) from discontinued 180 (384)
operations
----------- -----------
Net income (loss) ($2,053) $48
=========== ===========
Denominator:
Denominator for basic earnings per
share -
weighted-average shares 7,107 6,817
Employee stock options (1) 97
----------- -----------
Denominator for diluted earnings per
share -
adjusted weighted-average shares and
assumed conversions 7,107 6,914
=========== ===========
Basic earnings (loss) per share
From continuing operations ($0.32) $0.06
From discontinued operations 0.03 (0.05)
----------- -----------
Total basic earnings per share ($0.29) $0.01
=========== ===========
Diluted earnings (loss) per share
From continuing operations ($0.32) $0.06
From discontinued operations 0.03 (0.05)
----------- -----------
Total diluted earnings per share ($0.29) $0.01
=========== ===========
(1) Excludes 129,428 employee stock options which were antidilutive in the first quarter of 1998.
</TABLE>
NOTE 6 - ACCOUNTING FOR INCOME TAXES
The Company's effective tax rate for the first quarter of 1998 differed from the
statutory 34% tax rate primarily due to operating losses for which no tax
benefit was recorded. Tax valuation reserves increased by approximately $453,000
during the quarter. As of March 26, 1998 the Company has valuation reserves of
$617,000 that may increase should the Company continue to incur losses or
reverse as the Company records income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Forward-Looking Statements
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent statements
in this report involve, without limitation, development, introduction and
shipment of new products, the Company's expectations for future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's products and for the
industries in which the Company operates or any other guidance on future
periods, these statements are forward-looking and involve matters which are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those expressed in or implied by such forward-looking
statements. These risks and uncertainties include the possible inability of the
Company to overcome technical challenges in the development of new products;
production difficulties or delays due to supplier delays or other factors;
uncertainty of market acceptance of new products; product introductions,
technological innovations and pricing practices of competitors; the effect of
global, national and regional economic conditions; the possible inability to
retain key personnel; changes in operating system platforms of preference;
changes in demand; increases in component prices or other costs; inventory risks
due to shifts in market demand, product obsolescence or other factors and a
number of other risks including those identified by the Company under the
caption "Risk Factors" in Item 1 and elsewhere in the Company's Annual Report on
Form 10-K for the year ended December 25, 1997, and other risks identified from
time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications. There can be no assurance
the Company will not encounter significant technological, supplier,
manufacturing or other problems which will cause the introduction or production
of its new products to be delayed. All forward-looking statements contained in
this report reflect the Company's expectations at the time of this report only,
and the Company disclaims any responsibility to revise or update any such
forward-looking statement except as may be required by law.
Results of Continuing Operations
For all periods presented in this section, results of operations have been
reclassified to reflect the classification of the Company's Semiconductor
Equipment and Synario Design Automation Divisions as discontinued operations
(see "Discontinued Operations"). Prior quarter's figures have been reclassified
for comparability.
Net Sales
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
First Quarter
-------------------------------------
Net sales 1998 1997 % Change
---------------------------------------------------------------------------------------------
Non-automated programming systems $6,909 $7,950 (13.1%)
Automated programming systems 1,517 3,917 (61.3%)
-------------------------------------
Total programming systems $8,426 $11,867 (29.0%)
First Quarter
-------------------------------------
Net sales by location 1998 1997 % Change
---------------------------------------------------------------------------------------------
United States $3,997 $5,667 (29.5%)
% of total 47.4% 47.8%
International $4,429 $6,200 (28.6%)
% of total 52.6% 52.2%
----------------------------------------------------------------------------------------------
</TABLE>
Sales and orders decreased for the Company's programming system products in the
first quarter of 1998 compared to the first quarter of 1997. Orders in the first
quarter of 1998 decreased approximately 30% to $8.1 million, compared with $11.6
million in 1997. The sales decline is primarily attributable to automated
programming systems and in particular the inability to record revenue in the
first quarter on units of the Company's new ProMaster 970 Fine Pitch Programming
System that had been delivered to customers but not yet accepted pending
completion of certain configuration options and performance enhancements. While
the Company believes that it will satisfy the customers' requirements and will
be able to recognize revenue on these systems in the second quarter, there can
be no assurance that either of these objectives will occur. The strengthening
U.S. Dollar versus the Japanese Yen and the German Mark also contributed to the
decline in sales for the first quarter.
Sales are expected to continue to be soft primarily due to delays in new product
introductions by the Company. The Company believes that increased competition in
the areas where new Data I/O product introductions are not scheduled to occur or
will not be available in production volumes until later in 1998, or where
products are nearing the end of their product life cycles, are contributing to
this trend. In addition, the decline in non-automated programming system sales
also reflects the continuing market shift away from the Company's traditional
line of higher-priced IC programmers for the engineering market, toward
lower-priced programmers. As a result, the Company believes that until its new
products are released and shipping in production quantities, overall demand for
its programming systems will likely decline in 1998 and the Company will
continue to incur losses from operations. Recent changes in programmable IC
technology, such as increasingly complex logic ICs, lower voltage requirements
and higher pin counts, and the increasing need for higher quality and
high-volume programming by users of programmable ICs means that there is a
significant market need for more sophisticated programmers with new programming
technology and automated programming systems. The Company currently has
development projects underway for new programmer and automation technology
designed to address the needs perceived by the Company to be created by these
technology changes. There can be no assurance that the Company will complete
development of planned new products as scheduled or that new products will
generate significant sales. See "Risk Factors" in Item 1 of Part I of the
Company's Annual Report on Form 10-K for the year ended December 25, 1997.
Gross Margin
(in thousands) First First
Quarter 1998 Change Quarter 1997
- -------------------------------------------------------------------------------
Gross Margin $3,656 (38.6%) $5,958
Percentage of net sales 43.4% 50.2%
- -------------------------------------------------------------------------------
Gross margin for the first quarter of 1998 decreased compared to the first
quarter of 1997 due primarily to the lower sales volume during the first quarter
1998. The relatively high fixed component of cost of goods sold causes any shift
in total volume to have a significant impact on gross margin.
Research and Development
(in thousands) First First
Quarter 1998 Change Quarter
1997
-------------------------------------------------------------------------------
Research and development $2,414 16.5% $2,072
Percentage of net sales 28.7% 17.5%
-------------------------------------------------------------------------------
The increase in research and development spending for the first quarter of 1998
as compared to the first quarter of 1997 is primarily due to increased spending
for materials used in product development related to the Company's continued
aggressive investment in new technology. The Company expects to continue its
significant investment in research and development activities through 1998.
<PAGE>
Selling, General and Administrative
(in thousands) First First
Quarter 1998 Change Quarter
1997
-------------------------------------------------------------------------------
Selling, general & administrative $3,879 17.7% $3,295
Percentage of net sales 46.0% 27.8%
-------------------------------------------------------------------------------
The increase in selling, general and administrative expenditures in the first
quarter of 1998 as compared with the first quarter of 1997 is due primarily to a
charge in the amount of $540,000 related to the modification of stock options of
a former CEO of the Company, additional spending in marketing related to new
products and promotions, and to expenses related to the search for a new Chief
Executive Officer. This additional spending was partially offset by lower sales
commissions due to the lower sales volume during the quarter.
Interest
(in thousands) First First
Quarter 1998 Change Quarter
1997
------------------------------------------------------------------------------
Interest income $470 683.3% $60
Interest expense $33 (35.3%) $51
------------------------------------------------------------------------------
The increase in interest income for the first quarter of 1998 as compared to the
first quarter of 1997 is due to the increase in cash, cash equivalents and
marketable securities, due primarily to the proceeds received from the Company's
land sale and business dispositions during 1997 (see "Discontinued Operations").
Income Taxes
(in thousands) First First
Quarter 1998 Quarter 1997
--------------------------------------------------------------------------
Income tax expense $29 $183
Effective tax rate (1.7%) 29.8%
--------------------------------------------------------------------------
The Company's effective tax rate for the first quarter of 1998 differed from the
statutory 34% tax rate primarily due to operating losses for which no tax
benefit was recorded. Tax valuation reserves increased by approximately $453,000
during the quarter. The Company has valuation reserves of $617,000 that may
increase should the Company continue to incur losses or reverse as the Company
records income.
<PAGE>
Net Income and Earnings Per Share
(in thousands, except per share data) First First
Quarter Quarter
1998 1997
- --------------------------------------------------------------------------------
Income (loss) from continuing ($2,233) $432
operations
Percentage of net sales (26.5%) 3.6%
Basic and diluted earnings (loss) per
share
from continuing operations ($0.32) $0.06
- --------------------------------------------------------------------------------
Net income for the first quarter of 1998 decreased as compared to the first
quarter of 1997 due primarily to decreased sales and gross margin, and to a
lesser extent due to increases in research and development and general and
administrative expenses, offset partially by an increase in non-operating
income.
Discontinued Operations
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, Reel-Tech(TM) Inc., to General Scanning Inc. Also in November 1997,
the Company entered into a licensing agreement and an agreement to sell certain
assets of its Synario Design Automation Division to MINC Incorporated. These
transactions discontinue the Semiconductor Equipment Division and Synario Design
Automation Division operations of the Company. However, the Company is entitled
to receive and may realize certain licensing revenues related to its Synario,
ABEL and ECS products through December 31, 1999. Combined operating results of
these discontinued divisions are as follows:
For the first quarter
----------------------
(in thousands) 1998 1997
--------- --------
Net Sales $391 $3,208
========= ========
Income (loss) from operations before income $180 ($535)
taxes
Income taxes 151
--------- --------
Total income (loss) on discontinued segments $180 ($384)
========= ========
Financial Condition
Liquidity and Capital Resources
March Dec
(in thousands) 26, Change 25,
1998 1997
- ----------------------------- ----------------- ---------------- ---------------
Working capital $31,733 ($1,493) $33,226
Total debt $662 ($1,338) $2,000
- ----------------------------- ----------------- ---------------- ---------------
Working capital decreased during the first quarter of 1998 primarily due to the
early settlement of a long-term pension obligation, spending on property, plant
and equipment and the loss from operations. Also, the Company's trade accounts
receivable decreased by approximately $1.2 million during the first quarter due
to the decrease in sales during the quarter, and other assets decreased by
approximately $1.5 million due to the collection of trade accounts receivable
related to the discontinued Reel-Tech and Synario Design Automation Divisions
(see "Discontinued Operations").
Accrued expenses decreased primarily due to the payment of income taxes of $2.2
million, repayment of a note payable of $1.5 million, payment of an obligation
carrying over from the purchase of the now disposed Reel-Tech Division and
payment of accrued compensation related to 1997.
As of March 26, 1998, the Company had total debt of $662,000 or approximately 2%
of its $33.8 million in equity. This is current debt consisting of borrowings on
the Company's $1.3 million foreign lines of credit. No borrowings were
outstanding under the Company's $8.0 million U.S. line of credit. The U.S. line
of credit matures in May 1998. The foreign lines of credit mature in August and
November 1998. Historically, these credit lines have been structured as
short-term and have been renewed on their maturity dates. The Company currently
expects to be able to renew these lines of credit on maturity under
substantially the same terms as those presently in place.
The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 1998 will be approximately $1.5 million. Such
expenditures are currently expected to be funded from internally generated funds
and, if necessary, borrowings under the Company's existing credit lines.
Although the Company expects that such expenditures will be made, it has
purchase commitments for only a small portion of this amount.
At March 26, 1998, the Company's material short-term unused sources of liquidity
consisted of approximately $28 million in cash, cash equivalents and marketable
securities, available borrowings of $8.0 million under its U.S. line of credit
and available borrowings of approximately $623,000 under its foreign line of
credit. The Company believes these sources and cash flow from operations will be
sufficient during 1998 to fund working capital needs, service existing debt and
finance planned capital acquisitions.
In April 1998 the Company signed an agreement for a strategic alliance with JTAG
Technologies, a Netherlands-based manufacturer and developer of boundary scan
test and programming solutions. Under the terms of the agreement, the Company
has purchased a minority interest in JTAG Technologies for approximately $1
million, and will sell in-system programming products under the Data I/O name.
The Company does not expect material revenue from the sales of these products
during 1998.
Share repurchase program
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company to repurchase up to 7.5% (approximately 570,000 shares)
of its outstanding shares of common stock. On February 21, 1996 and May 13, 1997
the Company announced an extension of the share repurchase program which
authorized the Company to repurchase up to an additional 8% (approximately
570,000 shares) and approximately 14.5% (up to 1,000,000 shares) respectively of
its outstanding common stock. These purchases may be executed through open
market purchases at prevailing market prices, through block purchases or in
privately negotiated transactions. Purchases may commence or be discontinued at
any time. As of March 26, 1998, the Company had repurchased 1,016,200 shares
since October 1995 at a total cost of approximately $7.1 million.
General
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of its data processing systems and will
have to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project cost is estimated at approximately $1 million, which
includes approximately $200,000 for new hardware that will be capitalized and
approximately $800,000 that will be expensed as incurred. As of March 26, 1998,
the Company had incurred and expensed approximately $300,000 related to this
project.
The Company believes that the most significant portion of this project should be
completed by approximately June 30, 1998, which is prior to any anticipated
impact on its operating systems. The Company believes, based on its current
understanding of its systems, that with modifications to the existing software
and conversions to new software, the Year 2000 issue should not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not properly made, or are not completed timely, the Year
2000 issue could have a material adverse impact on the operations of the
Company. The cost of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, cooperation of
vendors and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in the area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
SHAREHOLDER RIGHTS PLAN
In March 1998, the Company adopted a Shareholder Rights Plan (the "Rights Plan")
that went into effect simultaneously with the expiration of its previously
existing shareholder rights plan. Under the Rights Plan, a dividend of one Share
Purchase Right (a "Right") was declared for each share of Company Common Stock
outstanding at the close of business on April 4, 1998. In the event that a
person or group (the "Acquirer") acquires 15% or more of the Company's Common
Stock without advance approval by the Company's Board of Directors, each Right
will entitle the holder, other than the Acquirer, to buy Common Stock with a
market value of twice the Right's then current exercise price (initially $30,
subject to adjustment). In addition, if Rights are triggered by such a
non-approved acquisition and the Company is thereafter acquired in a merger or
other transaction in which the shareholders of the Company are not treated
equally, shareholders with unexercised Rights will be entitled to purchase
common stock of the Acquirer with a value of twice the exercise price of the
Rights. The Company's Board of Directors may redeem the Rights for a nominal
amount at any time prior to an event that causes the Rights to become
exercisable. The Rights trade automatically with the underlying Common Stock
(unless and until a distribution event occurs under the Rights Plan) and expire
on April 4, 2008 if not redeemed earlier.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K dated January 9, 1998 was filed relating to
the resignation of William C. Erxleben as President and Chief
Executive Officer, the appointment of Milton F. Zeutschel as
acting President and Chief Executive Officer, the service of
Frances M. Conley as Acting Chairman of the Board of Directors,
and the promotion of Joel S. Hatlen to Vice President of Finance
and Chief Financial Officer.
A report on Form 8-K dated March 13, 1998 was filed relating to
the adoption of a new Shareholders' Rights Plan.
A report on Form 8-K dated April 7, 1998 was filed relating to
the selection of David C. Bullis as President and Chief Executive
Officer as of May 1, 1998.
<PAGE>
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: February 10, 1999
By://S//Joel S. Hatlen
Joel S. Hatlen
Vice President - Finance
Chief Financial Officer
Secretary and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Number Title Page Number
None
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000351998
<NAME> Data I/O Corporation
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-25-1997
<PERIOD-START> DEC-26-1997 DEC-27-1996
<PERIOD-END> MAR-26-1998 MAR-27-1997
<CASH> 1,850 8,113
<SECURITIES> 26,228 24,855
<RECEIVABLES> 4,902 6,072
<ALLOWANCES> 404 394
<INVENTORY> 8,330 8,158
<CURRENT-ASSETS> 45,717 52,704
<PP&E> 22,194 21,576
<DEPRECIATION> 18,259 18,187
<TOTAL-ASSETS> 50,801 57,736
<CURRENT-LIABILITIES> 13,984 19,478
<BONDS> 0 0
0 0
0 0
<COMMON> 17,461 16,412
<OTHER-SE> 16,354 18,202
<TOTAL-LIABILITY-AND-EQUITY> 50,801 57,736
<SALES> 8,426 11,867
<TOTAL-REVENUES> 8,426 11,867
<CGS> 4,770 5,909
<TOTAL-COSTS> 6,286 5,358
<OTHER-EXPENSES> (466) (75)
<LOSS-PROVISION> 7 9
<INTEREST-EXPENSE> 33 51
<INCOME-PRETAX> (1,664) 615
<INCOME-TAX> 29 183
<INCOME-CONTINUING> (2,204) 432
<DISCONTINUED> 180 (384)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,053) 48
<EPS-PRIMARY> (.32) 0.01
<EPS-DILUTED> (.32) 0.01
</TABLE>
