DAIO

New in FY2025

• The reader is advised, however, to consult any future disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission (“SEC”) and press releases.
• RISK FACTORS: TARIFFS AND TRADE ISSUES Changes in tariffs and issues of trade and global conflict may adversely affect our business, including revenues and/or gross margins.
• The tariff environment continued to evolve in 2025, with new tariff actions and ongoing trade tensions between the United States and China among others affecting the Company’s costs and competitive position.
• The Company produces products in both the United States and China and sells into global markets.
• Ongoing supply chain planning and other actions have been mitigating the impact of new tariffs, trade and inflationary pressures, including shifting material sourcing and product manufacturing.
• The Company’s dual-sourced manufacturing strategy in Redmond, Washington and Shanghai, China provided flexibility to navigate tariff challenges, optimize tariff exposure and support customers to the extent they shift manufacturing to the Americas.
• However, further increases in tariff rates, additional items subject to tariffs, or retaliatory trade actions could increase costs and adversely affect revenues and gross margins and on-going uncertainty surrounding tariffs may continue to affect customer investment decisions and timelines, adversely affect demand for the Company’s offerings.
• The escalation of military conflict involving Iran and other actors in the Middle East, including risks of broader regional war, cyberattacks, and disruption to critical shipping routes and energy infrastructure, could materially impact global economic conditions and adversely affect our business, including through increased costs, supply chain disruptions, and demand volatility.
• In order to lead in new and potentially lucrative market opportunities, we are making significant investments in people, technology and business development while the market is developing and uncertain.
• Due to the length of time to market from design to production in security provisioning, if these markets develop more slowly than planned, or if our solutions are not widely accepted, then we may not achieve our expected return on investment in new technologies, which may significantly affect the results of our existing business.
• This can cause them to change their programming methods away from pre-programming to post placement programming techniques, including ISP, ICT.
• Concentration in automotive electronics represented approximately 64% of 2025 bookings, compared to 59% in 2024 and 63% in 2023, as the broader slowdown in the semiconductor industry caught up with the automotive sector.
• Demand was further impacted by a broad-based reallocation of technology spending toward AI-related investments and a reassessment of electric vehicle manufacturing capacity and plans by major automotive OEMs and their supply chains.
• The emerging buildout of Edge AI represents a potential growth driver as autonomous systems and connected vehicles require increasing volumes of data to be securely provisioned into semiconductor devices at the point of manufacture.
• For example, we may encounter these problems: · technical problems in the development of a new programming or provisioning systems; · inability to hire qualified personnel or turnover in existing personnel or inability to engage or retain key technology partners; · delays or failures to perform by us or third parties, including some smaller early stage or recently acquired companies, involved in our development projects; · dependence on large semiconductor companies for cooperation and support to securely provision their devices.
• During 2025, the Company engaged a leading boutique middle-market investment bank to evaluate inorganic growth opportunities.
• Management has expressed a preference for non-equity funding sources when pursuing acquisitions.
• The active pursuit of acquisitions increases the risks described below.
• Technological advances have reduced the barriers of entry into the capital equipment segment of the data provisioning market in which we compete.
• The Company is expanding into adjacent segments of the data provisioning market, which has developing competition and may bring exposure to new competitors and competitive forces.
• If we cannot develop alternative sources of these components, if sales of parts or software are discontinued by the supplier, if we experience deterioration in our relationship with these suppliers, or if these suppliers require financing which is not available, there may be delays or reductions in product introductions or shipments, which may materially and adversely affect our operating results.
• The broader semiconductor market has experienced a multi-year cyclical downturn which continued into 2025, with notable softness in automotive electronics as a reassessment of electric vehicle capacity and manufacturing plans affected ordering patterns.
• Demand for capital equipment was further impacted by a reallocation of technology spending, with AI and AI datacenter-related investments taking priority.
• The overall data provisioning market represents a significantly larger opportunity than the traditional programming equipment market.
• While it has been impacted by many of the same macroeconomic forces as the capital equipment segment, the impact has been somewhat more muted, and the cyclical effects are much less pronounced.
• Furthermore, the entire market is showing early signs of a recovery led by use cases such as the emerging buildout of Edge AI.
• Current and future public health crises, geo-political conflicts, and economic barriers, tariffs and constraints can adversely impact the Company’s financial performance.
• International sales represented approximately 94%, 94%, and 90% of net sales in 2025, 2024 and 2023, respectively.
• Other factors, which may cause our quarterly operating results to fluctuate, include: · increased competition; · timing of new product announcements and timing of development expenditures; · product or service releases and pricing changes by us or our competitors; · market acceptance or delays in the introduction of new products or services; · production constraints, including part shortages impact on us and our supply chains; · quality issues; · labor or material constraints; · timing of significant orders; · sales channel mix of direct vs. indirect distribution; · civil unrest, war or terrorism; · health issues such as the outbreak of the coronavirus or other viruses impacting workers, suppliers, customers, travel, or our facilities; · customers’ budgets; · changes in accounting rules, tax or other legislation; · adverse movements in exchange rates, interest rates, inflation or tax rates; · cyclical and seasonal nature of demand for our customers’ products; · general economic conditions in the countries where we sell products; · expenses and delays obtaining authorizations in setting up new operations or locations; and/or · facilities relocations.
• We have incurred operating losses in 8 of the last ten years.
• During 2025, the Company underwent significant leadership transitions, including the appointment of Charles DiBona as Chief Financial Officer in August 2025, replacing Gerald Ng.
• Additional changes were made in sales, marketing, and engineering leadership as part of the Company’s strategic transformation.
• While management believes these changes strengthen the Company’s capabilities, leadership transitions carry inherent risks including potential disruption to ongoing operations and loss of institutional knowledge.
• Cash at December 31, 2025 was $7.9 million.
• CYBERSECURITY RISKS Cybersecurity incidents could result in loss of revenue, business disruptions, remediation costs, legal claims and proceedings, regulatory actions, reporting delays, increased insurance costs, or damage to the Company’s reputation which could adversely impact or operations and financial results.
• In August 2025, the Company experienced a ransomware incident that resulted in the shutdown of most global operating systems, business disruptions including the inability to timely process certain shipments, and significant remediation costs of approximately $388,000 in the third quarter of 2025.
• While the incident was contained and remediated by September 2025 and the Company does not believe any customer data was compromised, the incident demonstrated the Company’s vulnerability to cyber attacks and the potential for material operational and financial impacts.
• The Company has implemented significant enhancements to its cybersecurity infrastructure and processes; however, no assurance can be given that these measures will prevent future incidents.
• A future cybersecurity incident could result in loss of revenue, business disruptions, remediation costs, legal claims and proceedings, regulatory actions, reporting delays, increased insurance costs, or damage to the Company’s reputation.
• The costs of preventing, responding to and recovering from cybersecurity incidents may be material.

and 8 more.

Gone since FY2024

• The reader is advised, however, to consult any future disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the SEC and press releases.
• RISK FACTORS: TARIFFS AND TRADE ISSUES Changes in tariffs and trade issues may adversely affect our business, including revenues and/or gross margins.
• The Israel - Hamas war could have similar issues, although we have not experienced any material impacts.
• In order to lead in new and potentially lucrative market opportunities, for example in security deployment of programmable devices, circuit boards and electronic systems, we are making significant investments in people, technology and business development while the market is developing and uncertain.
• Due to the length of time to market from design to production in security provisioning, if these markets develop more slowly than planned, or if our security deployment solutions are not widely accepted, then we may not achieve our expected return on investment in new technologies, which may significantly affect the results of our existing business.
• In the security deployment area, we have introduced a pay per use business model and service fees that may not be accepted by our customers who are accustomed to paying for capital equipment upfront, rather than paying per use charges.
• This can cause them to change their programing methods away from pre-programming to post placement programming techniques, including ISP, ICT.
• Concentration in automotive electronics and our orders related to automotive electronics customers has been dominant in recent years at 59% in 2024, 63% in 2023 and 61% in 2022.
• For example, we may encounter these problems: · technical problems in the development of a new programming and/or security deployment systems or the robotics for new automated handing systems; · inability to hire qualified personnel or turnover in existing personnel or inability to engage or retain key technology partners; · delays or failures to perform by us or third parties, including some smaller early stage or recently acquired companies, involved in our development projects; · dependence on large semiconductor companies for cooperation and support to securely provision their devices.
• Technological advances have reduced the barriers of entry into the market in which we compete.
• If we cannot develop alternative sources of these components, if sales of parts or software are discontinued by the supplier, if we experience deterioration in our relationship with these suppliers, or if these suppliers require financing which is not available, there may be delays or reductions in product introductions or shipments, which may materially adversely affect our operating results.
• Current and future public health crise, geo-political conflicts, and economic barriers, tariffs and constraints can adversely impact the Company’s financial performance.
• International sales represented approximately 94%, 90% and 93% of net sales in 2024, 2023 and 2022, respectively.
• Other factors, which may cause our quarterly operating results to fluctuate, include: · increased competition; · timing of new product announcements and timing of development expenditures; · product or service releases and pricing changes by us or our competitors; · market acceptance or delays in the introduction of new products or services; · production constraints, including part shortages impact on us and our supply chains; · quality issues; · labor or material constraints; · timing of significant orders; · timing of installation or customer acceptance requirements; · sales channel mix of direct vs. indirect distribution; · civil unrest, war or terrorism; · health issues such as the outbreak of the coronavirus or other viruses impacting workers, suppliers, customers, travel, or our facilities; · customers’ budgets; · changes in accounting rules, tax or other legislation; · adverse movements in exchange rates, interest rates, inflation or tax rates; · cyclical and seasonal nature of demand for our customers’ products; · general economic conditions in the countries where we sell products; · expenses and delays obtaining authorizations in setting up new operations or locations; and/or · facilities relocations.
• We have incurred operating losses in five of the last ten years.
• CYBERSECURITY RISKS Cybersecurity breaches or terrorism could result in liabilities or costs as well as damage to or loss of our data or customer access to our website and information systems.
• As a public company, we are subject to numerous governmental and stock exchange requirements which we believe, we are in compliance with.
• Unfortunately, increased regulations pushed onto public companies may have a disproportionate impact to smaller public companies.
• The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (SEC) have requirements that we may fail to meet or we may fall out of compliance with, such as the internal controls auditor attestation required under Section 404 of the Sarbanes-Oxley Act of 2002, with which we are not currently required to comply as we are a smaller reporting company.
• We assume that we will continue to have the status of a smaller reporting company based on the aggregate market value of the voting and non-voting shares held as of June 30, 2024.