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<SEC-DOCUMENT>0000912282-06-000817.txt : 20060814
<SEC-HEADER>0000912282-06-000817.hdr.sgml : 20060814
<ACCEPTANCE-DATETIME>20060814162726
ACCESSION NUMBER:		0000912282-06-000817
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060814
DATE AS OF CHANGE:		20060814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DATA I/O CORP
		CENTRAL INDEX KEY:			0000351998
		STANDARD INDUSTRIAL CLASSIFICATION:	INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825]
		IRS NUMBER:				910864123
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-10394
		FILM NUMBER:		061030868

	BUSINESS ADDRESS:	
		STREET 1:		10525 WILLOWS RD NE
		STREET 2:		P O BOX 97046
		CITY:			REDMOND
		STATE:			WA
		ZIP:			98073-9746
		BUSINESS PHONE:		4258676922

	MAIL ADDRESS:	
		STREET 1:		P O BOX 97046
		STREET 2:		10525 WILLOWS RD NE
		CITY:			REDMOND
		STATE:			WA
		ZIP:			98073-9746
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>dataio_10q-06302006.htm
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
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<A NAME=A001></A>
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNITED STATES <BR>
SECURITIES AND EXCHANGE COMMISSION <BR>
Washington, D.C. 20549 </FONT></P>

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<A NAME=A004></A>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>FORM 10-Q </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Mark One) </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <img src="ballotx.jpg"> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 <BR><BR>

<B>For the quarter ended June 30, 2006</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OR </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <img src="ballot.jpg"> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<BR><BR>

Or the transition period from ___________ to ______________ </FONT></TD>
</TR>
</TABLE>
<BR>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File No. 0-10394 </FONT></P>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=4>
<B>DATA I/O CORPORATION </B></FONT><BR>
 (Exact
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>name of registrant as specified in its charter)  </FONT></P>


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<TD WIDTH=50% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Washington </B><BR>

(State or other jurisdiction of <BR>
incorporation or organization) </FONT> </TD>
<TD WIDTH=50% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>91-0864123 </B><BR>
(I.R.S. Employer <BR>
Identification No.) </FONT>
</TD>
</TR>
</TABLE>
<BR>


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<P align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>10525 Willows Road N.E., <BR>
Redmond, Washington, 98052 <BR>
</B>(Address of principal executive offices, including zip code) </FONT> </P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(425) 881-6444 <BR>
</B>(Registrant&#146;s telephone number, including area code) </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&nbsp;&nbsp;<img src="ballotx.jpg"> &nbsp;&nbsp;&nbsp;No&nbsp;&nbsp; <img src="ballot.jpg"> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of &#147;accelerated filer and large accelerated filer&#148; in Rule 12b-2
of the Exchange Act. </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=33% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Large accelerated filer&nbsp;&nbsp;<img src="ballot.jpg"> </FONT></TD>
<TD WIDTH=33% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Accelerated filer&nbsp;&nbsp;<img src="ballot.jpg"></FONT></TD>
<TD WIDTH=33% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;
Non-accelerated filer &nbsp;&nbsp; <img src="ballotx.jpg"> </FONT></TD></TR></TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate  by check  mark  whether
 the  registrant  is a shell  company  (as  defined  in Rule  12b-2  of the  Exchange
 Act).  Yes&nbsp;&nbsp;<img src="ballot.jpg"> &nbsp;&nbsp;&nbsp;No&nbsp;&nbsp; <img src="ballotx.jpg"> </FONT></P>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,442,231
shares of no par value of the Registrant&#146;s Common Stock were issued and outstanding
as of August 10, 2006. </FONT></P>
<BR><BR>



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<BR><BR>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DATA I/O CORPORATION </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FORM 10-Q <BR>
For the Quarter Ended June 30, 2006 </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INDEX </FONT></H1>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Top>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Page</FONT></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% colspan=4>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><BR>Part I &#150; Financial Information</B> </FONT></TD>
     <TD WIDTH=2% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1.</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=69% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial Statements (unaudited)</FONT></TD>
     <TD WIDTH=9% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Quantitative and Qualitative Disclosures About Market Risk</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Controls and Procedures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% colspan=4>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><BR>Part II &#150; Other Information</B> </FONT></TD>
     <TD WIDTH=2% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Legal Proceedings</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1A.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk Factors</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in Securities and Use of Proceeds</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Defaults Upon Senior Securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Submission of Matters to a Vote of Security Holders</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 5.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other Information</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 6.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibits</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH></TR>
<TR VALIGN=Top>
     <TH COLSPAN=4 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Signatures</FONT></TH>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<BR><BR>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2 </FONT></P>
<BR><BR>



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<BR><BR>






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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I &#151; FINANCIAL
INFORMATION </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 1</U>. &nbsp;&nbsp;&nbsp;<U>Financial
Statements</U> </FONT> </H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DATA I/O CORPORATION <BR>
<BR>
CONSOLIDATED BALANCE SHEETS </FONT></H1>
<BR><BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=650 align=center>
<TR>
     <TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(in thousands, except share data)</FONT></TD>
     <TD COLSPAN=2 align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</FONT></TD>
     <TD COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></Td></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=56% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><BR>ASSETS</B> </FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT ASSETS:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;3,660</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;4,362</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>800</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable, less allowance for</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;doubtful accounts of $184 and $165</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,298</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,828</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,805</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,529</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>549</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>329</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOTAL CURRENT ASSETS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,312</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15,848</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment - net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,363</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,274</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOTAL ASSETS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;17,755</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;18,137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>LIABILITIES AND STOCKHOLDERS' EQUITY</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;1,932</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;1,608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,244</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,249</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,262</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,329</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other accrued liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,075</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued costs of business restructuring</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>135</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred gain on sale of property</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>194</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>388</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOTAL CURRENT LIABILITIES</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,855</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,854</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>COMMITMENTS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>STOCKHOLDERS' EQUITY:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized, 5,000,000 shares, including</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;200,000 shares of Series A Junior Participating</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued and outstanding, none</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock, at stated value -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized, 30,000,000 shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued and outstanding, 8,419,624</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and 8,362,369 shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,723</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,408</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,345</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,436</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>522</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>311</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOTAL STOCKHOLDERS' EQUITY</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,900</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,283</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;17,755</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;18,137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR><BR>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes to
consolidated financial statements.</I> </FONT> </P>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 </FONT></P>
<BR><BR>


<!-- MARKER PAGE="sheet: 3; page: 3" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




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<P align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DATA I/O CORPORATION <BR>
<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(UNAUDITED)</B> </FONT>
</P>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 align=center>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Six Months Ended</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
(in thousands, except per share data)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR>
     <TD COLSPAN=10>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=50% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Net sales</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$7,163</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$6,642</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$13,575</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$13,379</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Cost of goods sold</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3,420</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,709</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>6,421</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5,432</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Gross margin</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3,743</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3,933</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>7,154</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>7,947</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=10>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Operating expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1,513</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1,350</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,819</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,687</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,626</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,378</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5,266</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5,010</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net provision for business restructure</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4,139</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3,783</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,085</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>7,752</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating  income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(396</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(931</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>195</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=10>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Non-operating income (expense):</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>37</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(12</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign currency exchange</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-operating income (expense)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (loss) before income taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(372</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>158</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(854</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>203</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=10>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Income tax expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>26</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>105</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>111</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Net  income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>($398</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$53</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>($   909</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$92</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR>
     <TD COLSPAN=10>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Basic and diluted earnings (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>($ 0.05</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>($  0.11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted average shares outstanding - basic</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,415</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,202</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,401</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,178</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted average and potential shares outstanding - diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,415</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,486</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,401</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8,518</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR><BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes to
consolidated financial statements.</I> </FONT> </P>
<BR><BR>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4 </FONT></P>
<BR><BR>



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<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




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<P align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DATA I/O CORPORATION<BR>
<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(UNAUDITED)</B> </FONT> </P>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>
<TR>
     <TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the three months ended</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(in thousands)</FONT></TD>
     <TD COLSPAN=2 align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(unaudited)</FONT></TD>
     <TD COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></Td></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=56% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>OPERATING ACTIVITIES:</B> </FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($909</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$92</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(used in) operating activities:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>549</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>550</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Write-off of assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of fixed asset</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>326</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equipment transferred to cost of goods sold</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>155</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of deferred gain on sale</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(194</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(194</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>195</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net change in:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(534</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>668</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,399</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,240</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>199</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(219</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>128</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued costs of business restructuring</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>350</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(214</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Security deposits</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(45</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
</TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) operating activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(738</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,057</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=6>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>INVESTING ACTIVITIES:</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(640</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,313</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Acquisition of intangibles</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(25</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Purchases of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(600</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>804</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>792</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) investing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>139</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,121</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=6>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>FINANCING ACTIVITIES:</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sale of common stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from exercise of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) financing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Increase/(decrease) in cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(479</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,083</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=6>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effects of exchange rate changes on cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(223</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>323</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents at beginning of year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,362</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,534</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents at end of quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,660</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,774</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR><BR>





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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>See accompanying notes to
consolidated financial statements.</I> </FONT> </P>
<BR><BR>

<BR><BR>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 </FONT></P>
<BR><BR>



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<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DATA I/O CORPORATION <BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>(UNAUDITED) </FONT></H1>
<BR>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 1 &#151; FINANCIAL
STATEMENT PREPARATION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O prepared the financial
statements as of June 30, 2006 and June 30, 2005, according to the rules and regulations
of the Securities and Exchange Commission (&#147;SEC&#148;). 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, 2005 has been derived from the
audited financial statements at that date. We have condensed or omitted certain
information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America
according to such SEC rules and regulations. Operating results for the six months ended
June 30, 2006 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2006. These financial statements should be read in conjunction
with the annual audited financial statements and the accompanying notes included in the
Company&#146;s Form 10-K for the year ended December 31, 2005. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Stock-Based Compensation
Expense</U> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
&#147;Share-Based Payment,&#148; (&#147;SFAS 123(R)&#148;) which requires the measurement
and recognition of compensation expense for all share-based payment awards, including
employee stock options and employee stock purchases, based on estimated fair values. SFAS
123(R) supersedes the Company&#146;s previous accounting under Accounting Principles Board
Opinion No. 25, &#147;Accounting for Stock Issued to Employees&#148; (&#147;APB 25&#148;)
for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 (&#147;SAB 107&#148;) relating to SFAS
123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective method, which requires the
application of the accounting standard as of January 1, 2006, the first day of the
Company&#146;s fiscal year 2006. The Company&#146;s Consolidated Financial Statements as
of and for the three and six months ended June 30, 2006 reflect the effect of SFAS 123(R).
The total stock-based compensation amount for the three and six months ended June 30, 2006
was $93,000 and $195,000, respectively. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 2 &#151;
RECLASSIFICATIONS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certain prior period balances may
have been reclassified to conform to the presentation used in the current period. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 3 &#151; INVENTORIES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories consisted of the
following components (in thousands): </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw material</FONT></TD>
     <TD WIDTH=9% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,215</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,076</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Work-in-process</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>712</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>767</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Finished goods</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>878</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>686</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$4,805</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,529</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6 </FONT></P>
<BR><BR>



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<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 4 &#151; PROPERTY
AND EQUIPMENT, NET </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment consisted of
the following components (in thousands): </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Leasehold improvements</FONT></TD>
     <TD WIDTH=9% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$598</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$343</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,961</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,935</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,559</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,278</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less accumulated depreciation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,196</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,004</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment - net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,363</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,274</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 5 &#151; BUSINESS
RESTRUCTURING </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During 2005, we took restructuring
related charges of $96,000 primarily related to severance and completing actions that had
been started in the second half of 2004. This aligned management operations with the
changes made in 2004 to control costs in North America and Europe and the need to build
staff serving China and Eastern Europe. At December 31, 2005, $33,000 remained as accrued
but unpaid restructure charges, which will be paid in 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006, we
paid out approximately $20,000 of the remaining 2005 previously accrued restructure
charges as outlined above. There was no activity during the second quarter of 2006. As of
June 30, 2006, restructuring charges of $13,000 remain accrued, which are expected to be
paid in 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the third quarter of 2006, as
part of our effort to reduce expenses, we incurred a restructuring charge of approximately
$150,000 which has not yet been paid. The restructuring charge is primarily related to
severance charges incurred at our Redmond, Germany and China offices. In view of our declining
margins and operating results during the first and second quarters of 2006, these actions were
taken to reduce our quarterly revenue breakeven point to approximately $7 million per quarter. This restructure charge
is expected to be paid out in 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->

<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 6 &#151; OTHER
ACCRUED LIABILITIES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other accrued liabilities consisted
of the following components (in thousands): </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Product warranty liability</FONT></TD>
     <TD WIDTH=9% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$465</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$459</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales return reserve</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>135</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>475</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>491</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other accrued liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,075</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The changes in Data I/O&#146;s
product warranty liability are as follows (in thousands): </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=500>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=65% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liability, beginning balance</FONT></TD>
     <TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;459</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>370</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warranty claims</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(370</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accrual revisions</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liability, ending balance</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;465</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7 </FONT></P>
<BR><BR>



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<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 7 &#150; EARNINGS
(LOSS) PER SHARE </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic earnings (loss) per share is
calculated based on the weighted average number of common shares outstanding during each
period. Diluted earnings per share is calculated based on these same weighted average
shares outstanding plus the effect of potential shares issuable upon assumed exercise of
stock options based on the treasury stock method. Potential shares issuable upon the
exercise of stock options are excluded from the calculation of diluted earnings per share
to the extent their effect would be antidilutive. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth the
computation of basic and diluted earnings per share (in thousands, except per share data): </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended<BR>
June 30,</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended<BR>
June 30,</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=54% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Numerator for basic and diluted earnings per share:</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($398</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$53</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($909</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$92</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Denominator:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Denominator for basic earnings per share -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;weighted-average shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,415</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,202</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,401</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,178</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>284</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>340</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Denominator for diluted earnings per share -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;adjusted weighted-average shares and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;assumed conversions of stock options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,415</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,486</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,401</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,518</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted earnings (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total basic and diluted earnings (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.05</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The computation for the three and six
months ended June 30, 2006 excludes 1,171,824 options to purchase common stock as the
effect of their inclusion was antidilutive. The computation for the three and six months
ended June 30, 2005 excluded 447,265 and 432,220 options respectively to purchase common
stock as these options were antidilutive. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 8 &#151;
SHARE-BASED COMPENSATION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effective January 1, 2006, the
Company adopted the provisions of SFAS No. 123(R) which requires the measurement and
recognition of compensation expense for all share-based payment awards made to our
employees and directors including employee stock options, stock awards and employee stock
purchases made under our Employee Stock Purchase Plan (&#147;ESPP&#148;). Data I/O
previously applied the provisions of APB No. 25 and related Interpretations and provided
the required pro forma disclosures under SFAS No. 123, &#147;Accounting for Stock-Based
Compensation.&#148; The following table illustrates the effect on net income and net
income per common share for the three and six months ended June 30, 2005. No share-based
compensation expense was reflected in our results of operations for the three and six
month period ended June 30, 2005 as all options were granted with an exercise price equal
to the market value of the underlying common stock on the date of grant. Additionally,
option forfeitures were accounted for as they occurred. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O&#146;s pro forma information
follows (in thousands, except per share data): </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended<BR>
   June 30, 2005 </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended <BR>
 June 30, 2005   </FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=59% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income - as reported</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=11% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$53</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$92</FONT></TD>
        <TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deduct:&nbsp;&nbsp;Total stock-based employee compensation expense </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>determined under fair value based method for awards granted, modified, </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>or settled, net of related tax effects</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(186</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss) - pro forma</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($42</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($94</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted income per share - as reported</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic income (loss) per share - pro forma</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diluted earnings (loss) per share - pro forma</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$0.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8 </FONT></P>
<BR><BR>



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<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>





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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O adopted SFAS No. 123(R)
using the modified prospective method beginning January 1, 2006. Accordingly, during the
three and six month period ended June 30, 2006, we recorded share-based compensation
expense for awards granted prior to but not yet vested as of January 1, 2006 as if the
fair value method required for pro forma disclosure under SFAS No. 123 were in effect for
expense recognition purposes adjusted for estimated forfeitures. For share-based awards
granted after January 1, 2006, we have recognized compensation expense based on the
estimated grant date fair value method required under SFAS No. 123(R). For these awards we
have recognized compensation expense using a straight-line amortization method and reduced
for estimated forfeitures. The impact on our results of operations of recording
share-based compensation for the three and six month period ended June 30, 2006 was as
follows (in thousands): </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended<BR>
   June 30, 2006 </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended <BR>
 June 30, 2006   </FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=49% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Costs of goods sold</FONT></TD>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=13% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$6</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=13% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$13</FONT></TD>
        <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Selling, general and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>66</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>138</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total share-based compensation expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;93</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;195</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Impact on net income (loss) per share:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($0.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Approximately $1,500 and $3,000 of
share-based compensation was capitalized within inventory for the three and six months
ended June 30, 2006, respectively. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At June 30, 2006, there were
1,684,632 shares of Common Stock reserved for issuance under Data I/O&#146;s employee
stock option plans with 512,808 shares available for grant. Pursuant to the stock option
plans, options are granted to our officers and key employees with exercise prices equal to
the fair market value of the Common Stock at the date of grant and generally vest over
four years. Options granted under the plans generally have a maximum term of six years
from the date of grant. Beginning in the second quarter of 2006, we granted restricted
stock awards and performance-based stock awards to our officers and key employees at fair
market value. The restricted stock awards vest in equal installments over four years. The
performance-based stock awards vest on 12/31/2008 based on obtaining a revenue
growth target of $34,694,935 for the fiscal year ending December 31, 2008.
For purposes of share-based compensation measurement, we assume that the
performance goal will be achieved. If the performance goals are not met, no compensation
cost is recognized and any recognized compensation cost will be reversed. Under our
Employee Stock Purchase Plan (&#147;ESPP&#148;), 130,491 shares were available for
purchase at June 30, 2006. Under the ESPP, purchase options have been granted every six
months with a six month term and an exercise price equal to the lower of the fair market
value of the Common Stock on the first or last day of the six month period, with a 15%
discount. As of August 1, 2006, ESPP purchase options will be granted on the first day of
the six month period, with a 5% discount and an exercise price equal to the fair market
value on the last day of the six month period. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The fair value of share-based awards
for employee stock option awards and employee stock purchases made under our Employee
Stock Purchase Plan were estimated using the Black-Scholes valuation model. The following
weighted average assumptions were used to calculate the fair value of options granted
during the three and six months ended June 30, 2006 and 2005: </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TD COLSPAN=2></TD>
     <TH COLSPAN=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Employee Stock<BR>
Options
</FONT></TH></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
      <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk-free interest rates</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.92%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.66%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.92%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.66%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Volatility factors</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.65</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.65</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected  life  of the  option  in years</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.60</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.60</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected dividend yield</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 4; page: 4" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TD COLSPAN=2></TD>
     <TH COLSPAN=8><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Employee Stock<BR>
Purchase Plan
</FONT></TH></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
      <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk-free interest rates</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.33%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.26%</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Volatility factors</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.65</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.90</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected life of the option in years</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.50</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected dividend yield</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The risk-free interest rate used in
the Black-Scholes valuation method is based on the implied yield currently available in
U.S. Treasury securities at maturity with an equivalent term. We have not recently
declared or paid any dividends and do not currently expect to do so in the future. The
expected term of options represents the period that our stock-based awards are expected to
be outstanding and was determined based on historical weighted average holding periods and
projected holding periods for the remaining unexercised shares. Consideration was given to
the contractual terms of our stock-based awards, vesting schedules and expectations of
future employee behavior. Expected volatility is based on the annualized daily historical
volatility of the Company&#146;s stock over a representative period and includes
consideration of the implied volatility for comparable entities within our industry. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The weighted average grant date fair
value of options granted under our stock option plans during the three and six month
period ending June 30, 2006 was $2.23 and $2.24, respectively, and $1.60 and $1.61 for the
three and six month period ending June 30, 2005, respectively. The weighted average grant
date fair value of restricted stock awards and performance-based stock awards for the
period ending June 30, 2006 was $3.88. The estimated fair value of purchase rights under
the ESPP plan for the six month periods ending June 30, 2006 and June 30, 2005 was $1.62
and $1.21, respectively. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table summarizes stock
option activity under our stock option plans for the three and six month periods ended
June 30, 2006: </FONT></P>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended<BR>
June 30, 2006</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended<BR>
June 30, 2006</FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
      <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Options</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Weighted<BR>
Average<BR>
Exercise<BR>
Price</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Options</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Weighted<BR>
Average<BR>
Exercise<BR>
Price</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beginning balance</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,111,738</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2.39</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=14% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,155,445</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2.42</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Granted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>170,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.87</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>175,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.89</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exercised</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,663</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(30,059</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cancelled, expired or forfeited</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(101,251</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(128,562</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.37</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ending balance outstanding</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,171,824</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,171,824</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exercisable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>629,775</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>629,775</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 </FONT></P>
<BR><BR>



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<BR><BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The stock options outstanding and
exercisable for equity share-based payment awards under our stock option plans as of June
30, 2006 were in the following exercise price ranges: </FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=8><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Options Outstanding </FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Options Exercisable  </FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
     <TD COLSPAN=6><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Range of<BR>
Exercise Prices</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Number<BR>
Outstanding</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
 Weighted-  <BR>
  Average   <BR>
 Remaining  <BR>
Contractual <BR>
  Life in   <BR>
   Years    </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
 Weighted-<BR>
  Average <BR>
  Exercise<BR>
   Price  </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Aggregate <BR>
Intrinsic <BR>
  Value   </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
  Number    <BR>
Exercisable </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Weighted- <BR>
 Average  <BR>
Exercise  <BR>
  Price   </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Aggregate  <BR>
Intrinsic  <BR>
  Value    </FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=13% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1.00 - $1.25</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>181,225</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.64</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1.04</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$368,953</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>139,475</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=8% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1.06</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$282,171</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1.25 - $1.89</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>178,278</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1.43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>294,819</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>177,653</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1.43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>293,897</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1.89 - $2.49</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>274,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4.26</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>177,692</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>111,654</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>79,925</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$2.49 - $3.04</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>289,637</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4.18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.82</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>74,025</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>132,118</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2.84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>32,186</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$3.04 - $4.56</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>248,250</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>4.63</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3.73</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>120</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>68,875</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3.36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1,171,824</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3.72</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$2.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$915,609</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>629,775</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$2.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$688,179</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The aggregate intrinsic value in the
table above represents the total pretax intrinsic value, based on the Company closing
stock price of $3.08 at June 30, 2006, which would have been received by award holders had
all award holders exercised their stock options that were in-the-money as of that date.
The aggregate intrinsic value of awards exercised during the six month period ended June
30, 2006 was $59,800. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There were 21,400 shares of
restricted stock awards and performance-based stock awards that were granted and are
outstanding at June 30, 2006. The unvested share balance at 6/30/2006 is 20,721. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of June 30, 2006, there was
$1,072,000 of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under our stock option plans. That cost is expected to
be recognized over a weighted average period of 2.71 years. As of June 30, 2006, there was
$4,000 of total unrecognized cost related to the employee stock purchase plan which is
expected to be recognized over a weighted average period of one month. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 9 &#151;
COMPREHENSIVE INCOME (LOSS) </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the second quarter of 2006 and
2005 total comprehensive income (loss) was comprised of the following (in thousands): </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended<BR>
June 30,</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended<BR>
June 30,</FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD>
      <TD COLSPAN=4><HR NOSHADE COLOR=Black SIZE=1 width=90%></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss)</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($398</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;53</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($909</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;92</FONT></TD>
        <TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign currency translation loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(90</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>211</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(181</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Unrealized gain on marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total comprehensive income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($318</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($ 35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($698</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($ 84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 10 &#151; FOREIGN
CURRENCY TRANSLATION AND DERIVATIVES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O translates assets and
liabilities of foreign subsidiaries at the exchange rate on the balance sheet date. We
translate revenues, costs and expenses of foreign subsidiaries at average rates of
exchange prevailing during the year. We charge our credit translation adjustments
resulting from this process to other comprehensive income (a component of
stockholders&#146; 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O accounts for its hedging
activities in accordance with SFAS No. 133, <I>Accounting for Derivatives and Hedging
Activities</I>. 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O 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
us are fair value hedges. Generally, these </FONT></P>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 6; page: 6" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>contracts have maturities less than
one year and require<B> </B>us to exchange foreign currencies for U.S. dollars at
maturity. The change in fair value of the open hedge contracts as of June 30, 2006 is an
unrealized loss of $10,433 included in net loss for the six months ended June 30, 2006,
and it is included in accounts payable on the balance sheet as of June 30, 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data I/O does not hold or issue
derivative financial instruments for trading purposes. The purpose of our 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. Our
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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTE 11 &#151; RECENT
ACCOUNTING PRONOUNCEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2006, the FASB issued
Interpretation No. 48, &#147;Accounting for uncertainty in Income Taxes &#150; an
interpretation of FASB Statement No. 109&#148; (FIN 48). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise&#146;s financial
statements in accordance with SFAS No. 109, &#147;Accounting for Income Taxes.&#148; This
Interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Data
I/O is currently evaluating the impact of FIN 48 on its consolidated results of operations
and financial condition.</FONT></P>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12 </FONT></P>
<BR><BR>



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<BR><BR>





<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 2</U>.&nbsp;&nbsp;&nbsp;
<U>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>General</U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FORWARD-LOOKING
STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 &#147;safe harbor&#148; 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 or trends; expected level of
expense; future results of operations, breakeven point, or financial position; changes in
gross margin; integration of acquired products and operations; market acceptance of our
newly introduced or upgraded products; development, introduction and shipment of new
products; and any other guidance on future periods are forward-looking statements.
Forward-looking statements reflect management&#146;s current expectations and are
inherently uncertain. Although Data I/O believes that the expectations reflected in these
forward-looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance, achievements, or other future events. Moreover, neither Data I/O
nor anyone else assumes responsibility for the accuracy and completeness of these
forward-looking statements. Data I/O is under no duty to update any of these
forward-looking statements after the date of this report. The reader should not place
undue reliance on these forward-looking statements. The discussions above and in the
section in Item 1A. Risk Factors &#147;Cautionary Factors That May Affect Future
Results&#148; in the Company&#146;s Annual report on Form 10-K for the year ended December
31, 2005 describe some, but not all, of the factors that could cause these differences. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OVERVIEW </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our primary goal is to manage the
business to achieve profitable operations, while developing and enhancing products to
drive revenue and earnings growth. Our challenge continues to be operating in a cyclical
and challenging industry environment, while positioning Data I/O to take advantage of
expected growth in capital spending. We began to see a recovery in growth in capital
spending during 2005. We experienced during the first six months of 2006 a 14% increase in
orders over the same period of 2005. We expect that demand for programming capacity should
continue to show improvement during 2006, in part based on third party forecasted
increased 2006 unit sales for the semiconductor industry, and the business outlook for
target customer segments, which should provide improved business opportunities for Data
I/O. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>With our losses during the first two
quarters of 2006, we have launched an initiative to lower the quarterly revenue breakeven
point which rose to a calculated $7.6 million for the second quarter of 2006 due
especially to the lower gross margins as well as the higher development and other
operating expenses. We plan to reduce the breakeven point to approximately $7 million
through a combination of margin improvements and expense reductions to be effected during
the second half of 2006. We have taken actions to improve the effectiveness of our sales
organization. We have taken actions that will reduce expenses by our move to a new much
smaller facility and plan to moderate our development materials and patent related
spending, now that we have launched the new FLX-500 desktop automated programming system. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are continuing our efforts to
balance increasing costs and strategic investments in our business with the level of
demand and mix of business we expect. We are focusing our research and development efforts
in our strategic growth markets, namely new programming technology, in-system programming
(&#147;ISP&#148;) ImageWriter technology, and automated programming systems for the
manufacturing environment, particularly the new FLX 500 desktop automated programming
system, and extending the capabilities and support for our FlashCORE architecture and the
ProLINE-RoadRunner and PS families. To better support our customers in their geographic
areas and time zones, we are investing in tools and device support operations in Germany,
India and Shanghai, China. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our customer focus has been on
strategic high volume manufacturers and programming centers and supporting NAND Flash and
microcontrollers on our newer products to gain new accounts and break into new markets,
such as microcontrollers for the automotive market. We have expanded our China operations
to take advantage of the growth of manufacturing in China. We continue to focus on
building a service business, expanding from our existing service operation model in
Brazil. We also increased our efforts to recapture the Japanese market and have entered
into a distribution agreement with Toyo Corporation in Japan which we launched in the
first quarter of 2006. We worked with Toyo Corporation on introductions, training,
integration and transitions in the second quarter of 2006. We continue our efforts to
partner with selected semiconductor manufacturers to better serve our mutual customers and
announced our second member of the Preferred Partnership Program in the second quarter of
2006. </FONT></P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13 </FONT></P>
<BR><BR>


<!-- MARKER PAGE="sheet: 8; page: 8" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>




<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BUSINESS RESTRUCTURING </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During 2005, we accrued restructuring
charges that totaled $96,000 with a remaining balance of $33,000 at December 31, 2005. The
restructuring charges related primarily to severance and completing actions that had been
started in the second half of 2004. This aligned management operations with the changes
made in 2004 to control costs in North America and Eastern Europe. During the first
quarter of 2006, approximately $20,000 was paid out and no additional amounts were
accrued. There was no activity during the second quarter of 2006. The balance at June 30,
2006 is $13,000. During the third quarter of 2006, as part of our effort to reduce
expenses, we incurred a restructuring charge of approximately $150,000 which has not yet
been paid. The restructuring charge is primarily related to severance charges incurred at
our Redmond, Germany and China offices. In view of our declining
margins and operating results during the first and second quarters of 2006, these
actions were taken to reduce our quarterly revenue breakeven point to approximately $7 million per quarter.
The balance remaining at June 30, 2006 and the
additional restructure charge during the third quarter of 2006, are expected to be paid
out in 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CRITICAL ACCOUNTING
POLICY JUDGMENTS AND ESTIMATES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s critical
accounting policies are disclosed in the Company&#146;s Form 10-K for the year ended
December 31, 2005 and have not materially changed as of June 30, 2006, with the exception
of the following: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock-based Compensation: We estimate
the fair value of stock options using the Black-Scholes valuation model consistent with
the provisions of SFAS 123(R), SEC SAB 107 and our prior period pro forma disclosures of
net earnings, including stock-based compensation (determined under a fair value method as
prescribed by SFAS 123). The Black-Scholes model requires the input of highly subjective
assumptions, including the option&#146;s expected life and the price volatility of the
underlying stock. The expected stock price volatility assumption was determined using a
combination of historical and implied volatility of the Company&#146;s common stock.
Changes in the subjective assumptions required in the valuation model may significantly
affect the estimated value of the awards, the related stock-based compensations expense
and, consequently, our results of operations. Beginning in the second quarter of 2006,
restricted stock awards and performance-based stock awards were granted. The vesting of
the performance-based stock awards is based on attaining a particular revenue growth
target during the three year period ending December 31, 2008. We assume that the
performance goal will be achieved. If the performance goals are not met, no compensation
cost is recognized and any recognized compensation cost will be reversed. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Results of Operations</U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NET SALES </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Three Months Ended</FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=14><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Net sales by product line</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
% Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
% Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=14><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Automated programming systems</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$4,111</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>.5%</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$4,090</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$7,737</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(4.6%</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$8,107</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=14>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Non-automated programming systems</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3,052</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>19.6%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2,552</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5,838</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>10.7%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5,272</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total programming systems</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$7,163</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>7.8%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$6,642</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$13,575</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1.5%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$13,379</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=2></TD></TR>
</TABLE>
<BR>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Three Months Ended</FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=14><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=2 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Net sales by location</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
% Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
% Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=14><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>United States</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1,629</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>8.5%</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$1,501</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$3,443</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(7.9%</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>)</FONT></TD>
     <TD WIDTH=7% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$3,738</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=14>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;% of total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>22.7%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>22.6%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>25.4%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>27.9%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD></TR>
<TR>
     <TD COLSPAN=14>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$5,534</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>7.6%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$5,141</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$10,132</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>5.1%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>$9,641</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=14>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;&nbsp;&nbsp;% of total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>77.3%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>77.4%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>74.6%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=1>72.1%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TD></TR>
<TR>
     <TD COLSPAN=14><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 9; page: 9" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The revenue increase for the second
quarter of 2006 compared to the second quarter of 2005 relates primarily to higher sales
of PS Series and FlashPAK products, offset by lower sales of ProLINE-RoadRunner products
and adapters. We experienced increased sales in the Americas and China, partially offset
by lower sales in Europe. Programming centers, electronic manufacturing services (EMS)
companies and semiconductor factory programming represented our main automation equipment
customers. Orders booked during the second quarter of 2006 totaled $7.3 million, an 11%
increase over the $6.6 million for second quarter of 2005. We increased our backlog of
orders during the second quarter of 2006 from $1.9 million to $2.1 million, with the
increase in unshipped orders being due to orders taken for our new FLX-500 product which
is expected to begin shipping in the third quarter of 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Domestic sales increased
approximately 8.5% in the second quarter of 2006, compared to the second quarter of 2005,
primarily due to additional PS Series product sales especially to programming centers as
well as higher adapter sales. International sales increased approximately 7.6% primarily
as a result of the increase in PS Series sales to EMS and semiconductor factory
programming applications, offset by decreased adapter sales. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2006, we introduced our new
FLX-500 desktop automated programming system, which we expect to start shipping in the
third quarter, as well as a new version of our ProLINE-RoadRunner for Siemens X-Series
(SMT) feeder. During 2005, we began shipping other new products including the PS-588
automated programming system and the ImageWriter-300, our ISP solution. We limited our
sales efforts on ImageWriter products in the second quarter while we resolved issues
affecting our customers&#146; out-of-box experience. These ImageWriter improvements were
completed and sales efforts resumed at the end of the second quarter of 2006. We expect
these products to increase our revenues; however, partially offsetting this expected
increase is the expected continuing trend of declining sales of our older non-automated
product lines. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the first six months of 2006
compared to the same period of 2005, sales increased slightly with the second quarter
sales increase offsetting the first quarter sales decline. There has been a significant
product mix shift with higher sales of PS Systems and FlashPAK programmers and lower sales
of ProLINE-RoadRunner products, adapters and older legacy programmer products. China sales
grew 31%, offset by declines in the rest of Asia. Sales in the Americas grew 4%, with
Mexico and Canada sales offsetting the U.S sales decline, European sales declined 5%.
Programming centers, EMS companies and semiconductor factory programming represented our
main automation customer groups in 2006. Order bookings for the first six months of 2006
were up 14% compared to the first six months of 2005. For the first six months of 2006,
order backlog grew from $1.2 to $2.1 million with the increase due to the new FLX-500 and
later customer delivery requirements for follow on PS systems for factory programming. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>GROSS MARGIN </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross Margin</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,743</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,933</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$7,154</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$7,947</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Percentage of net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52.3%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59.2%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52.7%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59.4%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross margins decreased in both
dollars and as a percentage of sales compared to the second quarter of 2005. The overall
gross margin decrease in dollars and as a percentage of sales primarily relates to product
mix shifts and lower average selling prices as well as unfavorable operating variances
during the quarter. The product mix shift relates to decreased sales volume of higher
margin ProLINE-RoadRunner and aftermarket products with offsetting increased sales volume
of lower margin PS Series products and FlashPAK non-automated programmer. The lower
average selling prices related primarily to the effect of increased indirect channel sales
and special customer arrangements. In addition, the second quarter of 2006 had $148,000 of
less favorable or negative operations variances and $152,000 of increased labor and
overhead costs, due primarily to Brazil operations, compared to the second quarter of
2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the first six months of 2006
compared to the same period of 2005, the lower gross margin dollars and gross margin as a
percentage of sales are due to the same factors as discussed for the second quarter. For
the first six months of 2006 there were $239,000 of less favorable or negative operations
variances and $305,000 of increased labor &amp; overhead costs, due primarily to Brazil
operations, compared to the second quarter of 2005. </FONT></P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 10; page: 10" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>





<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RESEARCH AND DEVELOPMENT </FONT></H1>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,513</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,350</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,819</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,687</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Percentage of net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21.1%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20.3%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20.8%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20.1%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development
(&#147;R&amp;D&#148;) spending for the second quarter and first six months of 2006
compared to the same periods of 2005 increased in dollars and as a percentage of sales due
to the higher spending associated with the development of the FLX-500. We expect that the
spending in R&amp;D should be moderate as the development of new platforms, such as the
FLX-500 and ImageWriter, come to completion and the engineering focus moves from
significant platform development to product enhancements and extensions. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SELLING, GENERAL AND
ADMINISTRATIVE </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Selling, general &amp; administrative</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,626</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,378</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$5,266</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$5,010</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Percentage of net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36.7%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35.8%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38.8%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37.4%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Selling, general and administrative
(&#147;SG&amp;A&#148;) expenses were up $248,000 for the second quarter of 2006 compared
to the second quarter of 2005. We experienced increased costs in our China operations of
$72,000, new SG&amp;A related to stock option expense of $66,000, additional sales
personnel costs, and increased external marketing costs $30,000 primarily associated with
the new FLX-500 launch. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the first six months of 2006
compared with the same period in 2005, SG&amp;A expense changes were basically due to the
factors discussed for the second quarter comparisons above as SG&amp;A expenses were
basically flat for the first quarter of 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INTEREST </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30, 2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest income</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$37</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$20</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$80</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$44</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($12</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest income increased in the
second quarter and the first six months of 2006 compared to the same periods in 2005 due
to higher investment returns. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INCOME TAXES </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Three Months Ended</FONT></TH>
     <TH COLSPAN=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Six Months Ended</FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=8><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2005</FONT></TH>
</TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=32% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income tax expense (benefit)</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$26</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$105</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$55</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$111</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=10><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax expense recorded for the second
quarter and the first six months of 2006 was due to foreign and state taxes. The tax
effective rate differed from the statutory tax rate primarily due to no benefit being
recognized for current losses and the taxes in countries without local net operating loss
carryforwards. The tax valuation allowance increased by approximately $119,000 during the
quarter. Data I/O has a valuation allowance of $10,090,000 as of June 30, 2006. </FONT></P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 11; page: 11" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>






<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Financial Condition</U> </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>LIQUIDITY AND CAPITAL RESOURCES</B> </FONT> </P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <Td COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
(in thousands)</FONT></Td>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
June 30,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
March 31,<BR>
2006</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Change</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
December 31,<BR>
2005</FONT></TH></TR>
<TR>
     <TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=27% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Working capital</FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$9,457</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($288</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$9,745</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>($249</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$9,994</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=12><HR NOSHADE COLOR=Black SIZE=1></TD></TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At June 30, 2006, Data I/O&#146;s
principal sources of liquidity consisted of existing cash and cash equivalents. Our
working capital decreased by $537,000 and our current ratio decreased from 2.7 at December
31, 2005 to 2.6 at June 30, 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our cash and cash equivalents
decreased by approximately $700,000 during the six months ended June 30, 2006 primarily
due to the cash used for operating activities totaling approximately $738,000. Cash used
for operations primarily included a $1.2 million increase in inventories offset primarily
by an increase in accounts receivable of approximately $670,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We received approximately $139,000 of
cash in investing activities during the six months ended June 30, 2006, which included
proceeds from the sale of marketable securities totaling $804,000 offset by $640,000 used
to purchase property, plant and equipment. We expect that we will continue to make capital
expenditures to support our business and we anticipate that present working capital will
be sufficient to meet our operating requirements throughout at least the next one year
period. Capital expenditures for property, plant and equipment during 2006 are planned to
be approximately $1 million, primarily related to the move to a new smaller leased
headquarters building which was completed in July 2006. Capital expenditures are expected
to be funded by existing and internally generated funds or lease financing. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a result of our significant
product development, customer support, international expansion and selling and marketing
efforts, we have required substantial working capital to fund our operations. Over the
last few years, we restructured our operations to lower our costs and operating
expenditures in some geographic regions, while investing in other regions, and to lower the
level of revenue required for our net income breakeven point, to preserve our cash
position and to focus on profitable operations. We believe that we have sufficient working
capital available under our operating plan to fund our operations and capital requirements
through at least the next one year period. 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Aggregate Contractual
Obligations and Commitments </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have purchase obligations for
inventory and production costs as well as other obligations such as capital expenditures,
service contracts, marketing, and development agreements. Arrangements are considered
purchase obligations if a contract specifies all significant terms, including fixed or
minimum quantities to be purchased, a pricing structure and approximate timing of the
transaction. Most arrangements are cancelable without a significant penalty, and with
short notice, typically less than 90 days. Any amounts reflected on the balance sheet as
accounts payable and accrued liabilities are excluded from the below table. We have no
long-term debt. We have commitments under non-cancelable operating leases and other
agreements, primarily for factory and office space, with initial or remaining terms of one
year or more as follows June 30, 2006 (in thousands): </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Less than<BR>
1 Year</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
1-3 Years</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
3-5 Years</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
More than<BR>
5 Years</FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Total</FONT></TH></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=29% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating leases</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$916</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,623</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,146</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$3,685</FONT></TD>
        <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commitments to suppliers</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,897</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,897</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other purchase commitments</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>145</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$2,958</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,628</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,146</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$5,732</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OFF-BALANCE SHEET
ARRANGEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Except as noted above in aggregate
contractual obligations and commitments, Data I/O had no off-balance sheet arrangements. </FONT></P>
<BR><BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17 </FONT></P>
<BR><BR>



<!-- MARKER PAGE="sheet: 12; page: 12" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>
<BR><BR>





<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RECENT ACCOUNTING
PRONOUNCEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2006, the FASB issued
Interpretation No. 48, &#147;Accounting for uncertainty in Income Taxes &#150; an
interpretation of FASB Statement No. 109&#148; (FIN 48). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise&#146;s financial
statements in accordance with SFAS No. 109, &#147;Accounting for Income Taxes.&#148; This
Interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Data
I/O is currently evaluating the impact of FIN 48 on its consolidated results of operations
and financial condition.</FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 3</U>.&nbsp;&nbsp;&nbsp; <U>Quantitative and
Qualitative Disclosures About Market Risk</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are exposed to financial market
risks, including fluctuations in foreign exchange rates and interest rates. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INTEREST RATE RISK </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We invest our cash in a variety of short-term
financial instruments, including government bonds, commercial paper and money market
instruments, which are classified as available-for-sale. Our investments are made in
accordance with an investment policy approved by our board of directors. Our portfolio is
diversified and consists primarily of investment grade securities to minimize credit risk.
Cash balances in foreign currencies are operating balances and are invested in demand or
short-term deposits of the local operating bank. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investments in both fixed rate and
floating rate interest earning instruments carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely impacted because of a rise in
interest rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future investment income may fall
short of expectations because of changes in interest rates or we may suffer losses in
principal if forced to sell securities that have seen a decline in market value because of
changes in interest rates. We do not attempt to reduce or eliminate our exposure to
interest rate risk through the use of derivative financial instruments due to the
short-term nature of the investments. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The table below provides information
about our marketable securities, including principal cash flows and the related weighted
average interest rates (in thousands): </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=680>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
   Principal  <BR>
  Cash Flows  <BR>
  For Q3 2006 </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 Estimated Fair<BR>
    Value at   <BR>
 June 30, 2006 </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
   Principal    <BR>
  Cash Flows    <BR>
  to June 30,   <BR>
     2006       </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Estimated Fair  <BR>
   Value at     <BR>
 December 31,   <BR>
     2005       </FONT></TH></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=20% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxable Auction Securities</FONT></TD>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$800</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$800</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=1 width=75%></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total portfolio value</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$800</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$800</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2>&nbsp;</TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD>
     <TD COLSPAN=2><HR NOSHADE COLOR=Black SIZE=2 width=75%></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FOREIGN CURRENCY RISK </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have operations in Germany,
Canada, China, and Brazil. Therefore, we are subject to risks typical of an international
business including, but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions and
foreign exchange rate volatility. Accordingly, our future results could be materially
adversely affected by changes in these or other factors. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our sales and corresponding
receivables are substantially in U.S. dollars other than sales made in our subsidiaries in
Germany, Canada, and China. Through our operations in Germany, Canada, China, and Brazil,
we incur certain product costs; research and development; customer service and support
costs; selling, general and administrative expenses in local currencies. We are exposed,
in the normal course of business, to foreign currency risks on these expenditures and on
related foreign currency denominated monetary assets and liabilities. We have evaluated
our exposure to these risks and believe that our only significant exposure to foreign
currencies at the present time is primarily related to Euro-based receivables. We use
forward contracts to hedge and thereby minimize the currency risks associated with certain
transactions denominated in Euros. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If our actual currency requirement or
timing in the period forecasted differs materially from the notional amount of our forward
contracts and/or the natural balancing of receivables and payables in foreign currencies
during a period of currency volatility or if we </FONT></P>
<BR><BR>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18 </FONT></P>
<BR><BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>do not continue to manage our
exposure to foreign currency through forward contracts or other means, we could experience
unanticipated foreign currency gains or losses. In addition, our foreign currency risk
management policy subjects us to risks relating to the creditworthiness of the commercial
banks with which we enter into forward contracts. If one of these banks cannot honor its
obligations, we may suffer a loss. We also invest in our international operations, which
will likely result in increased future operating expenses denominated in those local
currencies. In the future, our exposure to foreign currency risks from these other foreign
currencies may increase and if not managed appropriately, we could experience
unanticipated foreign currency gains and losses. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The purpose of our foreign currency
risk management policy is to reduce the effect of exchange rate fluctuation on our results
of operations. Therefore, while our foreign currency risk management policy may reduce our
exposure to losses resulting from unfavorable changes in currency exchange rates, it also
reduces or eliminates our ability to profit from favorable changes in currency exchange
rates. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At June 30, 2006, we had four forward
contracts to sell Euros in exchange for $611,000 with rates ranging from 1.2541 to 1.2605,
all scheduled to be due within the next quarter and the value at that date of $600,000. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 4</U>.&nbsp; &nbsp;&nbsp;<U>Controls
and Procedures</U> </FONT> </H1>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Evaluation
of disclosure controls and procedures.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial
Officer, Data I/O evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report (the &#147;Evaluation
Date&#148;).&nbsp; Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information relating to
Data I/O (or its consolidated subsidiaries) required to be included in our periodic SEC
filings and Form 8-K reports. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes
in internal controls. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There were no changes made in our
internal controls during the period covered by this report that have materially affected
or are reasonably likely to materially affect our internal control over financial
reporting except as described below. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006, we
implemented a new information system starting with our United States operations. During
the second quarter of 2006, we continued our implementation efforts to prepare for adding
and integrating subsidiary operations as well as making system refinements for the U.S.
operations. Overall, we implemented similar process and system internal controls to those
associated with our previous system and performed testing of the new system and
reconciliations of the results. However changes to significant systems and processes like
these may result in unforeseen or unknown items that may materially affect our internal
control over financial reporting. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II &#151; OTHER
INFORMATION </FONT></H1>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 1</U>. &nbsp;&nbsp;&nbsp;<U>Legal Proceedings</U> </FONT> </H1>

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<A NAME=A041></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 1A</U>. &nbsp;&nbsp;&nbsp;<U>Risk Factors</U> </FONT> </H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I,
&#147;Item 1A. Risk Factors&#148; in our Annual Report on Form 10-K for the year ended
December 31, 2005, which could materially affect our business, financial condition or
future results. The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results. There are no material changes to the Risk
Factors described in our Annual Report other than changes to the Risk Factors below
entitled &#147;Failure to successfully implement a new worldwide information system may
adversely affect our operations and sales&#148; and &#147;Moving our headquarters and
manufacturing operation may adversely affect our operations and sales.&#148; These Risk
Factor items, which were included in our Annual Report, have been changed to reflect
additional discussion of the potential risks. </FONT></P>
<BR><BR>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19 </FONT></P>
<BR><BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Failure to successfully implement
a new worldwide information system may adversely affect our operations and sales</U>. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have recently acquired and are
currently implementing a new worldwide information system. Our corporate office began use
of the new system in February 2006. We are now in the process of implementing the new
system at our subsidiary locations and additional modules and features in the United
States. Our operations and financial results could be adversely affected if we are unable
to complete the system implementation without significant interruptions in accounting
systems, order entry, billing, manufacturing and other customer support functions. In
addition, the costs associated with the implementation and training could exceed budgeted
amounts and adversely affect our profitability and liquidity. Process changes and system
operation could require additional resources and costs to be incurred on a current and
ongoing basis. System implementation delays could cause difficulties in our complying with
the internal controls assessment, reporting and auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Moving our headquarters and
manufacturing operation may adversely affect our operations and sales.</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We moved our Redmond headquarters and
manufacturing operation in July 2006 to a smaller location in Redmond, Washington. Costs
associated with the move, preparation and layout of the facility, and acquisition and set
up of systems, furnishings and equipment could adversely affect operating costs and
liquidity. Changes in the facility set up and production processes may impact our ability
to manufacture and ship products and our sales could be adversely affected. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 2</U>. &nbsp;&nbsp;&nbsp;<U>Changes in
Securities, Use of Proceeds and Issuer Purchases of Equity Securities</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Head Sub 2 Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 3</U>. &nbsp;&nbsp;&nbsp;<U>Defaults Upon
Senior Securities</U> </FONT> </H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 4</U>. &nbsp;&nbsp;&nbsp;<U>Submission of Matters
to a Vote of Security Holders</U> </FONT> </H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At our Annual Meeting of Shareholders
held on May 24, 2006, there were present in person or by proxy the holders of 8,066,591
(95.91%) shares of Common Stock of Data I/O thereby constituting a quorum. The following
are the matters approved and the voting results: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Election
of a Board of Directors consisting of the following six (6) directors:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=450>
<TR VALIGN=Bottom>
     <TH COLSPAN=2 align=left>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Name</U> </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>
Votes For</U> </FONT></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>
Votes Withheld</U> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=37% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Daniel A. DiLeo</FONT></TD>
     <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=21% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>7,684,299</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=21% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>382,292</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paul A. Gary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,749,031</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>317,560</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Frederick R. Hume</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,529,338</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>537,253</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Edward D. Lazowska</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,749,030</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>317,561</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Steven M. Quist</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,487,016</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>579,575</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>William R. Walker</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,705,652</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>360,939</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Approval
to amend the Data I/O Corporation 2000 Stock Compensation Incentive           Plan as
described in the Proxy Statement for the 2006 Annual Meeting. The           amendment
passed as follows: 2,873,276 votes for; 775,045 against; 24,140           abstain and
4,738,500 broker non-votes.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
proposal to ratify the selection of Grant Thornton LLP as Data I/O&#146;s
          independent auditors passed as follows: 7,935,633 for; 68,864 against; 62,094
          abstain; and 344,370 broker non-votes.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 5</U>. &nbsp;&nbsp;&nbsp;<U>Other Information</U> </FONT> </H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></P>
<BR><BR>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20 </FONT></P>
<BR><BR>



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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Item 6</U>. &nbsp;&nbsp;&nbsp;<U>Exhibits</U> </FONT> </H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Exhibits</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Data I/O is a participant,
unless the method of allocation of benefits thereunder is the same for management and
non-management participants: </FONT></P>




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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1982 Employee Stock Purchase Plan. See Exhibit 10.18.  </FONT></TD>
</TR>
</TABLE>
<BR>




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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated Retirement Plan and Trust Agreement. See Exhibit 10.2,           10.3, 10.4,
10.8, 10.11, 10.12, and 10.13.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Summary
of Amended and Restated Management Incentive Compensation Plan. See           Exhibit
10.9.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1983 Stock Appreciation Rights Plan. See Exhibit 10.1.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1986 Stock Option Plan. See Exhibit 10.15.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Change
in Control Agreements. See Exhibit 10.22 and 10.23.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1996
Director Fee Plan. See Exhibit 10.14.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Letter
Agreement with Frederick R. Hume. See Exhibit 10.17.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 2000 Stock Compensation Incentive Plan. See Exhibit 10.19.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(10) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form
of Option Agreement. See Exhibit 10.21.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data
I/O Corporation Tax Deferral Retirement Plan. See Exhibit 10.20.  </FONT></TD>
</TR>
</TABLE>
<BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          3  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Articles
of Incorporation:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               3.1  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data
I/O&#146;s restated Articles of Incorporation filed November 2, 1987 (Incorporated by
reference                       to Exhibit 3.1 of Data I/O&#146;s 1987 Annual Report on Form
10-K (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               3.2  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data
I/O&#146;s Bylaws as amended and restated as of February 2006October 2003 (Incorporated by
                      reference to Data I/O&#146;s 2005 Annual Report on Form 10-K (File No.
0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               3.3  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate
of Designation, Preferences and Rights of Series A Junior Participating Preferred
                      Stock (Incorporated by reference to Exhibit 1 of Data I/O&#146;s
Registration Statement on Form 8-A                       filed March 13, 1998 (File No.
0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21 </FONT></P>
<BR><BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          4  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Instruments
Defining the Rights of Security Holders, Including Indentures:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               4.1  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Data
I/O&#146;s Current Report on Form                       8-K filed on March 13, 1998). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               4.2  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=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 Data I/O&#146;s
Report on Form 8-K filed on March 13, 1998). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               4.3  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Data I/O&#146;s Form 8-A/A dated                       February 10, 1999). </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          10  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Material
Contracts:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.1  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1983 Stock Appreciation Rights Plan dated February 3, 1993 (Incorporated
                      by reference to Exhibit 10.23 of Data I/O&#146;s 1992 Annual Report on
Form 10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.2  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated Retirement Plan and Trust Agreement  (Incorporated by reference
                      to Exhibit 10.26 of Data I/O&#146;s 1993 Annual Report on Form 10-K
(File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.3  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.21 of Data I/O&#146;s 1994 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.4  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.26 of Data I/O&#146;s 1995 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.5  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase
and Sale Agreement dated as of July 9, 1996 (Relating to the sale of Data I/O
                      Corporation&#146;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 Data I/O&#146;s 1996 Annual                       Report on Form 10-K (File No.
0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.6  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Data I/O&#146;s 1996 Annual
                      Report on Form 10-K (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.7  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Data I/O&#146;s 1996 Annual
                      Report on Form 10-K (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.8  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.35 of Data I/O&#146;s 1996 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.9  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated Management Incentive Compensation Plan dated January 1, 1997
                      (Incorporated by reference to Exhibit 10.25 of Data I/O&#146;s 1997
Annual Report on Form                       10-K (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.10  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated Performance Bonus Plan dated January 1, 1997 (Incorporated by
                      reference to Exhibit 10.26 of Data I/O&#146;s 1997 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.11  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fourth
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.27 of Data I/O&#146;s 1997 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.12  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fifth
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.28 of Data I/O&#146;s 1997 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.13  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sixth
Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
                      reference to Exhibit 10.29 of Data I/O&#146;s 1997 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.14  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated Data I/O Corporation 1996 Director Fee Plan (Incorporated by
                      reference to Exhibit 10.32 of Data I/O&#146;s 1997 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.15  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1986 Stock Option Plan dated May 12, 1998 (Incorporated by
                      reference to Exhibit 10.37 of Data I/O&#146;s 1998 Annual Report on Form
10-K (File No.                       0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22 </FONT></P>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.16  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Letter
Agreement with Fred R. Hume dated January 29, 1999 (Incorporated by reference
                     to Exhibit 10.35 of Data I/O&#146;s 1999 Annual Report on Form 10-K (File
No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.17  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 1982 Employee Stock Purchase Plan dated May 16, 2003
                     (Incorporated by reference to Data I/O&#146;s 2003 Proxy Statement dated
March 31, 2003). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>               10.18  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended
and Restated 2000 Stock Compensation Incentive Plan dated May 20, 2004
                      (Incorporated by reference to Data I/O&#146;s 2004 Proxy Statement dated
April 12, 2004). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>                10.19  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data
I/O Corporation Tax Deferred Retirement Plan, as amended  (Incorporated by
                        reference to Exhibit 10.20 of Data I/O&#146;s 2004 Annual Report on
Form 10-K (File No.                         0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.20  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form
of Option Agreement (Incorporated by reference to Exhibit 10.21 of Data I/O&#146;s 2004 Annual
Report on Form 10-K (File No.                      0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.21  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Change
in Control Agreement with Fred R. Hume dated April 22, 2004 (Incorporated by reference to
Exhibit 10.22 of Data I/O&#146;s                      2004 Annual Report on Form 10-K (File
No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.22  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Change
in Control Agreement with Joel S. Hatlen dated April 22, 2004 (Incorporated by reference
to Exhibit 10.23 of Data                      I/O&#146;s 2004 Annual Report on Form 10-K (File
No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.23  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Harald
Weigelt Employment Agreement (Incorporated by reference to Exhibit 10.23 of Data I/O&#146;s
2005 Annual Report on Form 10K                      (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.24  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Data
I/O Corporation Tax Deferral Retirement Plan, as amended (Incorporated by reference to
Exhibit 10.24 of Data I/O&#146;s 2005                      Annual Report on Form 10-K (File
No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.25  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Lease
Termination Agreement dated February 28, 2006 (Redmond Headquarters) (Incorporated by
reference to Exhibit 10.25 of                      Data I/O&#146;s 2005 Annual Report on Form
10-K (File No. 0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.26  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Lease,
Redmond East Business Campus between Data I/O Corporation and Carr Redmond PLCC dated
February 28, 2006 (Incorporated                      by reference to Exhibit 10.26 of
Data I/O&#146;s 2005 Annual Report on Form 10-K (File No.                      0-10394)). </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.27  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Amended and Restated 2000 Stock Compensation Incentive Plan dated May&nbsp;24, 2006
(Incorporated by reference to Data I/O&#146;s 2006 Proxy Statement dated April&nbsp;6, 2006).
 </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.28  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Form of Performance Award Agreement </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.29  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Form of Restricted Stock Award Agreement </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          31  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Certification
&#150; Section 302:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.1  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief
Executive Officer Certification  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.2  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief
Financial Officer Certification  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          32  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Certification
&#150; Section 906:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32.1  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief
Executive Officer Certification  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32.2  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief
Financial Officer Certification  </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>



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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23 </FONT></P>
<BR><BR>




<!-- *************************************************************************** -->
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<HR SIZE=5 COLOR=GRAY NOSHADE>

<BR><BR>





<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>




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<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<BR>
<BR>DATED:&nbsp;&nbsp;August 14, 2006</FONT></TD>
<TD WIDTH=50% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DATA I/O CORPORATION </B><BR>
(REGISTRANT) </FONT> </TD>
</TR>
</TABLE>
<BR>






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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
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<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=50% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">
                  By://S//Joel S. Hatlen                           <BR>
                       Joel S. Hatlen                              <BR>
                  Vice President - Finance                         <BR>
                   Chief Financial Officer                         <BR>
                   Secretary and Treasurer                         <BR>
  (Principal Financial Officer and Duly Authorized Officer)        <BR>
                                                                   <BR>
                                                                   <BR>
                                                                   <BR>
                                                                   <BR>
                  By://S//Frederick R. Hume                        <BR>
                       Frederick R. Hume                           <BR>
                          President                                <BR>
                   Chief Executive Officer                         <BR>
  (Principal Executive Officer and Duly Authorized Officer)        </FONT> </TD>
</TR>
</TABLE>
<BR>
<BR><BR>





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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24 </FONT></P>
<BR><BR>



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<FILENAME>ex10_28.htm
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<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=right><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Exhibit 10.28 </FONT></H1>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>
DATA I/O<BR>
CORPORATION</B> </FONT> </TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>
PERFORMANCE AWARD AGREEMENT</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=33% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>AWARDED TO<BR>
</B><BR><BR>
_________________________________________ </FONT></TD>
<TD WIDTH=33% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>GRANT DATE<BR>
</B><BR><BR>
_________________________________________ </FONT></TD>
<TD WIDTH=33% align=center>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>NUMBER OF PERFORMANCE <BR>
AWARD SHARES <BR>
</B><BR>
<BR>
_________________________________________ </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1.</B> </FONT> </TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>The
Award. </B> &nbsp;&nbsp;&nbsp;Data I/O Corporation, a Washington corporation (&#147;Data I/O&#148;)
hereby grants to you as of the above Grant Date the right to receive the
above number of Performance Award Shares (the &#147;Performance Shares&#148;)
on the terms and conditions contained in this Performance Award Agreement
(this &#147;Agreement&#148;) and in the Data I/O Corporation 2000 Stock
Compensation Incentive Plan, as amended (the &#147;Plan&#148;).</FONT> </TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>2.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Performance
Period. </B> &nbsp;&nbsp;&nbsp;The performance period for purposes of determining                whether
the Performance Shares will be paid shall be Data I/O&#146;s fiscal                years
2006 through 2008 (the &#147;Performance Period&#148;).  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>3.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Performance
Goals.</B> &nbsp;&nbsp;&nbsp;The performance goal for purposes of determining                whether the
Performance Shares will be paid is: total revenue for the fiscal                year
ending December 31, 2008 equals or exceeds $34,694,935.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>4.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Payment</B>.&nbsp;&nbsp;&nbsp;
The Performance Shares shall be paid if and to the extent that                the
Performance Goal is achieved, as determined by the Compensation Committee of
               Data I/O&#146;s Board of Directors (the &#147;Committee&#148;) in its sole
               discretion after the end of the Performance Period.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>5.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Form
and Timing of Payment.</B> &nbsp;&nbsp;&nbsp;Any Performance Shares payable pursuant to                this
Agreement shall be paid in shares of common stock, no par value per share,
               of Data I/O (the &#147;Shares&#148;), with one Share issued for each
Performance                Share earned. Payment of the Performance Shares shall be made
as soon as                practicable after the Committee determines, in its sole
discretion after the end                of the Performance Period, whether and to what
extent the performance goals have                been achieved.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>6.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Dividend
Equivalents</B>. &nbsp;&nbsp;&nbsp;You shall be entitled to receive a cash payment as                soon
as practicable after the end of the Performance Period equal to the amount
               of cash dividends that would have been paid during the Performance Period
on the                number of Shares earned and paid pursuant to Section 5 of this
Agreement, less                any applicable tax withholding amounts.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>7. </B></FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Restrictions
on Transfer</B>. &nbsp;&nbsp;&nbsp;The Performance Shares, and the right to                receive the
Shares and any dividend equivalent payments, may not be sold,                assigned,
transferred or pledged, other than by will or the laws of descent and
               distribution, and any such attempted transfer shall be void.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Forfeiture</B>.&nbsp;&nbsp;&nbsp;
In the event your employment is terminated during the                Performance Period,
the Performance Shares and your rights to the Shares shall                be immediately
and irrevocably forfeited, <U>unless</U> your termination is by                reason of:  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>death, </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>disability, </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>retirement
that was approved in advance by the Committee ("Retirement"); or </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Change
of Control (as defined in the Plan). </FONT></TD>
</TR>
</TABLE>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
the event your employment is terminated prior to the end of the Performance Period by
reason of death, disability or Retirement, you or your estate shall be entitled to
receive a pro-rata payout of the Performance Shares after the end of the Performance
Period to the extent that the Performance Goal is achieved, as set forth herein and as
determined by the Committee in its sole discretion<B>. </B>In the event of a Change in
Control prior to the end of the Performance Period, you shall be entitled to receive the
full payment of the Performance Shares and such payment shall be made promptly following
the Change in Control.  </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>9.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>No
Rights as Shareholder.</B> &nbsp;&nbsp;&nbsp;You shall not have any rights of a shareholder
               of Data I/O common stock unless and until the Shares are actually issued
to you                after the end of the Performance Period as provided in this
Agreement.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>10.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Income
Taxes.</B> &nbsp;&nbsp;&nbsp;You are liable for any federal and state income or other                taxes
applicable upon the receipt of the Shares or subsequent disposition of the
               Shares, and you acknowledge that you should consult with your own tax
advisor                regarding the applicable tax consequences. Upon issuance of the
Shares by Data                I/O, Data I/O will withhold from the Shares the number of
Shares having a fair                market value equal to the amount of all applicable
taxes required by Data I/O to                be withheld upon issuance of the Shares. In
the alternative, prior to the end of                the Performance Period, you may
notify Data I/O that you shall promptly pay to                Data I/O in cash, or in
previously acquired shares of Data I/O common stock                having a fair market
value equal to the amount of, all applicable taxes required                by Data I/O to
be withheld or collected upon such issuance of the Shares.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>11.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Terms
and Conditions</B>. &nbsp;&nbsp;&nbsp;This Agreement does not guarantee your continued
               employment or alter the right of Data I/O or its affiliates to terminate
your                employment at any time. By signing below, you and Data I/O agree this
               performance award is granted under and governed by the terms and
conditions of                the Plan. In the event of any conflict between the
provisions of this Agreement                and the Plan, the provisions of the Plan
shall govern.  </FONT></TD>
</TR>
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<BR>
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<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Employee:</B>&nbsp;&nbsp;_______________________________________<BR><BR>
________________________________________________ </FONT></TD>
<TD WIDTH=50%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DATA I/O CORPORATION <BR>
</B><BR>
By:&nbsp;&nbsp;_______________________________________<BR><BR>
Its:&nbsp;&nbsp;_______________________________________ </FONT>
</TD>
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<H1 ALIGN=right><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Exhibit 10.29</B> </FONT> </H1>
<BR>


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<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>
DATA I/O<BR>
CORPORATION</B> </FONT> </TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>
RESTRICTED STOCK AWARD AGREEMENT</B> </FONT> </TD>
</TR>
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<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>AWARDED TO</B> </FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>
GRANT DATE</B> </FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>
NUMBER OF SHARES OF<BR>
RESTRICTED STOCK</B> </FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>
MARKET PRICE ON DATE<BR>
OF AWARD</B> </FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>
VESTING SCHEDULE</B> </FONT></TD>
</TR>
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<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;</FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;</FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;</FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;</FONT></TD>
<TD WIDTH=20% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Annually Over 4 Years</FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<B>The
Award</B>. &nbsp;&nbsp;&nbsp;Data I/O Corporation, a Washington corporation (&#147;Data                I/O&#148;),
hereby grants to you as of the above Grant Date the above number of
               restricted shares of Data I/O common stock, no par value per share (the
               &#147;Shares&#148;) on the terms and conditions contained in this
Restricted                Stock Award Agreement (this &#147;Agreement&#148;) and the Data
I/O Corporation                2000 Stock Compensation Incentive Plan, as amended (the
&#147;Plan&#148;).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>2.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Restricted
Period</B>. &nbsp;&nbsp;&nbsp;The &#147;Restricted Period&#148; shall mean with                respect to
any Shares, the period of time during which such Shares are unvested.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>3.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Restrictions</B>.&nbsp;&nbsp;&nbsp;
The unvested Shares shall be subject to the following                restrictions during
the Restricted Period:  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
unvested Shares shall be subject to forfeiture to Data I/O as provided in           this
Agreement and the Plan.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
unvested Shares may not be sold, assigned, transferred or pledged during the
                    Restricted Period. You may not transfer the right to receive the
unvested                     Shares, other than by will or the laws of descent and
distribution, and any such                     attempted transfer shall be void.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
unvested Shares will be issued in your name, either by book-entry
                    registration or issuance of a stock certificate, which certificate
will be held                     by Data I/O. If any certificate is issued, the
certificate will bear an                     appropriate legend referring to the
restrictions applicable to the unvested                     Shares.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
stock dividends or such other distributions paid on the unvested Shares
                    during the Restricted Period shall be held by Data I/O until such
unvested                     Shares vest, at which time Data I/O will pay you all such
dividends and other                     distributions, less any applicable tax
withholding amounts relating to such                     vested Shares. If the unvested
Shares are forfeited as described in Section 4 of                     this Agreement,
then all rights to such payments shall also be forfeited.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>4.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Forfeiture</B>.&nbsp;&nbsp;&nbsp;
In the event your employment is terminated prior to full                vesting of the
Shares, your rights to all of the unvested Shares shall be                immediately and
irrevocably forfeited, <U>unless</U> your termination is by                reason of a
Change of Control as described and provided for in the Plan.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>6.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Rights</B>.&nbsp;&nbsp;&nbsp;
Upon issuance of the Shares, you shall, subject to the                restrictions of
this Agreement and the Plan, have all of the rights of a                shareholder with
respect to the Shares, including the right to vote the Shares                and receive
any cash dividends and any other distributions thereon, unless and                until
the Shares are forfeited. Cash dividends will be paid to you at the time
               such dividends are paid on shares of Data I/O common stock, less any
applicable                tax withholding amounts.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>7.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Income
Taxes</B>. &nbsp;&nbsp;&nbsp;You are liable for any federal and state income or other                taxes
applicable upon the grant of the Restricted Stock if you make an election
               under Section 83(b) of the Internal Revenue Code of 1986, as amended,
within 30                days of the date of grant, or upon the lapse of the restrictions
on the Shares,                and the subsequent disposition of the Shares, and you
acknowledge that you                should consult with your own tax advisor regarding
the applicable tax                consequences. Upon the lapse of the restrictions on the
Shares, Data I/O will                withhold from the Shares the number of Shares having
a fair market value equal                to the amount of all applicable taxes required
by Data I/O to be withheld upon                the lapse of the restrictions on the
Shares. In the alternative, prior to the                end of the Restricted Period, you
may notify Data I/O that you shall promptly                pay to Data I/O in cash, or in
previously acquired shares of Data I/O common                stock having a fair market
value equal to the amount of, all applicable taxes                required by Data I/O to
be withheld or collected upon the lapse of the                restrictions on the Shares.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8.</B> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Terms
and Conditions</B>. &nbsp;&nbsp;&nbsp;This Agreement does not guarantee your continued
               employment or alter the right of Data I/O or its affiliates to terminate
your                employment at any time. By signing below, you and Data I/O agree this
restricted                stock award is granted under and governed by the terms and
conditions of the                Plan. In the event of any conflict between the
provisions of this Agreement and                the Plan, the provisions of the Plan
shall govern.  </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=50%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Employee:</B>&nbsp;&nbsp;_______________________________________<BR><BR>
________________________________________________ </FONT></TD>
<TD WIDTH=50%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>DATA I/O CORPORATION <BR>
</B><BR>
By:&nbsp;&nbsp;_______________________________________<BR><BR>
Its:&nbsp;&nbsp;_______________________________________ </FONT>
</TD>
</TR>
</TABLE>
<BR>
<BR>





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<SEQUENCE>6
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>EXHIBIT 31.1</B> </FONT> </P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Section 302 Certification </FONT></H1>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Frederick R. Hume, certify that: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I
have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based
on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
registrant&#146;s other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Evaluated
the effectiveness of the registrant&#146;s disclosure controls and
                    procedures and presented in this report our conclusions about the
effectiveness                     of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and  </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;          Disclosed
in this report any change in the registrant&#146;s internal control           over
financial reporting that occurred during the registrant&#146;s most recent
          fiscal quarter (the registrant&#146;s fourth fiscal quarter in
case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant&#146;s internal control over financial reporting; and  </FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
registrant&#146;s other certifying officer and I have disclosed, based on           our
most recent evaluation of internal control over financial reporting, to the
          registrant&#146;s auditors and the audit committee of the registrant&#146;s
          board of directors (or persons performing the equivalent functions):  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All
significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably
likely to                     adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrant&#146;s internal control over
          financial reporting.  </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>


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<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Date:&nbsp;&nbsp;August 14, 2006</FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ FREDERICK R. HUME                <BR>
________________________________________<BR>
Frederick R. Hume                    <BR>
President and Chief Executive Officer<BR>
(Principal Executive Officer)        </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>



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<TYPE>EX-31.2
<SEQUENCE>7
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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>EXHIBIT 31.2</B> </FONT> </P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Section 302 Certification </FONT></H1>
<BR>





<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I, Joel S. Hatlen, certify that: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>I
have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the statements
          made, in light of the circumstances under which such statements were made, not
          misleading with respect to the period covered by this report;  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based
on my knowledge, the financial statements, and other financial information
          included in this report, fairly present in all material respects the financial
          condition, results of operations and cash flows of the registrant as of, and
          for, the periods presented in this report;  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
registrant&#146;s other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared;  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Evaluated
the effectiveness of the registrant&#146;s disclosure controls and
                    procedures and presented in this report our conclusions about the
effectiveness                     of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Disclosed
in this report any change in the registrant&#146;s internal control           over
financial reporting that occurred during the registrant&#146;s most recent
          fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant&#146;s internal control over financial reporting; and  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
registrant&#146;s other certifying officer and I have disclosed, based on           our
most recent evaluation of internal control over financial reporting, to the
          registrant&#146;s auditors and the audit committee of the registrant&#146;s
          board of directors (or persons performing the equivalent functions):  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All
significant deficiencies and material weaknesses in the design or operation
                    of internal control over financial reporting which are reasonably
likely to                     adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrant&#146;s internal control over
          financial reporting.  </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Date:&nbsp;&nbsp;August 14, 2006</FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 /s/ JOEL S. HATLEN                         <BR>
_____________________________________<BR>
 Joel S. Hatlen                             <BR>
 Vice President and Chief Financial Officer <BR>
 (Principal Financial Officer)              <BR>



 </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>





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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Exhibit 32.1</B> </FONT> </P>
<BR>


<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification by Chief Executive
Officer<BR>
Pursuant to 18 U.S.C. Section 1350<BR>
As Adopted Pursuant to<BR>
Section 906 of the Sarbanes-Oxley Act of 2002 </FONT></P>
<BR><BR>



<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In connection with the quarterly
Report of Data I/O Corporation (the &#147;Company&#148;) on Form 10-Q for the period
ended June 30, 2006 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), 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:  </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Report fully complies with the requirements of Section 13(a) or 15(d) of           the
Securities Exchange Act of 1934; and  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
information contained in the Report fairly presents, in all material           respects,
the financial condition and results of operations of the Company.  </FONT></TD>
</TR>
</TABLE>
<BR>
<BR>




<!-- MARKER FORMAT-SHEET="Para Default" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Frederick R. Hume <BR>
________________________________<BR>
Frederick R. Hume <BR>
Chief Executive Officer <BR>
(Principal Executive Officer) <BR>
<BR>

August 14, 2006</FONT></P>
<BR><BR>





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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Exhibit 32.2</B> </FONT> </P>
<BR>


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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification by Chief Financial
Officer<BR>
Pursuant to 18 U.S.C. Section 1350<BR>
As Adopted Pursuant to<BR>
Section 906 of the Sarbanes-Oxley Act of 2002 </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In connection with the quarterly
Report of Data I/O Corporation (the &#147;Company&#148;) on Form 10-Q for the period
ended June 30, 2006 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), 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:  </FONT></P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Report fully complies with the requirements of Section 13(a) or 15(d) of           the
Securities Exchange Act of 1934; and  </FONT></TD>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
information contained in the           Report fairly presents, in all material respects,
the                financial condition and results of operations of the Company. </FONT></TD>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Joel S. Hatlen<BR>
________________________________<BR>
Joel S. Hatlen<BR>
Chief Financial Officer <BR>
(Principal Financial Officer) <BR>
<BR>
August 14, 2006 </FONT></P>
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