10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-13402

INPUT/OUTPUT, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE	22-2286646
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
12300 PARC CREST DR., STAFFORD, TEXAS	77477
(Address of principal executive offices)	(Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: x No: o

At July 31, 2003 there were 51,220,334 shares of common stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
	ITEM 4. Controls and Procedures
PART II — OTHER INFORMATION
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Employment Agreement - Jorge Machnizh
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

INPUT/OUTPUT, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003

PART I.	Financial Information	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets June 30, 2003 (unaudited) and December 31, 2002		3
	Consolidated Statements of Operations Three and six months ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited)		4
	Consolidated Statements of Cash Flows Six months ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited)		5
	Notes to Unaudited Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		23
Item 4.	Controls and Procedures		23
PART II.	Other Information
Item 4.	Submission of Matters to a Vote of Security Holders		23
Item 6.	Exhibits and Reports on Form 8-K		24

INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

					JUNE 30,
					2003			DECEMBER 31,
					(UNAUDITED)			2002
				ASSETS
Current assets:
	Cash and cash equivalents				$	39,087		$	77,144
	Restricted cash					399			247
	Accounts receivable, net					27,325			18,745
	Current portion notes receivable, net					12,407			6,137
	Inventories					48,886			50,010
	Prepaid expenses and other current assets					2,125			3,136
			Total current assets			130,229			155,419
Notes receivable						6,093			12,057
Property, plant and equipment, net						33,036			39,255
Goodwill, net						33,758			33,758
Other assets, net						6,394			7,956
			Total assets		$	209,510		$	248,445
				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current maturities of long-term debt				$	18,151		$	2,142
	Accounts payable					13,267			18,927
	Accrued expenses					16,540			17,210
	Warrant obligation					3,041			2,200
			Total current liabilities			50,999			40,479
Long-term debt, net of current maturities						19,510			51,430
Other long-term liabilities						4,897			5,199
Stockholders’ equity:
	Common stock, $0.01 par value; authorized 100,000,000 shares; outstanding 51,169,311 shares at June 30, 2003 and 51,078,939 shares at December 31, 2002, net of treasury stock					520			519
	Additional paid-in capital					295,796			296,002
	Accumulated deficit					(155,499	)		(136,534	)
	Accumulated other comprehensive loss					(597	)		(2,380	)
	Treasury stock, at cost, 769,873 shares at June 30, 2003 and 783,298 shares at December 31, 2002					(5,785	)		(5,929	)
	Unamortized restricted stock compensation					(331	)		(341	)
		Total stockholders’ equity				134,104			151,337
		Total liabilities and stockholders’ equity			$	209,510		$	248,445

See accompanying Notes to Unaudited Consolidated Financial Statements.

3

INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

				Three Months Ended						Six Months Ended
				June 30,						June 30,
				2003			2002			2003			2002
Net sales				$	34,562		$	22,850		$	75,739		$	53,063
Cost of sales					31,343			20,365			63,759			43,617
		Gross profit			3,219			2,485			11,980			9,446
Operating expenses:
	Research and development				4,955			8,667			10,473			15,688
	Marketing and sales				3,025			2,775			5,836			5,305
	General and administrative				5,362			4,709			9,427			9,336
	Amortization of intangibles				245			321			549			637
	Impairment of long-lived assets				—			—			1,120			—
			Total operating expenses		13,587			16,472			27,405			30,966
Loss from operations					(10,368	)		(13,987	)		(15,425	)		(21,520	)
Interest expense					(843	)		(461	)		(2,188	)		(496	)
Interest income					525			753			1,116			1,244
Fair value adjustment of warrant obligation					(1,712	)		—			(841	)		—
Impairment of investment					(2,036	)		—			(2,036	)		—
Other income (expense)					451			(207	)		700			(343	)
Loss before income taxes					(13,983	)		(13,902	)		(18,674	)		(21,115	)
Income tax (benefit) expense					(297	)		63,511			291			60,840
Net loss					(13,686	)		(77,413	)		(18,965	)		(81,955	)
Preferred dividend					—			1,479			—			2,934
Net loss applicable to common shares				$	(13,686	)	$	(78,892	)	$	(18,965	)	$	(84,889	)
Basic loss per common share				$	(.27	)	$	(1.55	)	$	(.37	)	$	(1.67	)
Weighted average number of common shares outstanding					51,231,189			50,971,486			51,213,041			50,931,384
Diluted loss per common share				$	(.27	)	$	(1.55	)	$	(.37	)	$	(1.67	)
Weighted average number of diluted common shares outstanding					51,231,189			50,971,486			51,213,041			50,931,384

See accompanying Notes to Unaudited Consolidated Financial Statements.

4

INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

				Six Months Ended
				June 30,
				2003			2002
Cash flows from operating activities:
	Adjustments to reconcile net loss to cash (used in) provided by operating activities:
		Net loss		$	(18,965	)	$	(81,955	)
		Depreciation and amortization			6,609			6,019
		Fair value adjustment of warrant obligation			841			—
		Impairment of long-lived assets			1,120			—
		Write-down of rental equipment			2,500			—
		Impairment of investment			2,036			—
		Amortization of restricted stock and other stock compensation			(259	)		113
		(Gain) loss on disposal of fixed assets			(37	)		264
		Bad debt (collections) expense			(154	)		140
		Deferred income tax			—			59,992
	Change in operating assets and liabilities:
		Accounts and notes receivable			(7,145	)		21,263
		Inventories			(474	)		4,771
		Accounts payable and accrued expenses			(6,845	)		(8,939	)
		Other assets and liabilities			2,839			556
			Net cash (used in) provided by operating activities		(17,934	)		2,224
Cash flows from investing activities:
	Purchase of property, plant and equipment				(2,337	)		(1,932	)
	Business acquisition				—			(688	)
	Investment in Energy Virtual Partners, Inc.				(3,036	)		—
			Net cash used in investing activities		(5,373	)		(2,620	)
Cash flows from financing activities:
	Payments on long-term debt				(16,362	)		(1,102	)
	Payments of preferred dividends				—			(275	)
	Proceeds from exercise of stock options				—			551
	Proceeds from issuance of common stock				248			457
			Net cash used in financing activities		(16,114	)		(369	)
	Effect of change in foreign currency exchange rates on cash and cash equivalents				1,364			2,309
	Net (decrease) increase in cash and cash equivalents				(38,057	)		1,544
	Cash and cash equivalents at beginning of period				77,144			101,681
	Cash and cash equivalents at end of period			$	39,087		$	103,225

See accompanying Notes to Unaudited Consolidated Financial Statements.

5

INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

     The consolidated balance sheet of Input/Output, Inc. and its subsidiaries (collectively referred to as the “Company” or “I/O”) at December 31, 2002 has been derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 2003, the consolidated statements of operations for the three and six months ended June 30, 2003 and 2002, and the consolidated statements of cash flows for the six months ended June 30, 2003 and 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the operating results for a full year or of future operations.

     These consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Certain amounts previously reported in the consolidated financial statements have been reclassified to conform to the current period’s presentation.

(2) Restructuring Activities

     In 2002, the Company initiated a restructuring program which included reducing its full-time headcount by approximately 300 positions and closing certain of its facilities and relocating those operations to other existing Company facilities or outsourcing those operations to contract manufacturers. In July 2003, the Company has completed the move out of its Alvin, Texas manufacturing facility. Therefore, beginning in the third quarter of 2003 the related land and buildings at the Alvin location will be reclassified as “Held for Sale” under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets".

     The Company’s full-time headcount was 534 at June 30, 2003, down from 799 at December 31, 2001. The Company has continued to evaluate its staffing needs and has further reduced its full-time headcount by an additional 45 individuals in July 2003. The Company expects approximately 15 more reductions during the second half of 2003. The additional headcount reductions primarily relate to manufacturing and research and development positions and will result in additional severance charges of approximately $.5 million in the third quarter of 2003. A summary of restructuring activities is as follows (in thousands):

	Severance			Abandoned Lease
	Costs			Costs
Accruals at December 31, 2002	$	1.2		$	1.5
Severance expense in the first quarter		0.5			—
Severance expense in the second quarter		1.0			—
Adjustment to accrual in the first quarter		—			(0.1	)
Cash payments during the period		(1.0	)		(0.4	)
Accruals at June 30, 2003	$	1.7		$	1.0

     Of the total severance expense of $1.0 million for the three months ended June 30, 2003, $0.3 million was included in costs of sales and $0.7 million in general and administrative expenses. Approximately $0.6 million of the severance expense included in general and administrative expenses for the quarter was related to severance costs associated with the Company’s former President and Chief Operating Officer and the former Vice President of Business Development. These executive severance costs will be paid over a period of one year from the date of their departure. This expense was partially offset by credits of $0.2 million for the cancellation of unvested restricted stock, which was reflected in general and administrative expenses. The Company paid approximately $0.4 million of accrued severance expenses in July 2003 in connection with the reductions made in July. Of the total severance expenses of $1.5 million for the six months ended June 30, 2003, $0.7 million was included in costs of sales and $0.8 million in general and administrative expense. This expense was partially offset by credits of $0.7 million for the cancellation of unvested restricted stock, which was reflected in general and administrative expenses.

6

     The Company determined that it would no longer continue the internal development of the solid streamer project within the Marine segment. As such, certain assets were considered impaired and other assets related to the project were written off as of March 31, 2003. See further discussion of this impairment at Note 4 of Notes to Unaudited Consolidated Financial Statements.

(3) Investment in Energy Virtual Partners, Inc.

     In April 2003, the Company invested $3.0 million in Series B Preferred securities of Energy Virtual Partners, Inc. (“EVP”) for 22% of the outstanding ownership interests and 11% of the outstanding voting interests. EVP provides asset management services to large oil and gas companies to enhance the value of their oil and gas properties. This investment is accounted for under the cost method basis for investment accounting. Robert P. Peebler, the Company’s President and Chief Executive Officer, founded EVP in April 2001 and served as the President and Chief Executive Officer until joining I/O in March 2003. Mr. Peebler is currently the Chairman of EVP and holds a 23% ownership interest in EVP.

     During the second quarter EVP, failed to close two anticipated asset management agreements. Since that time, EVP has re-evaluated its business model and adequacy of capital. The Board of EVP has voted to liquidate EVP if it is unable to present a clear and feasible business strategy by August 15, 2003. Therefore, in the second quarter the Company wrote its investment down to its approximate liquidation value of $1.0 million, resulting in a charge against earnings of $2.0 million. In order to avoid any potential conflict of interest concerns, Mr. Peebler has suggested and the Company has agreed that all proceeds he receives from liquidation of EVP will be paid to the Company. This amount has been included in the Company's estimate of liquidation value.

(4) Impairment of Long-lived Assets

     During the first quarter of 2003, the Company initiated an evaluation of its solid streamer project and in May concluded it would no longer internally pursue this product for commercial development. In conjunction with this evaluation, certain fixed assets and patented technology within the Marine segment were deemed impaired in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets". As a result, fixed assets of $0.5 million and intangible assets of $0.6 million were considered impaired and written off as a charge against earnings in the first quarter of 2003. In addition, inventory associated with this project of $0.2 million was written off and included within research and development expenses at March 31, 2003.

     During the second quarter of 2003, the Company incurred a $2.5 million charge to cost of sales related to the write-down of rental equipment associated with the Company’s first generation radio-based VectorSeis® land acquisition systems. This equipment was being utilized in North America as part of the strategic marketing alliance between the Company and Veritas DGC Inc. In May 2003, the strategic marketing alliance was terminated, leading the Company to reassess the net realizable value of this equipment. Because this equipment was an older generation of the Company’s technology, the Company determined that a write-down was appropriate. Subsequent to this write-down, the equipment had a net carrying value of $2.3 million at June 30, 2003.

(5) Stock-Based Compensation

     If the Company had elected to recognize compensation expense using a fair value approach, net loss, basic loss per share and diluted loss per share for the periods presented would have increased as follows (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net loss applicable to common shares	$	(13,686	)	$	(78,892	)	$	(18,965	)	$	(84,889	)
Deduct: Stock-based employee compensation expense determined under fair value methods for all awards	$	(854	)	$	(778	)	$	(1,495	)	$	(1,557	)
Pro forma net loss	$	(14,540	)	$	(79,670	)	$	(20,460	)	$	(86,446	)
Basic and diluted loss per common share — as reported	$	(0.27	)	$	(1.55	)	$	(0.37	)	$	(1.67	)
Pro forma basis and diluted loss per common share	$	(0.28	)	$	(1.56	)	$	(0.40	)	$	(1.70	)

7

     Effective March 31, 2003, the Company granted its President and Chief Executive Officer stock options to purchase 1,325,000 shares of common stock of the Company at an exercise price of $6.00 per share under the Company’s proposed 2003 Stock Option Plan (the “Plan”). The options will vest in equal monthly installments over a three-year period beginning on the anniversary of the date of grant and have a term of ten years. The Plan was approved by the Company’s stockholders at the Company’s 2003 annual meeting of shareholders in June 2003.

(6) Segment Information

     The Company evaluates and reviews results based on two segments, Land and Marine, to allow for increased visibility and accountability of costs and more focused customer service and product development. The Company measures segment operating results based on earnings (loss) from operations. A summary of segment information for the three and six months ended June 30, 2003 and 2002 is as follows (in thousands):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
Net sales:
	Land	$	23,684		$	10,823		$	56,280		$	28,434
	Marine		10,878			12,027			19,459			24,629
	Total	$	34,562		$	22,850		$	75,739		$	53,063
Depreciation and amortization:
	Land	$	1,194		$	1,723		$	2,556		$	3,221
	Marine		695			346			1,607			780
	Corporate		1,146			958			2,446			2,018
	Total	$	3,035		$	3,027		$	6,609		$	6,019
Earnings (loss) from operations:
	Land	$	(5,663	)	$	(11,047	)	$	(4,268	)	$	(17,673	)
	Marine		75			2,329			(1,801	)		4,835
	Corporate		(4,780	)		(5,269	)		(9,356	)		(8,682	)
	Total	$	(10,368	)	$	(13,987	)	$	(15,425	)	$	(21,520	)

		June 30,		December 31,
		2003		2002
Total assets:
	Land	$	98,217	$	102,064
	Marine		63,836		62,020
	Corporate		47,457		84,361
	Total	$	209,510	$	248,445

		June 30,		December 31,
		2003		2002
Total assets by geographic area:
	North America	$	169,513	$	205,640
	Europe		38,248		41,679
	United Arab Emirates		1,749		1,126
	Total	$	209,510	$	248,445

     Intersegment sales are insignificant for all periods presented. Corporate assets include all assets specifically related to corporate personnel and operations and all facilities and manufacturing machinery and equipment that are jointly utilized by segments. Depreciation and amortization expense is allocated to segments based upon use of the underlying assets.

8

A summary of net sales by geographic area is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2003		2002		2003		2002
Asia	$	11,937	$	2,147	$	24,346	$	3,591
North America		6,715		7,621		16,989		18,685
Europe		4,443		8,355		10,203		16,313
Latin America		1,970		1,679		7,711		4,046
Commonwealth of Independent States		3,280		803		6,860		6,884
Middle East		6,061		487		6,434		847
Africa		147		1,402		3,181		2,341
Other		9		356		15		356
	$	34,562	$	22,850	$	75,739	$	53,063

     Net sales are attributed to individual countries on the basis of the ultimate destination of the equipment, if known; if the ultimate destination is not known, it is based on the geographical location of initial shipment.

(7) Inventories

     A summary of inventories, net of reserves, is as follows (in thousands):

	June 30,		December 31,
	2003		2002
Raw materials	$	27,347	$	31,447
Work-in-process		7,862		5,781
Finished goods		13,677		12,782
	$	48,886	$	50,010

     During the first quarter of 2003, inventory of approximately $0.2 million was written off and included within research and development expenses. This write-off relates to the cancellation of the solid streamer project within the Marine segment. See further discussion at Note 4 of Notes to Unaudited Consolidated Financial Statements. In addition, an unrelated inventory obsolescence charge of $0.3 million was reflected in cost of sales in the first quarter 2003 related to the closure of the Company’s Alvin, Texas manufacturing facility.

     The Company has developed a program to reduce its inventory to a level which does not exceed the Company’s near-term requirements. Based upon this program, the Company believes upon disposition of this inventory no significant losses will be incurred in excess of its current reserve estimates.

     As part of the Company’s strategic direction, the Company is increasing the use of contract manufacturers as an alternative to in-house manufacturing. Under many of the Company’s outsourcing arrangements, its manufacturing partners first utilize the Company’s on-hand inventory, then directly purchase inventory at agreed-upon levels to meet the Company’s forecasted demand. If demand proves to be less than the Company originally forecasted, its manufacturing partners have the right to require the Company to purchase any excess or obsolete inventory that its partners purchased on their behalf. Should the Company be required to purchase inventory pursuant to these provisions, the Company may be required to expend large sums of cash for inventory that it may never utilize. Such purchases could materially and adversely effect the Company’s financial position and results of operations. Historically, the Company has not been required to purchase any excess or obsolete inventory under these outsourcing arrangements.

9

(8) Accounts and Notes Receivable

     A summary of accounts receivable is as follows (in thousands):

	June 30,			December 31,
	2003			2002
Accounts receivable, principally trade	$	28,943		$	20,420
Allowance for doubtful accounts		(1,618	)		(1,675	)
Accounts receivable, net	$	27,325		$	18,745

     The original recorded investment in notes receivable, excluding accrued interest, was $23.4 million at June 30, 2003. A summary of notes receivable, accrued interest and allowance for loan loss is as follows (in thousands):

	June 30,			December 31,
	2003			2002
Notes receivable and accrued interest	$	27,773		$	28,422
Less allowance for loan loss		(9,273	)		(10,228	)
Notes receivable, net		18,500			18,194
Less current portion notes receivable, net		12,407			6,137
Long-term notes receivable	$	6,093		$	12,057

(9) Non-Cash Activity

     During the six months ended June 30, 2003, the Company transferred $1.9 million of inventory at cost to rental equipment in connection with leasing arrangements with marine customers and sold previously leased marine rental equipment to a customer via a note agreement for $1.4 million.

(10) Loss per Common Share

     Basic loss per common share is computed by dividing net loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted loss per common share is determined on the assumption that outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. Basic and diluted loss per share are the same for the three months and six months ended June 30, 2003 and 2002, as all potential common shares were anti-dilutive. In August 2002, the Company repurchased all of the 40,000 outstanding shares of its Series B Convertible Preferred Stock and all of the 15,000 outstanding shares of its Series C Convertible Preferred Stock (the “Preferred Stock”). As part of the repurchase the Company granted warrants to purchase 2,673,517 shares of the Company’s common stock at $8.00 per share through August 5, 2005. The Preferred Stock and warrants are considered anti-dilutive for all periods outstanding and are not included in the calculation of diluted loss per common share.

(11) Long Term Debt and Lease Obligations

     In May 2003, the Company financed $0.5 million of insurance costs through the execution of a short-term note payable. The principal and interest are due on a monthly basis bearing an interest rate of 5.75%, with final payment due in April 2004. The unpaid balance at June 30, 2003 was $0.3 million.

     In August 2002, in connection with the repurchase of Preferred Stock, the Company issued a $31.0 million unsecured promissory note due May 7, 2004, which bore interest at 8% per year until May 7, 2003, at which time the interest rate increased to 13%. Interest is payable in quarterly payments, with all principal and unpaid interest due on May 7, 2004. The Company records interest on this note at an effective rate of approximately 11% per year over the life of the note. In May 2003, the Company repaid $15.0 million of the note, recording the excess accrued interest of $0.3 million as an adjustment of interest expense in the second quarter of 2003. The excess accrued interest represents the recorded but unpaid interest on the note at its effective rate of approximately 11%, compared to the note’s initial stated rate of 8%. The note restricts cash dividends in excess of $5.0 million per year while the note is outstanding.

     In July 2002, in connection with the acquisition of AXIS Geophysics, Inc. (“AXIS”), the Company entered into a $2.5 million three-year unsecured promissory note payable to the former shareholders of AXIS, bearing interest at 4.34% per year. Principal is payable in quarterly payments of $0.2 million plus interest, with final payment due in July 2005. The unpaid balance at June 30, 2003 was $1.9 million.

     In August 2001, the Company sold its corporate headquarters and manufacturing facility located in Stafford, Texas for $21.0 million. Simultaneous to the sale, the Company entered into a non-cancelable lease with the purchaser of the property. The lease has a

10

twelve-year term with three consecutive options to extend the lease for five years each. The Company has no purchase option pursuant to the lease. As a result of the lease terms, the commitment was recorded as a twelve-year $21.0 million lease obligation with an implicit interest rate of 9.1%. The unpaid balance at June 30, 2003 was $19.3 million. The Company paid $1.7 million in commissions and professional fees, which have been recorded as deferred financing costs and are being amortized over the twelve-year term of the obligation. The Company has failed to meet the tangible net worth requirements of this lease for four consecutive quarters. Therefore, the Company is required and is in the process of providing a letter of credit to the landlord of the property in the amount of $1.5 million. In addition to the above lease agreement, the Company has other capital leases totaling $0.2 million at June 30, 2003.

     In January 2001, in connection with the acquisition of Pelton Company, Inc. (“Pelton”), the Company entered into a $3.0 million two-year unsecured promissory note payable to a former shareholder of Pelton, bearing interest at 8.5% per year. The note was paid in full in February 2003.

     A summary of future principal obligations under the notes payable and lease obligations is as follows (in thousands):

YEARS ENDED DECEMBER 31,
2003	$	1,152
2004		17,943
2005		1,883
2006		1,489
2007		1,610
2008 and thereafter		13,584
Total	$	37,661

(12) Deferred Income Tax

     In the second quarter of 2002, the Company established an additional valuation allowance to fully reserve for its net deferred tax assets and has continued to maintain a full valuation allowance. The Company’s net deferred assets are primarily net operating loss carryforwards. The establishment of this valuation allowance does not affect the Company’s ability to reduce future tax expense through utilization of prior years net operating losses. Income tax (benefit) expense of $(0.3) million and $0.3 million for the three months and six months ended June 30, 2003, respectively, reflect state and foreign taxes as the Company continues to maintain a full valuation allowance for its net deferred tax assets and a federal tax refund of $0.6 million received in the second quarter of 2003. Additionally, the Company received foreign tax refunds of $1.7 million during the six months ended June 30, 2003, which had been accrued as of December 31, 2002.

     The valuation allowance was calculated in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” which places primary importance on the Company’s cumulative operating results in the most recent three-year period when assessing the need for a valuation allowance. Although management believes the Company’s results for those periods were heavily affected not only by industry conditions, but also by deliberate and planned business restructuring activities in response to the prolonged downturn in the seismic equipment market, as well as heavy expenditures on research and development technology, the Company’s cumulative loss in the most recent three-year period and the six months ended June 30, 2003, represented sufficient negative evidence to establish an additional valuation allowance under the provisions of SFAS No. 109. The Company will maintain a full valuation allowance for its net deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support reversal of the allowance.

(13) Comprehensive Loss

     The components of comprehensive loss are as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net loss	$	(13,686	)	$	(77,413	)	$	(18,965	)	$	(81,955	)
Foreign currency translation adjustment		1,939			4,398			1,783			3,644
Comprehensive loss	$	(11,747	)	$	(73,015	)	$	(17,182	)	$	(78,311	)

11

(14) Acquisitions

     In July 2002, the Company acquired all of the outstanding capital stock of AXIS for $2.5 million of cash and issued a $2.5 million three-year unsecured promissory note. The Company is obligated to pay additional consideration to the former shareholders of AXIS at an amount equal to 33.33% of AXIS’ EBITDA (as adjusted by the terms of the Earn-Out Agreement), for the years ended December 31, 2003, 2004 and 2005, exceeding a minimum threshold of $1.0 million. AXIS is a seismic data service company based in Denver, Colorado, which provides specialized seismic data processing and integration services to major and independent exploration and production companies. The AXIS Interpretation-Ready Process™ (“IRP”) integrates seismic and subsurface geological data to provide customers more accurate and higher quality data that can result in improved reservoir characterizations.

     In May 2002, the Company acquired certain assets of S/N Technologies (“S/N”) for $0.7 million of cash. The assets acquired from S/N included proprietary technology applicable to solid streamer products used to acquire 2D, 3D and high-resolution marine seismic data. However, in May 2003 the Company determined that it would no longer continue the internal development of the solid streamer project. As such, the acquired assets of S/N were impaired and other assets associated with this project were written off as of March 31, 2003. See further discussion of this impairment at Note 4 of Notes to Unaudited Consolidated Financial Statements.

     The acquisitions were accounted for by the purchase method, with the purchase price allocated to the fair value of assets purchased and liabilities assumed. The allocation of the purchase price, including related direct costs, for the acquisition of AXIS and S/N are as follows (in thousands):

			AXIS			S/N
Fair values of assets and liabilities
	Net current assets		$	395		$	—
	Property, plant and equipment			354			85
	Intangible assets			1,142			603
	Goodwill			3,296			—
	Long-term liabilities			(224	)		—
		Total allocated purchase price		4,963			688
Less non-cash consideration — note payable				2,500			—
Less cash of acquired business				501			—
Cash paid for acquisition, net of cash acquired			$	1,962		$	688

     The consolidated results of operations of the Company include the results of AXIS and S/N from the date of acquisition. Pro-forma results prior to the acquisition date were not material to the Company’s consolidated results of operations. The intangible asset of AXIS relates to proprietary technology, which is being amortized over a 4-year period. The goodwill of AXIS was assigned to the digital land products reporting unit, a reporting unit within the Company’s Land division.

(15) Commitments and Contingencies

     Legal Matters. In the ordinary course of business, the Company has been named in various lawsuits or threatened actions. While the final resolution of these matters may have an impact on its consolidated financial results for a particular reporting period, the Company believes that the ultimate resolution of these matters will not have a material adverse impact on its financial position, results of operations or liquidity.

     Product Warranty Liabilities. The Company warrants that all manufactured equipment will be free from defects in workmanship, materials and parts. Warranty periods typically range from 90 days to three years from the date of original purchase, depending on the product. The Company provides for estimated warranty as a charge to cost of sales at time of sale, which is when estimated future expenditures associated with such contingency becomes probable and reasonably estimated. However, new information may become available, or circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount required to be accrued for such matters (and therefore a decrease or increase in reported net income in the period of such change). A summary of warranty activity is as follows (in thousands):

Balance at December 31, 2002	$	2,914
Accruals for warranties issued during the period		1,170
Settlements made (in cash or in kind) during the period		(693	)
Balance at June 30, 2003	$	3,391

12

(16) Repurchase of Series B and Series C Preferred Stock

     In August 2002, the Company repurchased all the outstanding shares of Preferred Stock from the holder, SCF-IV, L.P. (“SCF”), a Houston-based private equity fund specializing in oil service investments. In exchange for the Preferred Stock, the Company paid SCF $30.0 million in cash at closing, issued SCF a $31.0 million unsecured promissory note due May 7, 2004 and granted SCF warrants to purchase 2,673,517 shares of the Company’s common stock at $8.00 per share through August 5, 2005. The note bore interest at 8% per year until May 7, 2003, at which time the interest rate increased to 13%. The Company records interest on this note at an effective rate of approximately 11% per year. In May 2003, the Company paid $15.0 million of the outstanding note principal balance to SCF, recording the excess accrued interest of $0.3 million as an adjustment of interest expense in the second quarter of 2003. The excess accrued interest represents the recorded but unpaid interest on the note at its effective rate of approximately 11%, compared to the note’s initial stated rate of 8%.

     Under the terms of a registration rights agreement, SCF has the right to demand that the Company file a registration statement for the resale of the shares of Common Stock SCF acquires upon exercise of the warrants. Sales or the availability for sale of a substantial number of shares of Common Stock in the public market could adversely affect the market price for Common Stock. If the Company is acquired in a business combination pursuant to which the stockholders receive less than 60% of the aggregate consideration in the form of publicly traded common equity, then the holder of the warrants has the option to require the Company to acquire the warrants at their fair value as determined by the Black-Scholes valuation model as further refined by the terms of the warrant agreement. Because the Company may be required to repurchase the warrants in these limited circumstances, the warrants are classified as a current liability on the balance sheet and the Company records any change in value as a credit or charge to the consolidated statement of operations. The change in the fair value of the warrants between January 1, 2003 and June 30, 2003 resulted in other expense of approximately $0.8 million. The fair value of the warrants was $3.0 million at June 30, 2003. Fair value was determined using the Black-Scholes valuation model. The key variables used in valuing the warrants were contractually specified and were as follows: risk-free rate of return of Treasury notes having an approximate duration of the remaining term of the warrants and expected stock price volatility of 60%.

(17) Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of this Statement are effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 on January 1, 2003 and its adoption did not have a significant impact on the Company’s results of operations or financial position.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities", which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity is recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, and have been adopted by the Company for 2003. For all exit and disposal activities initiated on or before December 31, 2002, the Company continued to follow EITF No. 94-3.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — and Amendment of FASB No. 123". SFAS No. 148 amends FASB No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change in fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to continue to follow the intrinsic value method of accounting prescribed by Accounting Principal Board Opinion No. 25. See Note 5 of Notes to Unaudited Consolidated Financial Statements for the pro forma results if the Company had adopted SFAS No. 123.

     In November 2002, the FASB issued Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: an Interpretation of FASB Statements No. 5, 67, and 107 and Rescission of FASB Interpretation No. 34". FIN No. 45 clarifies the requirements of FASB No. 5, “Accounting for Contingencies",

13

relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN No. 45 did not have a significant impact on the Company’s results of operations or financial position.

     In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this statement is not expected to have any impact on the Company’s results of operations or financial position.

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 affects the issuer’s accounting for three types of freestanding financial instruments; (a) mandatorily redeemable shares which the issuing company is obligated to buy back in exchange for cash or other assets, (b) put options and forward purchase contracts that do or may require the issuer to buy back some of its shares in exchange for cash or other assets, and (c) obligations that can be settled with shares, the monetary value of which is fixed, ties solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares. SFAS No. 150 also requires disclosures about alternative ways of settling the instruments and the capital structure of entities. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and for all periods beginning after June 15, 2003. The adoption of this statement is not expected to have any impact on the Company’s results of operations or financial position as the Company is not party to any financial instruments which would be impacted by this statement.

ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Summary Review and Outlook

     Seismic activity continues to reflect a challenging exploration environment, as most of our seismic contractor customers are still cutting back their operations and consolidating their businesses. Despite this trend, oil companies have stated that they lack an inventory of new drilling prospects. As a result, we are beginning to see several oil companies increasing their planned 2003 drilling budgets, some of which should result in increases in geophysical spending in the second half of 2003. We are however seeing some expansion from Chinese and Eastern European seismic contractors. In particular, Chinese seismic contractors are increasingly active not only within their own country, but also in other international areas. BGP, an international seismic contractor headquartered in China, purchased our first VectorSeis® System Four™ acquisition system which we delivered in the first quarter of 2003. Our second and third VectorSeis System Four acquisition systems were sold to international seismic contractors headquartered in Poland and the Ukraine.

     Our strategy in response to the current prevailing industry conditions remains three-fold. We seek to lower costs, increase flexibility, and decrease research and development cycle time via outsourcing. Second, we plan to continue to focus on accelerating the adoption rate of VectorSeis technology in markets, including exploring new potential business models to capture additional value. Finally, we intend to broaden the VectorSeis product and service offering to include all phases of the oil field lifecycle, including production by demonstrating the power of our products and services in optimizing hydrocarbon production.

     Through our outsourcing strategy, we seek to reduce both the unit cost of our products and our fixed cost structure, as well as to speed our research and development cycle for non-core technologies. Moving forward we expect substantial cost savings through reduction of unabsorbed manufacturing expense resulting from recent facility closures. In July 2003, we completely exited our Alvin, Texas manufacturing facility. Additionally, we previously closed our Norwich, U.K. geophone stringing operation in the first quarter of 2003, with operations moved to our leased facility in Jebel Ali and outsourced to various partners. We continue to work with all of our outsourced manufacturing suppliers to reduce the unit costs of our products.

     Investment in Energy Virtual Partners, Inc.

     In April 2003, we invested approximately $3.0 million in Series B Preferred securities of Energy Virtual Partners, Inc. (“EVP”) for 22% of the outstanding ownership interests and 11% of the outstanding voting interests. EVP provides asset management services to large oil and gas companies to enhance the value of their oil and gas properties. Robert P. Peebler, our President and Chief Executive Officer, founded EVP in April 2001 and served as the President and Chief Executive Officer until joining I/O in March 2003. Mr. Peebler is currently the Chairman of EVP and holds a 23% ownership interest in EVP.

14

     During the second quarter, EVP failed to close two anticipated asset management agreements. Since that time, EVP has re-evaluated its business model and adequacy of capital. The Board of EVP has voted to liquidate EVP if it is unable to present a clear and feasible business strategy by August 15th. Therefore, in the second quarter we wrote our investment down to its approximate liquidation value of $1.0 million, resulting in a charge against earnings of $2.0 million. In order to avoid any potential conflict of interest concerns, Mr. Peebler has suggested and we have agreed that all proceeds he receives from liquidation of EVP will be paid to us. This amount has been included in our estimated share of the liquidation value.

Results of Operations

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

     Net Sales: Net sales of $34.6 million for the three months ended June 30, 2003 increased $11.7 million, or 51%, compared to the corresponding period last year. The increase is due to an increase in land seismic activity with our non-Western contractors. Our Land Division’s net sales increased $12.9 million, or 119%, to $23.7 million and our Marine Division’s net sales decreased $1.2 million, or 10%, to $10.9 million compared to the prior year.

     Cost of Sales: Cost of sales of $31.3 million for the three months ended June 30, 2003 increased $11.0 million, or 54%, compared to the corresponding period last year. Cost of sales of our Land and Marine Divisions were $23.3 million and $8.0 million, respectively. Cost of sales in the current quarter increased as a result of the increase in sales activity and a charge of $2.5 million related to the write-down of rental equipment associated with our first generation radio-based VectorSeis land acquisition systems to its net realizable value. See further discussion of this write-down in Note 4 of Notes to Unaudited Consolidated Financial Statements. Included in cost of sales for the three months ended June 30, 2003 is $0.3 million of severance costs compared to $0.5 million for the three months ended June 30, 2002.

     Gross Profit and Gross Profit Percentage: Gross profit of $3.2 million for the three months ended June 30, 2003 increased $0.7 million, or 30%, compared to the corresponding period last year. Gross profit percentage for the three months ended June 30, 2003 was 9% compared to 11% in the prior year. The decline in our gross margin percentage is primarily due to a charge of $2.5 million related to the write-down of rental equipment associated with our first generation radio-based VectorSeis land acquisition systems to its net realizable value. See further discussion of this write-down in Note 4 of Notes to Unaudited Consolidated Financial Statements. Gross profit percentage, excluding this charge, remains historically low because of unabsorbed burden of our fixed and semi-fixed overhead. We expect some improvement as a result of the closure of our Alvin manufacturing facility.

     Research and Development: Research and development expense of $5.0 million for the three months ended June 30, 2003 decreased $3.7 million, or 43%, compared to the corresponding period last year. This decrease primarily reflects reduced staffing levels, lower prototype expenses and a reduction of rent expense primarily associated with our vacated Austin, Texas software development facility. In the second quarter of 2002, the Company incurred charges of $1.4 million relating to the closure of our Austin, Texas development facility and $0.4 million in severance costs.

     Marketing and Sales: Marketing and sales expense of $3.0 million for the three months ended June 30, 2003 increased $0.3 million, or 9%, compared to the corresponding period last year. The increase is primarily related to higher sales and commissions on those sales and the opening of our sales representative office in Beijing, China.

     General and Administrative: General and administrative expense of $5.4 million for the three months ended June 30, 2003 increased $0.7 million, or 14%, compared to the corresponding period last year. The increase in general and administrative expense is primarily attributable to severance costs of $0.7 million compared to $0.2 million for the same period last year, $0.4 million of moving costs associated with vacating from our Alvin, Texas facility, the inclusion of AXIS, which was acquired in July 2002, partially offset with lower compensation expense due to reductions in personnel and a $0.2 million credit related to the cancellation of unvested restricted stock. The severance costs and the cancellation of unvested restricted stock primarily relate to the employment contracts of our former Chief Operating Officer and Vice President of Business Development.

     Amortization of Intangibles: Amortization of intangibles of $0.2 million for the three months ended June 30, 2003 decreased $0.1 million, or 24%, compared to the corresponding period last year due to certain intangible assets becoming fully amortized between the periods, partially offset by amortization of intangible assets acquired as part of the AXIS acquisition.

15

     Net Interest and Other Income: Total net interest and other income of $0.1 million for the three months ended June 30, 2003 remained constant compared to the corresponding period last year. Interest expense increased due to the issuance of the SCF promissory note and interest income decreased due to a decline in our cash balances and short-term interest rates, offset primarily due to fluctuations in exchange rates. In May 2003, we repaid $15.0 million of the SCF note, recording the excess accrued interest of $0.3 million as an adjustment to interest expense. The excess accrued interest represents the recorded but unpaid interest on the note at its effective rate of approximately 11% compared to the note’s initial stated rate of 8%. In May 2003, the stated rate increased from 8% to 13%. See further discussion in Note 11 of Notes to Unaudited Consolidated Financial Statements.

     Fair Value Adjustment of Warrant Obligation: The fair value adjustment of the warrant obligation totaling $1.7 million is due to a change in the fair value between April 1, 2003 and June 30, 2003 of the common stock warrants, as previously discussed in Note 16 of Notes to Unaudited Consolidated Financial Statements. No comparable adjustment was recorded in the second quarter of 2002 as the warrants were granted in August 2002.

     Impairment of Investment: Impairment of investment of $2.0 million for the three months ended June 30, 2003 relates to our write-down of our investment in Energy Virtual Partners, Inc. to its approximate liquidation value of $1.0 million. See further discussion in Note 3 of Notes to Unaudited Consolidated Financial Statements.

     Income Tax (Benefit) Expense: Income tax benefit of $0.3 million for the three months ended June 30, 2003 increased $63.8 million compared to the corresponding period last year. Income tax benefit in the second quarter of 2003 reflects a federal income tax refund of $0.6 million, partially offset by state and foreign taxes as we continue to maintain a full valuation allowance for its net deferred tax assets. In the second quarter of 2002 we began to fully reserve for our net deferred tax assets, which resulted in a net charge to income tax expense of $63.8 million during that period.

     Preferred Stock Dividends: Preferred stock dividends for the three months ended June 30, 2002 are related to previously outstanding Series B and Series C Preferred Stock (the “Preferred Stock”). We recognized the dividends as a charge to retained earnings at a stated rate of 8% per year, compounded quarterly (of which 7% was accounted for as a non-cash event recorded to additional paid-in capital so as to reflect potential dilution upon preferred stock conversion and 1% was paid as a quarterly cash dividend). As discussed in Note 16 of Notes to Unaudited Consolidated Financial Statements, we repurchased the Preferred Stock on August 6, 2002. As a result, there were no preferred stock dividends for the three months ended June 30, 2003.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

     Net Sales: Net sales of $75.7 million for the six months ended June 30, 2003 increased $22.7 million or 43%, compared to the corresponding period last year. The increase is primarily due to an increase in land seismic activity with our non-Western contractors. Our Land Division’s net sales increased $27.9 million, or 98%, to $56.3 million compared to $28.4 million in 2002. Our Marine Division’s net sales decreased $5.2 million, or 21%, to $19.4 million compared to the prior year.

     Cost of Sales: Cost of sales of $63.8 million for the six months ended June 30, 2003 increased $20.1 million, or 46%, compared to the corresponding period last year. Cost of sales of our Land and Marine Divisions were $49.4 million and $14.4 million, respectively. Cost of sales in the current period increased as a result of the increase in sales activity and a charge of $2.5 million related to the write-down of rental equipment associated with our first generation radio-based VectorSeis land acquisition systems to its net realizable value. See further discussion of this write-down in Note 4 of Notes to Unaudited Consolidated Financial Statements. Included in cost of sales for the six months ended June 30, 2003 is $0.7 million of severance costs compared to $0.9 million for the six months ended June 30, 2002.

     Gross Profit and Gross Profit Percentage: Gross profit of $12.0 million for the six months ended June 30, 2003 increased $2.5 million, or 27%, compared to the corresponding period last year. Gross profit percentage for the six months ended June 30, 2003 was 16% compared to 18% in the prior year. The decline in gross profit percentage is primarily due to a charge of $2.5 million related to the write-down of rental equipment associated with our first generation radio-based VectorSeis land acquisition systems to its net realizable value. See further discussion of this write-down in Note 4 of Notes to Unaudited Consolidated Financial Statements. Gross profit percentage for the six months ended June 30, 2003 was also negatively impacted by the first sale of our VectorSeis System Four acquisition system, which resulted in a discounted margin at a special introductory price, and continued underabsorption of our fixed and semi-fixed overhead.

     Research and Development: Research and development expense of $10.5 million for the six months ended June 30, 2003 decreased $5.2 million, or 33%, compared to the corresponding period last year. This decrease primarily reflects reduced staffing levels, lower prototype expenses and a reduction of rent expense primarily associated with our vacated Austin, Texas software

16

development facility. For the six months ended June 30, 2002, we incurred charges of $1.4 million relating to the closure of our Austin, Texas development facility and $0.5 million in severance costs. For the six months ended June 30, 2003, we incurred $0.2 million of expenses related to the cancellation of our solid streamer project within the Marine segment. See further discussion at Note 4 of Notes to Unaudited Consolidated Financial Statements.

     Marketing and Sales: Marketing and sales expense of $5.8 million for the six months ended June 30, 2003 increased $0.5 million, or 10%, compared to the corresponding period last year. The increase is primarily related to higher sales and commissions on sales and due to the opening of our sales representative office in Beijing, China.

     General and Administrative: General and administrative expense of $9.4 million for the six months ended June 30, 2003 increased $0.1 million, or 1%, compared to the corresponding period last year. The increase in general and administrative expense is primarily attributable to severance costs of $0.8 million compared to $0.2 million for the same period last year, $0.4 million of moving costs associated with vacating our Alvin, Texas facility, the inclusion of AXIS, which was acquired in July 2002, partially offset with lower compensation expense due to reductions in personnel and a $0.7 million credit related to cancellation of unvested restricted stock. The severance costs and the cancellation of unvested restricted stock primarily relate to the employment contracts of our former President and Chief Executive Officer, Chief Operating Officer and Vice President of Business Development.

     Amortization of Intangibles: Amortization of intangibles of $0.5 million for the six months ended June 30, 2003 decreased $0.1 million, or 14%, compared to the corresponding period last year due to certain intangible assets becoming fully amortized between the periods, partially offset by amortization of intangible assets acquired as part of the AXIS acquisition.

     Impairment of Long-Lived Assets: Impairment of long-lived assets of $1.1 million for the six months ended June 30, 2003 relates to the cancellation of our solid streamer project within the Marine segment in the first quarter of 2003. As such, certain assets were impaired and other related assets and costs were written off. See further discussion of this impairment at Note 4 of Notes to Unaudited Consolidated Financial Statements.

     Net Interest and Other Expense: Total net interest and other expense of $0.4 million for the six months ended June 30, 2003 increased $0.8 million, or 192%, compared to the corresponding period last year. The increase is primarily due to the issuance of the SCF promissory note and a decrease in interest income due to a decline in our cash balances and short-term interest rates; partially offset by fluctuations in exchange rates. In May 2003, we repaid $15.0 million of the SCF note, recording the excess accrued interest of $0.3 million as an adjustment to interest expense. The excess accrued interest represents the recorded but unpaid interest on the note at its effective rate of approximately 11%, compared to the note’s initial stated rate of 8%. In May 2003, the stated rate increased from 8% to 13%. See further discussion in Note 11 of Notes to Unaudited Consolidated Financial Statements.

     Fair Value Adjustment of Warrant Obligation: The fair value adjustment of the warrant obligation totaling $0.8 million is due to a change in the fair value between January 1, 2003 and June 30, 2003 of the common stock warrants, as previously discussed in Note 16 of Notes to Unaudited Consolidated Financial Statements. No comparable adjustment was recorded in the six months ended June 30, 2002 as the warrants were granted in August 2002.

     Impairment of Investment: Impairment of investment of $2.0 million for the six months ended June 30, 2003 relates to our write-down of our investment in Energy Virtual Partners, Inc. to its approximate liquidation value of $1.0 million. See further discussion in Note 3 of Notes to the Unaudited Consolidated Financial Statements.

     Income Tax Expense: Income tax expense of $0.3 million for the six months June 30, 2003 decreased $60.5 million compared to the corresponding period last year. Income tax expense for the six months ended June 30, 2003 reflects state and foreign taxes as the Company continues to maintain a full valuation allowance for its net deferred tax assets. Income tax expense during the period was partially offset by a federal tax refund of $0.6 million. In the second quarter of 2002 we began to fully reserve for our net deferred tax assets, which resulted in a net charge to income tax expense of $60.0 million during that period.

     Preferred Stock Dividends: Preferred stock dividends for the six months ended June 30, 2002 are related to previously outstanding Series B and Series C Preferred Stock (the “Preferred Stock”). We recognized the dividends as a charge to retained earnings at a stated rate of 8% per year, compounded quarterly (of which 7% was accounted for as a non-cash event recorded to additional paid-in capital so as to reflect potential dilution upon preferred stock conversion and 1% was paid as a quarterly cash dividend). As discussed in Note 16 of Notes to Unaudited Consolidated Financial Statements, we repurchased the Preferred Stock on August 6, 2002. As a result, there were no preferred stock dividends for the six months ended June 30, 2003.

17

Liquidity and Capital Resources

     We have typically financed operations from internally generated cash and funds from equity financings. Cash and cash equivalents were $39.1 million at June 30, 2003, a decrease of $38.1 million, or 49%, compared to December 31, 2002. This decrease is primarily due to net cash used in operating activities of $17.9 million and the pay down of the SCF promissory note of $15.0 million. The net cash used in operating activities is mainly due to an increase in accounts and notes receivables, resulting from sales that were realized but not yet collected by the end of the second quarter of 2003, and a decrease in our accounts payable and accrued expenses.

     Cash used in investing activities was $5.4 million for the six months ended June 30, 2003; an increase of $2.8 million compared to the six months ended June 30, 2002. The principal investing activities were $2.3 million relating to capital expenditure projects and $3.0 million related to the investment in EVP in April 2003. Planned capital expenditures for the remainder of 2003 are approximately $5.0 million. See further discussion of EVP investment in Note 3 of Notes to Unaudited Consolidated Financial Statements.

     Cash used in financing activities was $16.1 million for the six months ended June 30, 2003; an increase of $15.7 million compared to the six months ended June 30, 2002. The principal use of cash was $16.3 million on the repayment of long-term debt of which $15.0 million related to the pay down of the SCF note, partially offset by proceeds of $0.2 million from the issuance of common stock under our Employee Stock Purchase Plan.

     The most significant use of cash over the next year will be the requirement to repay the $16.0 million unsecured promissory note due in May 2004. In May 2003, the interest rate related to this note increased from 8% to 13%. We are currently evaluating our alternatives regarding this note, which may include refinancing or paying down the remaining outstanding note balance through use of our existing cash balances, or a combination of both.

     As discussed in Note 11 of Notes to Unaudited Consolidated Financial Statements, we have not met the tangible net worth test of our twelve-year lease obligation for four consecutive quarters. Therefore, we are in the process of providing the necessary letter of credit to the landlord of the property in the amount of $1.5 million.

     We believe the combination of existing working capital of $79.2 million as of June 30, 2003, including current cash on hand of $39.1 million, will be adequate to meet anticipated capital and liquidity requirements for the foreseeable future even if the prolonged downturn in the seismic equipment market continues. However, there can be no assurance that our sources of cash will be able to support our capital requirements in the long-term, and we may be required to issue additional debt or equity securities in the future to meet our capital requirements. There can be no assurance we would be able to issue additional equity or debt securities in the future on terms that are acceptable to us or at all.

Critical Accounting Policies

     Refer to our Annual Report on Form 10-K for the year ended December 31, 2002 for a complete discussion of our critical accounting policies. We have made no material changes in the current period regarding these critical accounting policies except as related to our investment in Energy Virtual Partners, Inc.

     Our investment in EVP is accounted for under the cost method, and is reviewed for impairment when we estimate that the fair value of our investment has fallen below the current carrying amount. When we deem the decline to be other than temporary, we record an impairment charge for the difference between the investment’s carrying value and its estimated fair value at the time. Since the time of our investment, EVP has failed to close two anticipated asset management agreements and has therefore re-evaluated its business model and adequacy of capital. The Board of EVP has voted to liquidate EVP if it is unable to present a clear and feasible business strategy by August 15th. As a result, we wrote-down our investment in EVP to its approximate fair value of $1 million. This fair value at June 30, 2003 represents our best estimate of the expected liquidation payout.

Credit Risk

     A continuation of weak demand for the services of certain of our customers will further strain their revenues and cash resources, thereby resulting in lower sales levels and a higher likelihood of defaults in their timely payment of their obligations under credit sales arrangements. Increased levels of payment defaults with respect to credit sales arrangements could have a material adverse effect on our results of operations.

18

     Our principal customers are seismic contractors, which operate seismic data acquisition systems and related equipment to collect data in accordance with their customers’ specifications or for their own seismic data libraries. In addition, we market and sell products to oil and gas companies. The loss of any one of these customers could have a material adverse effect on the results of operations and financial condition. See Management’s Discussion and Analysis of Results of Operations and Financial Condition — Cautionary Statement for Purposes of Forward Looking Statements — Further consolidation among our significant customers could materially and adversely affect us.

Cautionary Statement for Purposes of Forward-Looking Statements

     We have made statements in this report which constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Examples of forward-looking statements in this report include statements regarding:

• our plans for facility closures and other future business reorganizations;

• the adequacy of our liquidity and capital resources;

• charges we expect to take for future reorganization activities;

• savings we expect to achieve from our restructuring activities;

• future demand for seismic equipment and services;

• future commodity prices;

• future economic conditions;

• anticipated timing of commercialization and capabilities of products under development;

• our expectations regarding future mix of business and future asset recoveries;

• our beliefs regarding accounting estimates we make;

• the result of pending or threatened disputes and other contingencies; and

• our future levels of capital expenditures.

     You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions. These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations. While we cannot identify all of the factors that may cause actual events to vary from our expectations, we believe the following factors should be considered carefully:

     Recent announcements by geophysical contractors indicate that demand for our products will continue to be weak in the near term. Western-Geco recently announced that it was ceasing land seismic operations in Canada and the Continental United States. Veritas DGC recently announced that it was reducing its capital expenditures by more than $30 million in its current fiscal year. These and other announcements by geophysical contractors indicate that demand for our products will continue to be weak in the near term which will have a material adverse effect on our results of operations and financial condition.

     We may not gain rapid market acceptance for VectorSeis products, which could materially and adversely affect our results of operations and financial condition. We have spent considerable time and capital developing our VectorSeis products line. Because our VectorSeis products rely on a new digital sensor, our ability to sell our VectorSeis products will depend on acceptance of digital sensor by geophysical contractors and exploration and production companies. If our customers do not believe that our digital seismic sensors deliver higher quality data with greater operational efficiency, our results of operations and financial condition will be adversely affected.

     In addition, products as complex as those we offer sometimes contain undetected errors or bugs when first introduced that, despite our rigorous testing program, are not discovered until the product is purchased and used by a customer. If our customers deploy our new products and they do not work correctly, our relationship with our customers may be materially and adversely affected. We cannot assure you that errors will not be found in future releases of our products, or that these errors will not impair the market

19

acceptance of our products. If our customers do not accept our new products as rapidly as we anticipate, our business and results of operations may be materially and adversely affected.

     Our business reorganization and facilities closure plans may not yield the benefits we expect and could even harm our financial condition, reputation and prospects. We have significantly reduced our corporate and operational headcount, closed certain manufacturing facilities and combined certain of our business units. These activities may not yield the benefits we expect, and may raise product costs, delay product production, result in or exacerbate labor disruptions and labor-related legal actions against us, and create inefficiencies in our business.

     Our strategic direction and restructuring program also may give rise to unforeseen costs, which could wholly or partially offset any expense reductions or other financial benefits we attain as a result of the changes to our business. In addition, if the markets for our products do not improve, we will take additional restructuring actions to address these market conditions. Any such additional actions could result in additional restructuring charges.

     We have developed outsourcing arrangements for the manufacturing of some of our products. If these third parties fail to deliver quality products or components at reasonable prices on a timely basis, we may alienate some of our customers and our revenues, profitability and cash flow may decline. As part of our strategic direction, we are increasing our use of contract manufacturers as an alternative to our own manufacture of products. If, in implementing this initiative, we are unable to identify contract manufacturers willing to contract with us on competitive terms and to devote adequate resources to fulfill their obligations to us or if we do not properly manage these relationships, our existing customer relationships may suffer. In addition, by undertaking these activities, we run the risk that the reputations and competitiveness of our products and services may deteriorate as a result of the reduction of our control over quality and delivery schedules. We also may experience supply interruptions, cost escalations and competitive disadvantages if our contract manufacturers fail to develop, implement, or maintain manufacturing methods appropriate for our products and customers.

     If any of these risks are realized, our revenues, profitability and cash flow may decline. In addition, as we come to rely more heavily on contract manufacturers, we may have fewer personnel resources with expertise to manage problems that may arise from these third-party arrangements.

     Our outsourcing relationships may require us to purchase inventory when demand for products produced by third-party manufacturers is low. Under many of our outsourcing arrangements, our manufacturing partners purchase agreed upon inventory levels to meet our forecasted demand. If demand proves to be less than we originally forecasted, our manufacturing partners have the right to require us to purchase any excess or obsolete inventory. Should we be required to purchase inventory pursuant to these provisions, we may be required to expend large sums of cash for inventory that we may never utilize. Such purchases could materially and adversely effect our financial position and our results of operations.

     Our recent hire of a new Chief Executive Officer and Chief Operating Officer may result in a change in strategy which may materially and adversely affect our business and results of operations, particularly in the near-term. We recently hired a new Chief Executive Officer in March 2003 and a new Chief Operating Officer in May 2003, as well as other senior management in July 2003. It will take some time for our new executives to learn about our various businesses and to develop strong working relationships with our operating managers. To the extent we decide to change our strategy as a result of these hires, our business and results of operations may be materially and adversely affected, particularly in the near-term.

     Oil and gas companies and geophysical contractors will reduce demand for our products if there is further reduction in the level of exploration expenditures. Demand for our products is particularly sensitive to the level of exploration spending by oil and gas companies and geophysical contractors. Exploration expenditures have tended in the past to follow trends in the price of oil and gas, which have fluctuated widely in recent years in response to relatively minor changes in supply and demand for oil and gas, market uncertainty and a variety of other factors beyond our control. Any prolonged reduction in oil and gas prices will depress the level of exploration activity and correspondingly depress demand for our products. A prolonged downturn in market demand for our products will have a material adverse effect on our results of operations and financial condition.

     We derive a substantial amount of our revenues from foreign sales, which pose additional risks. Sales to customers outside of North America accounted for approximately 78% of our consolidated net sales for the six months ended June 30, 2003. As Western contractors have announced plans to curtail operations, we believe that export sales will remain a significant percentage of our revenue. United States export restrictions affect the types and specifications of products we can export. Additionally, to complete certain sales, United States laws may require us to obtain export licenses and there can be no assurance that we will not experience

20

difficulty in obtaining such licenses. Operations and sales in countries other than the United States are subject to various risks peculiar to each country. With respect to any particular country, these risks may include:

• expropriation and nationalization;

• political and economic instability;

• armed conflict and civil disturbance;

• currency fluctuations, devaluations and conversion restrictions;

• confiscatory taxation or other adverse tax policies;

• governmental activities that limit or disrupt markets, restrict payments or the movement of funds; and

• governmental activities that may result in the deprivation of contractual rights.

     The majority of our foreign sales are denominated in United States dollars. An increase in the value of the dollar relative to other currencies will make our products more expensive, and therefore less competitive, in foreign markets.

     In addition, we are subject to taxation in many jurisdictions and the final determination of our tax liabilities involves the interpretation of the statutes and requirements of taxing authorities worldwide. Our tax returns are subject to routine examination by taxing authorities, and these examinations may result in assessments of additional taxes, penalties and/or interest.

     The rapid pace of technological change in the seismic industry requires us to make substantial research and development expenditures and could make our products obsolete. The markets for our products are characterized by rapidly changing technology and frequent product introductions. We must invest substantial capital to maintain our leading edge in technology with no assurance that we will receive an adequate rate of return on such investments. If we are unable to develop and produce successfully and timely new and enhanced products, we will be unable to compete in the future and our business and results of operations will be materially and adversely affected.

     Competition from sellers of seismic data acquisition systems and equipment is intensifying and could adversely affect our results of operations. Our industry is highly competitive. Our competitors have been consolidating into better-financed companies with broader product lines. Certain of our competitors are affiliated with seismic contractors, which forecloses a portion of the market to us. Some of our competitors have greater name recognition, more extensive engineering, manufacturing and marketing capabilities, and greater financial, technical and personnel resources than those available to us.

     Our competitors have expanded or improved their product lines, which has adversely affected our results of operations. For instance, one competitor introduced a lightweight land seismic system that we believe has made our current land system more difficult to sell at acceptable margins. In addition, one of our competitors introduced a marine solid streamer product that competes with our oil-filled product. Our net sales of marine streamers have been, and will continue to be, adversely affected by customer preferences for solid products.

     Further consolidation among our significant customers could materially and adversely affect us. Historically, a relatively small number of customers have accounted for the majority of our net sales in any period. In recent years, our customers have been rapidly consolidating, shrinking the demand for our products. The loss of any of our significant customers to further consolidation or otherwise could materially and adversely affect our results of operations and financial condition.

     Large fluctuations in our sales and gross margin can result in operating losses. Because our products have a high sales price and are technologically complex, we experience a very long sales cycle. In addition, the revenues from any particular sale can vary greatly from our expectations due to changes in customer requirements. These factors create substantial fluctuations in our net sales from period to period. Variability in our gross margins compound the uncertainty associated with our sales cycle. Our gross margins are affected by the following factors:

• pricing pressures from our customers and competitors;

• product mix sold in a period;

• inventory obsolescence;

21

• unpredictability of warranty costs;

• changes in sales and distribution channels;

• availability and pricing of raw materials and purchased components; and

• absorption of manufacturing costs through volume production.

     We must establish our expenditure levels for product development, sales and marketing and other operating expenses based, in large part, on our forecasted net sales and gross margin. As a result, if net sales or gross margins fall below our forecasted expectations, our operating results and financial condition are likely to be adversely affected because not all of our expenses vary with our revenues.

     We may be unable to obtain broad intellectual property protection for our current and future products, which may significantly erode our competitive advantages. We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technologies. We believe that the technological and creative skill of our employees, new product developments, frequent product enhancements, name recognition and reliable product maintenance are the foundations of our competitive advantage. Although we have a considerable portfolio of patents, copyrights and trademarks, these property rights offer us only limited protection. Our competitors may attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may design around the proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult and we are unable to determine the extent to which such use occurs. Our difficulties are compounded in certain foreign countries where the laws do not offer as much protection for proprietary rights as the laws of the United States.

     We are not aware that our products infringe upon the proprietary rights of others. However, third parties may claim that we have infringed upon their intellectual property rights. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing arrangements. Such claims could have a material adverse affect on our results of operations and financial condition.

     Significant payment defaults under extended financing arrangements could adversely affect us. We often sell to customers on extended-term arrangements. Significant payment defaults by customers could have a material adverse effect on our financial position and results of operations.

     Our operations are subject to numerous government regulations, which could adversely limit our operating flexibility. Our operations are subject to laws, regulations, government policies and product certification requirements worldwide. Changes in such laws, regulations, policies or requirements could affect the demand for our products or result in the need to modify products, which may involve substantial costs or delays in sales and could have an adverse effect on our future operating results. Certain countries are subject to restrictions, sanctions and embargoes imposed by the United States government. These restrictions, sanctions and embargoes prohibit or limit us from participating in certain business activities in those countries. In addition, changes in governmental regulations applicable to our customers may reduce demand for our products. For instance, recent regulations regarding the protection of marine mammals in the Gulf of Mexico may reduce demand for our airguns and other marine products.

     Disruption in vendor supplies will adversely affect our results of operations. Our manufacturing processes require a high volume of quality components. Certain components used by us are currently provided by only one supplier. We may, from time to time, experience supply or quality control problems with suppliers, and these problems could significantly affect our ability to meet production and sales commitments. Reliance on certain suppliers, as well as industry supply conditions generally involve several risks, including the possibility of a shortage or a lack of availability of key components and increases in component costs and reduced control over delivery schedules; any of these could adversely affect our future results of operations.

     NOTE: THE FOREGOING REVIEW OF FACTORS PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SHOULD NOT BE CONSTRUED AS EXHAUSTIVE. IN ADDITION TO THE FOREGOING, WE WISH TO REFER READERS TO OTHER FACTORS DISCUSSED ELSEWHERE IN THIS REPORT AS WELL AS OTHER FILINGS AND REPORTS WITH THE SEC FOR A FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE TO REFLECT THE EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

22

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

     We may, from time to time, be exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. The Company traditionally has not entered into significant derivative or other financial instruments. We are not currently a borrower under any material credit arrangements which feature fluctuating interest rates. Market risk could arise from changes in foreign currency exchange rates.

     As part of the repurchase of the Company’s outstanding Preferred Stock, the Company granted warrants to purchase 2,673,517 shares of the Company’s common stock at $8.00 per share through August 5, 2005. A $1 increase in the Company’s common stock price at June 30, 2003, would have increased the fair value of warrants resulting in an increase to the Company’s net loss of approximately $1.4 million or (.03) per common share. A $1 decrease in the Company’s common stock price at June 30, 2003, would have decreased the fair value of warrants resulting in a decrease to the Company’s net loss of approximately $1.2 million or $.02 per common share. The fair value of the warrants was determined using the Black-Scholes valuation model. The key variables used in valuing the warrants were as follows: risk-free rate of return of Treasury notes having an approximate duration of the remaining term of the warrants and expected stock price volatility of 60%.

ITEM 4. Controls and Procedures

     Our Chief Executive Officer and Chief Administrative Officer (the “Certifying Officers”) have evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and Rule 15d-14(c) under the Exchange Act) as of August 7, 2003 and concluded that those disclosures controls and procedures are effective.

     The Certifying Officers have indicated that there have been no significant changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation, nor any corrective actions with regard to significant deficiencies and material weaknesses.

     While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area.

PART II — OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders

     We held our annual meeting of stockholders in Stafford, Texas on June 11, 2003. The following sets forth matters submitted to a vote of stockholders at the annual meeting:

(a) Two directors were elected to our Board of Directors, each to serve until our annual meeting in 2006 and until their successors have been elected and qualified. The following two individuals were elected to the Board of Directors by the holders of our common stock:

Nominee	For		Withheld
Theodore H. Elliott, Jr.		46,952,033		1,387,876
James M. Lapeyre, Jr.		42,410,919		5,928,990

(b)	The stockholders approved the Input/Output, Inc. 2003 Stock Option Plan by a vote of 43,410,919 shares, with 5,206,088 shares voting against, and 43,668 shares abstaining.
(c)	The stockholders ratified the appointment of PricewaterhouseCoopers LLP to audit our financial statements for the year ending December 31, 2003 by a vote of 46,970,908 shares, with 1,347,242 shares voting against, and 21,759 shares abstaining.

23

ITEM 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits.

EXHIBIT
NUMBER	DESCRIPTION
10.28	Employment Agreement by and between the Company and Jorge Machnizh dated
	as of April 23, 2003.
31.1	Certification of Robert P. Peebler, President and Chief Executive Officer,
	under Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Brad Eastman, Vice President, Chief Administrative Officer
	and Secretary, under Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Robert P. Peebler, President and Chief Executive Officer,
	under Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Brad Eastman, Vice President, Chief Administrative Officer
	and Secretary, under Section 906 of the Sarbanes-Oxley Act.

     (b)  Reports on Form 8-K.

     On April 17, 2003, we filed a Current Report on Form 8-K reporting under Item 5. Other Events and Regulation FD Disclosure the completion of the previously announced transaction to invest $3.0 million in Series B Preferred securities of Energy Virtual Partners, LP and its affiliated corporation (together, “EVP”).

     On April 25, 2003, we filed a Current Report on Form 8-K reporting under Item 7. Financial Statements and Exhibits and Item 9. Information Provided under Item 12 (Results of Operations and Financial Condition) the issuance of a press release announcing financial results for the fiscal quarter ended March 31, 2003.

     On May 13, 2003, we filed a Current Report on Form 8-K reporting under Item 7. Financial Statements and Exhibits and Item 9. Information Provided under Item 12 (Results of Operations and Financial Condition) the issuance of a press release re-announcing financial results for the fiscal quarter ended March 31, 2003.

24

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Stafford, State of Texas, on August 7, 2003.

INPUT/OUTPUT, INC

By /s/ ROBERT P. PEEBLER
President and Chief Executive Officer

25

EXHIBIT INDEX

EXHIBIT
NUMBER	DESCRIPTION
10.28	Employment Agreement by and between the Company and Jorge Machnizh, dated
	as of April 23, 2003.
31.1	Certification of Robert P. Peebler, President and Chief Executive Officer,
	under Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Brad Eastman, Vice President, Chief Administrative Officer
	and Secretary, under Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Robert P. Peebler, President and Chief Executive Officer,
	under Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Brad Eastman, Vice President, Chief Administrative Officer
	and Secretary, under Section 906 of the Sarbanes-Oxley Act.

EX-10.28

EXHIBIT 10.28

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is made and entered into by and between Input/Output, Inc., a Delaware corporation (hereinafter referred to as “Employer”), and Jorge Machnizh, an individual currently resident in Harris County, Texas (hereinafter referred to as “Employee”), effective as of April 23, 2003 (the “Effective Date”).

WITNESSETH:

     WHEREAS, attendant to Employee’s employment by Employer, Employer and Employee wish for there to be a complete understanding and agreement between Employer and Employee with respect to, among other terms, Employee’s duties and responsibilities to Employer; the compensation and benefits owed to Employee; the fiduciary duties owed by Employee to Employer; Employee’s obligation to avoid conflicts of interest, disclose pertinent information to Employer, and refrain from using or disclosing Employer’s information;

     WHEREAS, Employer considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing its best interests and the best interests of its stockholders;

     WHEREAS, the Board of Directors of Employer (the “Board”) has determined that appropriate steps should be taken to encourage the continued attention and dedication of members of Employer’s management; and

     WHEREAS, Employer and Employee wish to enter into this Agreement;

     NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee agree as follows:

Section 1. General Duties of Employer and Employee.

     (a)  Employer agrees to employ Employee and Employee agrees to accept employment by Employer and to serve Employer in an executive capacity as its Executive Vice President and Chief Operating Officer. At the commencement of this Agreement, Employee will report to the Chief Executive Officer of Employer. The powers, duties and responsibilities of Employee as Executive Vice President and Chief Operating Officer include those duties that are the usual and customary powers, duties and responsibilities of such office, including those powers, duties and responsibilities specified in Employer’s Bylaws, and such other and further duties appropriate to such position as may from time to time be assigned to Employee by the Chief Executive Officer of Employer or the Board.

-1-

     (b)  While employed hereunder, Employee will devote substantially all reasonable and necessary time, efforts, skills and attention for the benefit of and with Employee’s primary attention to the affairs of Employer in order that he or she may faithfully perform his or her duties and obligations. The preceding sentence will not, however, be deemed to restrict Employee from attending to matters or engaging in activities not directly related to the business of Employer, provided that (i) such activities or matters are reasonable in scope and time commitment and not otherwise in violation of this Agreement, and (ii) Employee will not become a director or officer of (or hold any substantially similar responsibility with) any corporation or other entity (excluding charitable or other non-profit organizations) without prior written disclosure to, and consent of, Employer.

     (c)  At the commencement of Employee’s employment by Employer, Employee will be based at Employer’s corporate headquarters located at 12300 Parc Crest Drive, Stafford, Texas 77008 (the “Place of Employment”).

     (d)  Employee agrees and acknowledges that as an officer and employee of Employer, and consistent with the terms hereof, he or she owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer and to do no act knowingly which would injure Employer’s business, its interests or its reputation.

Section 2. Compensation and Benefits.

     (a)  Employer will pay to Employee during the term of this Agreement a base salary at the rate of $265,000 per annum (such base salary as increased by the Compensation Committee of the Board as hereinafter provided is referred to herein as the “Base Salary”). The Compensation Committee of the Board will review the Base Salary from time to time and, during the term of this Agreement, may increase, but may not decrease, the Base Salary. The Base Salary will be paid to Employee in equal installments every two weeks or on such other schedule as Employer may establish from time to time for its management personnel.

     (b)  Employee will be eligible to participate in Employer’s Incentive Compensation Plan for the fiscal year 2003 with a target of 65% and a maximum of 100% of Employee’s Base Salary. Any such bonus paid to Employee will not be prorated for the portion of fiscal year 2003 actually worked by Employee. There will be a minimum bonus of $60,000 for the fiscal year 2003. During each subsequent fiscal year during the term of this Agreement, Employee will be eligible, in the Board’s sole discretion, to participate in that year’s Incentive Compensation Plan or other replacement incentive or bonus plan Employer establishes for its key executives.

     (c) Employee will be eligible for option grants to purchase shares of Employer’s common stock, $.01 par value (“Common Stock”), or other equity securities of Employer as provided under Employer’s 2000 Long-Term Incentive Plan (or other stock option plan or plans Employer establishes for its key executives); such grants to be made in the sole discretion of the Board or a duly authorized committee of the Board.

-2-

     (d)  Employee will be eligible to participate in Employer’s Deferred Compensation Plan (or any replacement deferred compensation plan Employer establishes for its key executives).

     (e)  Effective on the date hereof, without any requirement to accrue, Employee will be entitled to paid vacation of not less than three (3) weeks each year. Vacation may be taken by Employee at the time and for such periods as may be mutually agreed upon between Employer and Employee.

     (f)  Employee will be reimbursed in accordance with Employer’s normal expense reimbursement policy for all of the actual and reasonable costs and expenses incurred by him or her in the performance of his or her services and duties hereunder, including, but not limited to, travel and entertainment expenses. Employee will furnish Employer with all invoices and vouchers reflecting amounts for which Employee seeks Employer’s reimbursement.

     (g)  Employee will be entitled to participate in all insurance and retirement plans, incentive compensation plans (at a level appropriate to his or her position) and such other benefit plans or programs as may be in effect from time to time for the key management employees of Employer including, without limitation, those related to savings and thrift, retirement, welfare, medical, dental, disability, salary continuance, accidental death, travel accident, life insurance, incentive bonus, membership in business and professional organizations, and reimbursement of business and entertainment expenses. Specifically, Employee will be entitled to participate in the Input/Output, Inc. Deferred Compensation Plan as long as it is made available to other key management employees.

     (h)  Employer, during the term of this Agreement and thereafter without limit of time, will indemnify Employee for claims and expenses to the extent provided in Employer’s Certificate of Incorporation and Bylaws. Employer will also provide Employee coverage under Employer’s policy or policies of directors’ and officers’ liability insurance to the same extent as other executive officers of Employer during the term of this Agreement.

     (i)  All Base Salary, bonus and other payments made by Employer to Employee pursuant to this Agreement will be subject to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of Employer for insurance and other employee benefit plans in which Employee participates.

Section 3. Fiduciary Duty; Confidentiality.

     (a)  In keeping with Employee’s fiduciary duties to Employer, Employee agrees that he or she will not knowingly take any action that would create a conflict of interest with Employer, or upon discovery thereof, allow such a conflict to continue. In the event that Employee discovers that such a conflict exists, Employee agrees that he or she will disclose to the Board any facts which might involve a conflict of interest that has not been approved by the Board.

-3-

     (b)  As part of Employee’s fiduciary duties to Employer, Employee agrees to protect and safeguard Employer’s information, ideas, concepts, improvements, discoveries, and inventions and any proprietary, confidential and other information relating to Employer or its business (collectively, “Confidential Information”) and, except as may be required by Employer, Employee will not knowingly, either during his or her employment by Employer or thereafter, directly or indirectly, use for his or her own benefit or for the benefit of another, or disclose to another, any Confidential Information, except (i) with the prior written consent of Employer; (ii) in the course of the proper performance of Employee’s duties under this Agreement; (iii) for information that becomes generally available to the public other than as a result of the unauthorized disclosure by Employee; (iv) for information that becomes available to Employee on a nonconfidential basis from a source other than Employer or its affiliated companies who is not bound by a duty of confidentiality to Employer; or (v) as may be required by any applicable law, rule, regulation or order.

     (c)  Upon termination of his or her employment with Employer, Employee will immediately deliver to Employer all documents in Employee’s possession or under his or her control which embody any of Employer’s Confidential Information.

     (d)  In addition to the foregoing provisions of this Section 3, and effective as of the Effective Date, Employee reaffirms the duties imposed upon Employee by that certain Employee Proprietary Information Agreement dated as of April 23, 2003 by and between Employer and Employee.

     (e)  Employee will comply with Employer’s Code of Ethics issued on February 4, 2003, and any amendments or replacement policies adopted by the Board (the “Code of Ethics”).

Section 4. Term of Agreement; At-Will Employment.

     The term of this Agreement will commence effective as of the Effective Date, and, subject to the terms and conditions hereof, will continue for a two-year period ending on May 12, 2006, and thereafter, the term will be automatically extended for successive periods of one year unless prior to the end of the original two-year period (or, if applicable, any such one-year period), Employer gives Employee at least ninety (90) days prior written notice that Employer has decided not to extend the term of this Agreement. Notwithstanding any provision contained herein to the contrary, Employee acknowledges that his or her employment with Employer is at will and that Employer may terminate his or her employment at any time and for any reason or for no reason at the discretion of Employer, but subject to any rights Employee has under Sections 5, 6 and 8 of this Agreement.

-4-

Section 5. Termination.

     (a)  Employee’s employment with Employer hereunder will terminate upon the first to occur of the following:

     (1) The death or “Disability” (as defined in Section 5(b) hereof) of Employee;

     (2) Employer terminates such employment for “Cause” (as defined in Section 5(c) hereof);

     (3) Employee terminates such employment for “Good Reason” (as defined in Section 5(d) hereof);

     (4) Employer terminates such employment for any reason other than Cause, or for no reason at all;

     (5) Employee terminates such employment for any reason other than Good Reason, or for no reason at all; or

     (6) Employee’s sixty-fifth (65th) birthday, at which time Employee will continue to be employed by Employer as an employee at will.

     (b)  As used in this Agreement, “Disability” means permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision) which has existed for at least 180 consecutive days.

     (c)  As used in this Agreement, “Cause” means:

     (1) the willful and continued failure by Employee to substantially perform his or her obligations under this Agreement (other than any such failure resulting from his or her Disability) after a written demand for substantial performance has been delivered to him or her by the Board which specifically identifies the manner in which the Board believes Employee has not substantially performed such provisions and Employee has failed to remedy the situation within ten (10) days after such demand or a willful and material violation of the Employer’s Code of Ethics;

     (2) Employee’s willfully engaging in conduct materially and demonstrably injurious to the property or business of Employer, including without limitation, fraud, misappropriation of funds or other property of Employer, , gross negligence that is materially injurious to the property or business of Employer, or conviction of a felony or any crime of moral turpitude; or

-5-

     (3) Employee’s material breach of this Agreement which breach has not been remedied by Employee within ten (10) days after receipt by Employee of written notice from Employer that he or she is in material breach of the Agreement, specifying the particulars of such breach.

For purposes of this Agreement, no act, or failure to act, on the part of Employee shall be deemed “willful” or engaged in “willfully” if it was due primarily to an error in judgment or negligence, but shall be deemed “willful” or engaged in “willfully” only if done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in the best interest of Employer. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated as a result of “Cause” hereunder unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to Employee and an opportunity for Employee, together with his or her counsel, to be heard before the Board), finding that, in the good faith opinion of the Board of Directors, Employee has committed an act set forth above in this Section 5(c) and specifying the particulars thereof in detail. Nothing herein shall limit the right of Employee or his or her legal representatives to contest the validity or propriety of any such determination.

     (d)  As used in this Agreement, “Good Reason” means:

     (1) Employer’s failure to comply with any of the provisions of Section 2 of this Agreement (including, but not limited to, such a failure resulting from any reduction in the Base Salary) which failure is not remedied within ten (10) days after receipt of written notice from Employee specifying the particulars of such breach;

     (2) Employer’s breach of any other material provision of this Agreement which is not remedied within ten (10) days after receipt by Employer of written notice from Employee specifying the particulars of such breach;

     (3) the assignment to Employee of any duties materially inconsistent with Employee’s position, duties, functions, responsibilities or authority as contemplated by Section 1 of this Agreement; or

     (4) the relocation of Employee’s principal place of performance of his or her duties and responsibilities under this Agreement to a location more than fifty miles (50) miles from the Place of Employment;

     (5) Any failure by Employer to comply with Section 11(c); or

     (6) Any purported termination of Employee’s employment by Employer which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 5(e) hereof (and for purposes of this Agreement, no such purported termination shall be effective).

-6-

     (e)  Any termination by Employer or Employee of Employee’s employment with Employer (other than any such termination occurring on Employee’s sixty-fifth (65th) birthday) shall be communicated by written notice (a “Notice of Termination”) to the other party that shall:

     (1) indicate the specific provision of this Agreement relied upon for such termination;

     (2) indicate the specific provision of this Agreement pursuant to which Employee is to receive compensation and other benefits as a result of such termination; and

     (3) otherwise comply with the provisions of this Section 5(e) and Section 13(a).

If a Notice of Termination states that Employee’s employment with Employer has been terminated as a result of Employee’s Disability, the notice shall (i) specifically describe the basis for the determination of Employee’s Disability, and (ii) state the date of the determination of Employee’s Disability, which date shall be not more than ten (10) days before the date such notice is given. If the notice is from Employer and states that Employee’s employment with Employer is terminated by Employer as a result of the occurrence of Cause, the Notice of Termination shall specifically describe the action or inaction of Employee that Employer believes constitutes Cause and shall be accompanied by a copy of the resolution satisfying Section 5(c). If the Notice of Termination is from Employee and states that Employee’s employment with Employer is terminated by Employee as a result of the occurrence of Good Reason, the Notice of Termination shall specifically describe the action or inaction of Employer that Employee believes constitutes Good Reason. Any purported termination by Employer of Employee’s employment with Employer shall be ineffective unless such termination shall have been communicated by Employer to Employee by a Notice of Termination that meets the requirements of this Section 5(e) and the provisions of Section 13(a).

     (f)  As used in this Agreement, “Date of Termination” means:

     (1) if Employee’s employment with Employer is terminated for Disability, sixty (60) days after Notice of Termination is received by Employee or any later date specified therein, provided that within such sixty (60) day period Employee shall not have returned to full-time performance of Employee’s duties;

     (2) if Employee’s employment with Employer is terminated as a result of Employee’s death, the date of death of Employee;

-7-

     (3) if Employee’s employment with Employer is terminated for Cause, the date Notice of Termination, accompanied by a copy of the resolution satisfying Section 5(c), is received by Employee or any later date specified therein, provided that Employer may, in its discretion, condition Employee’s continued employment upon such considerations or requirements as may be reasonable under the circumstances and place a reasonable limitation upon the time within which Employee will comply with such considerations or requirements;

     (4) if Employee’s employment with Employer is terminated upon the occurrence of Employee’s sixty-fifth (65th) birthday, the date of such birthday, at which time Employee will continue to be employed by Employer as an employee at will; or

     (5) if Employee’s employment with Employer is terminated for any reason other than Employee’s Disability, Employee’s death, Cause or the occurrence of Employee’s sixty-fifth (65th) birthday, or for no reason, the date that is fourteen (14) days after the date of receipt of the Notice of Termination.

Section 6. Effect of Termination of Employment.

     (a)  Upon termination of Employee’s employment by Employer for Cause, or by Employee for no reason or any reason other than Good Reason, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination, (ii) as provided in Section 10, (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; and (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan.

     (b) Upon termination of Employee’s employment due to the death of Employee or upon termination by Employer due to the Disability of Employee, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination, (ii) as provided in Section 10, (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; and (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan.

-8-

     (c)  Upon termination of this Agreement due to Employee’s reaching his or her sixty-fifth (65th) birthday, Employee will continue to be employed by Employer as an employee at will.

     (d)  If Employee’s employment with Employer is terminated (i) by Employer for no reason or for any reason other than Cause, the death or Disability of Employee, or Employee’s reaching his or her sixty-fifth (65th) birthday, or (ii) by Employee for Good Reason, the obligations of Employer and Employee under Sections 1 and 2 will terminate as of the Date of Termination, and Employer will pay or provide to Employee the following:

     (1) Employee’s Base Salary through the Date of Termination;

     (2) incentive compensation due Employee, if any, under the terms of the relevant incentive compensation arrangement, which, in the absence of any agreement to the contrary, shall be the pro rata amount due to Employee based on payments that would be due if Employee had remained employed by Employer for the full fiscal year;

     (3) during the eighteen-month period following the Date of Termination, Employer shall pay to Employee an aggregate amount (the “Severance Payment”) equal to (i) one and one/half times (1.5x) Employee’s Base Salary at the highest annual rate in effect on or before the Date of Termination (but prior to giving effect to any reduction therein which precipitated such termination) plus (ii) Employee’s bonus payment, if any, made in the fiscal year prior to the year in which the Date of Termination occurs, which Severance Payment will be paid to Employee in eighteen (18) equal monthly installments during such one-year period; and

     (4) if immediately prior to the Date of Termination, Employee (and, if applicable, his or her spouse and/or dependents) was covered under Employer’s group medical, dental, health and hospital plan in effect at such time, then Employer shall provide to Employee for eighteen (18) months after the Date of Termination, and provided that Employee has timely elected under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to continue coverage under such plan, Employer will, at no greater cost or expense to Employee than was the case immediately prior to the Date of Termination, maintain such continued coverage in full force and effect.

Except as otherwise provided above and in Sections 7and 10, all other compensation and benefits will cease upon the Date of Termination other than the following: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination, (ii) any rights Employee or his survivors may have under any grants of options to purchase Employer’s

-9-

Common Stock, restricted stock grants, performance share grants, or other similar equity compensation plans; and (iii) medical and similar benefits the continuation of which is required by applicable law or as provided by the applicable benefit plan. As a condition to making the payments and providing the benefits specified in this Section 6(d), Employer will require that Employee execute a release of all claims Employee may have against Employer at the time of Employee’s termination. Such release will be in substantially the same form as Exhibit A attached hereto.

     (e)  If (i) a “Change in Control” (as defined in Section 6(f) hereof) shall have occurred, the following shall occur immediately upon the occurrence of such Change in Control:

     (1) each option to acquire Common Stock or other equity securities of Employer held by Employee immediately prior to such Change in Control issued to Employee in conjunction with or after Employee accepted employment with Employer shall accelerate and become fully vested and exercisable, regardless of whether or not the vesting conditions set forth in the relevant stock option agreement have been satisfied, and shall remain fully exercisable for a one-year period following the Date of Termination consistent with Section 5(e) hereof; and

     (2) all restrictions on any restricted Common Stock or other equity securities of Employer granted to Employee prior to such Change in Control shall be removed and such Common Stock or other equity securities shall be freely transferable (subject to applicable securities laws), regardless of whether the conditions set forth in the relevant restricted stock agreements have been satisfied in full.

     (f)  For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

     (1) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), or any successor statute) (a “Covered Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of Common Stock (the “Outstanding Company Common Stock”), or (ii) the combined voting power of the then outstanding voting securities of Employer entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Section 6(f)(1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Employer or any subsidiary of Employer, (ii) any acquisition by Employer or any subsidiary of Employer, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Employer or any entity controlled by Employer, or (iv) any

-10-

acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving Employer (a “Merger”), if, following such Merger, the conditions described in Section 6(f)(3)(i) and(ii) are satisfied; or

     (2) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by Employer’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (a solicitation by any person or group of persons for the purpose of opposing a solicitation of proxies or consents by the Board with respect to the election or removal of Directors at any annual or special meetings of stockholders) or other actual or threatened solicitation of proxies or consents by or on behalf of a Covered Person other than the Board; or

     (3) Approval by the stockholders of Employer of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to the Merger beneficially own, directly or indirectly, more than 50% of the common stock of the corporation resulting from such Merger (or its parent corporation) in substantially the same proportion as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Merger (or its parent corporation) were members of the Incumbent Board at the time of the execution of the initial agreement providing for such Merger; or

     (4) the sale or other disposition of all or substantially all of the assets of Employer.

Section 7. Excise Tax.

     (a)  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by, or benefit from, Employer or any of its affiliates to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (any such payments, distributions or benefits being individually referred to herein as a “Payment,” and any two or more of such payments, distributions or benefits being referred to herein as “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code (such excise tax, together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such excise tax, and any interest in respect of such penalties, additions to tax or additional amounts, being

-11-

collectively referred herein to as the “Excise Tax”), then Employee shall be entitled to receive an additional payment or payments (individually referred to herein as a “Gross-Up Payment” and any two or more of such additional payments being referred to herein as “Gross-Up Payments”) in an amount such that after payment by Employee of all taxes (as defined in Section 7(i)) imposed upon the Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (b)  Subject to the provisions of Section 7(c) through (i), any determination (individually, a “Determination”) required to be made under this Section 7(b), including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall initially be made, at Employer’s expense, by nationally recognized tax counsel selected by Employer (“Tax Counsel”). Tax Counsel shall provide detailed supporting legal authorities, calculations, and documentation both to Employer and Employee within 15 business days of the termination of Employee’s employment, if applicable, or such other time or times as is reasonably requested by Employer or Employee. If Tax Counsel makes the initial Determination that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments. Employee shall have the right to dispute any Determination (a “Dispute”). The Gross-Up Payment, if any, as determined pursuant to such Determination shall, at Employer’s expense, be paid by Employer to or for the benefit of Employee within five business days of Employee’s receipt of such Determination. The existence of a Dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with such Determination. If there is no Dispute, such Determination shall be binding, final and conclusive upon Employer and Employee, subject in all respects, however, to the provisions of Section 7(c) through (i) below. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that Gross-Up Payments (or portions thereof) which will not have been made by Employer should have been made (“Underpayment”), and if upon any reasonable written request from Employee or Employer to Tax Counsel, or upon Tax Counsel’s own initiative, Tax Counsel, at Employer’s expense, thereafter determines that Employee is required to make a payment of any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at Employer’s expense, determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Employer to or for the benefit of Employee.

     (c)  Employer shall defend, hold harmless, and indemnify Employee on a fully grossed-up after tax basis from and against any and all claims, losses, liabilities, obligations, damages, impositions, assessments, demands, judgments, settlements, costs and expenses (including reasonable attorneys’, accountants’, and experts’ fees and expenses) with respect to any tax liability of Employee resulting from any Final Determination (as defined in Section 7(h)) that any Payment is subject to the Excise Tax.

     (d)  If a party hereto receives any written or oral communication with respect to any question, adjustment, assessment or pending or threatened audit, examination,

-12-

investigation or administrative, court or other proceeding which, if pursued successfully, could result in or give rise to a claim by Employee against Employer under this Section 7 (“Claim”), including, but not limited to, a claim for indemnification of Employee by Employer under Section 7(c), then such party shall promptly notify the other party hereto in writing of such Claim (“Tax Claim Notice”).

     (e)  If a Claim is asserted against Employee (“Employee Claim”), Employee shall take or cause to be taken such action in connection with contesting such Employee Claim as Employer shall reasonably request in writing from time to time, including the retention of counsel and experts as are reasonably designated by Employer (it being understood and agreed by the parties hereto that the terms of any such retention shall expressly provide that Employer shall be solely responsible for the payment of any and all fees and disbursements of such counsel and any experts) and the execution of powers of attorney.

     (f)  Employer shall have the right to defend or prosecute, at the sole cost, expense and risk of Employer, such Employee Claim by all appropriate proceedings, which proceedings shall be defended or prosecuted diligently by Employer to a Final Determination; provided, however, that (i) Employer shall not, without Employee’s prior written consent, enter into any compromise or settlement of such Employee Claim that would adversely affect Employee, (ii) any request from Employer to Employee regarding any extension of the statute of limitations relating to assessment, payment, or collection of taxes for the taxable year of Employee with respect to which the contested issues involved in, and amount of, Employee Claim relate is limited solely to such contested issues and amount, and (iii) Employer’s control of any contest or proceeding shall be limited to issues with respect to Employee Claim and Employee shall be entitled to settle or contest, in his sole and absolute discretion, any other issue raised by the Internal Revenue Service or any other taxing authority. So long as Employer is diligently defending or prosecuting such Employee Claim, Employee shall provide or cause to be provided to Employer any information reasonably requested by Employer that relates to such Employee Claim, and shall otherwise cooperate with Employer and its representatives in good faith in order to contest effectively such Employee Claim. Employer shall keep Employee informed of all developments and events relating to any such Employee Claim (including, without limitation, providing to Employee copies of all written materials pertaining to any such Employee Claim), and Employee or his authorized representatives shall be entitled, at Employee’s expense, to participate in all conferences, meetings and proceedings relating to any such Employee Claim.

     (g)  In the case of any Employee Claim that is defended or prosecuted to a Final Determination pursuant to the terms of this Section 7(g), Employer shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim that have not theretofore been paid by Employer to Employee, together with the costs and expenses, on a fully grossed-up after tax basis, incurred in connection therewith that have not theretofore been paid by Employer to Employee, within ten calendar days after such Final Determination. In the case

-13-

of any Employee Claim not covered by the preceding sentence, Employer shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim at least ten calendar days before the date payment of such taxes is due from Employee, except where payment of such taxes is sooner required under the provisions of this Section 7(g), in which case payment of such taxes (and payment, on a fully grossed-up after tax basis, of any costs and expenses required to be paid under this Section 7(g)) shall be made within the time and in the manner otherwise provided in this Section 7(g).

     (h)  For purposes of this Agreement, the term “Final Determination” shall mean (A) a decision, judgment, decree or other order by a court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (B) a final and binding settlement or compromise with an administrative agency with appropriate jurisdiction, including, but not limited to, a closing agreement under Section 7121 of the Code; (C) any disallowance of a claim for refund or credit in respect to an overpayment of tax unless a suit is filed on a timely basis; or (D) any final disposition by reason of the expiration of all applicable statutes of limitations.

     (i)  For purposes of this Agreement, the terms “tax” and “taxes” mean any and all taxes of any kind whatsoever (including, but not limited to, any and all Excise Taxes, income taxes, and employment taxes), together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such taxes and any interest in respect of such penalties, additions to tax, or additional amounts.

Section 8. Expenses of Enforcement.

     Upon demand by Employee made to Employer, Employer shall reimburse Employee for the reasonable expenses (including attorneys’ fees and expenses) incurred by Employee after a Change in Control in enforcing or seeking to enforce the payment of any amount or other benefit to which Employee shall have become entitled under this Agreement as a result of the termination of Employee’s employment with Employer within two (2) years after the Employee’s Date of Termination, including, but not limited to, those incurred in connection with any arbitration concerning same initiated pursuant to Section 14 (regardless of the outcome of such arbitration). To the extent that any such reimbursement would be subject to the Excise Tax, then Employee shall be entitled to receive Gross-Up Payments in an amount such that after payment by Employee of all taxes imposed on such Gross-Up Payments, Employee retains an amount equal to the Excise Tax imposed upon the reimbursement, and the other provisions of Section 7 hereof shall also apply to such circumstance unless the context thereof otherwise indicates.

-14-

Section 9. No Obligation to Mitigate; No Rights of Offset.

     (a)  Employee shall not be required to mitigate the amount of any payment or other benefit required to be paid to Employee pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by Employee as a result of employment by another person.

     (b)  Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others.

Section 10. No Effect on Other Rights.

     Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any plan, program, policy or practice of or provided by Employer or any of its affiliates and for which Employee may qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have under any stock option or other agreements with Employer or any of its affiliates. Amounts which are vested benefits or which Employee is otherwise entitled to receive under any plan, program, policy or practice of or provided by, or any other contract or agreement with, Employer or any of its affiliates at or subsequent to the Date of Termination shall be payable or otherwise provided in accordance with such plan, program, policy or practice or contract or agreement except as explicitly modified by this Agreement.

Section 11. Successors; Binding Agreement.

     (a)  This Agreement is personal to Employee and without the prior written consent of Employer shall not be assignable by Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     (b)  This Agreement shall inure to the benefit of and be binding upon Employer and its successors and assigns.

     (c)  Employer will require any successor (whether direct or indirect, by purchase, merger, amalgamation, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by agreement in form and substance reasonably satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. As used in this Agreement, “Employer” shall mean Employer as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by execution and delivery of the agreement provided for in this Section 11(c) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law or otherwise.

-15-

Section 12. Non-Competition; Non-Solicitation; No Hire.

     (a)  Employee agrees that, effective as of the Effective Date and for a period of eighteen (18) months after the Date of Termination (such applicable period being referred to herein as the “Non-Compete Period”), Employee shall not, without the prior written consent of Employer, directly or indirectly, anywhere in the world, engage, invest, own any interest, or participate in, consult with, render services to, or be employed by any business, person, firm or entity that is in competition with the “Business” (as defined in Section 12(d)) of Employer or any of its subsidiaries or affiliates, except for the account of Employer and its subsidiaries and affiliates; provided, however, that during the Non-Compete Period Employee may acquire, solely as a passive investment, not more than five percent (5%) of the outstanding shares or other units of any security of any entity subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. Employee acknowledges that a remedy at law for any breach or attempted breach of this covenant not to compete will be inadequate and further agrees that any breach of this covenant not to compete will result in irreparable harm to Employer, and, accordingly, Employer shall, in addition to any other remedy that may be available to it, be entitled to specific performance and temporary and permanent injunctive and other equitable relief (without proof of actual damage or inadequacy of legal remedy) in case of any such breach or attempted breach. Employee acknowledges that this covenant not to compete is being provided as an inducement to Employer to enter into this Agreement and that this covenant not to compete contains reasonable limitations as to time, geographical area and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of Employer. Whenever possible, each provision of this covenant not to compete shall be interpreted in such a manner as to be effective and valid under applicable law but if any provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this covenant not to compete. If any provision of this covenant not to compete shall, for any reason, be judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this covenant not to compete but shall be confined in its operation to the provision of this covenant not to compete directly involved in the controversy in which such judgment shall have been rendered. In the event that the provisions of this covenant not to compete should ever be deemed to exceed the time or geographic limitations permitted by applicable laws, then such provision shall be reformed to the maximum time or geographic limitations permitted by applicable law.

     (b)  In addition to the restrictions set forth in Section 12(a), Employee agrees that, during the Non-Compete Period, Employee will not, either directly or indirectly, (i) make known to any person, firm or entity that is in competition with the Business of Employer or any of its subsidiaries or affiliates the names and addresses of any of the suppliers or customers of

-16-

Employer or any of its subsidiaries or affiliates, potential customers of Employer or any of its subsidiaries or affiliates upon whom Employer or any of its subsidiaries or affiliates has called upon in the last twelve (12) months or contacts of Employer or any of its subsidiaries or affiliates or any other information pertaining to such persons, or (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the suppliers or customers of Employer or any of its subsidiaries or affiliates, whether for Employee or for any other person, firm or entity.

     (c)  Regardless of the reason for any termination of Employee’s employment, effective as of the Effective Date and for eighteen (18) months following the Date of Termination, Employee will not, either on his or her own account or for any other person, firm, partnership, corporation, or other entity (i) solicit any employee of Employer or any of its subsidiaries or affiliates to leave such employment; or (ii) induce or attempt to induce any such employee to breach her or his employment agreement with Employer or any of its subsidiaries or affiliates.

     (d)  As used in this Agreement, “Business” means the business of design, manufacture, marketing and sale of equipment for seismic acquisition, processing and interpretation.

     (e)  In the event that Employee breaches or violates any of the terms and conditions of this Section 12 during the Non-Compete Period, then in addition to the other rights and remedies available to Employer hereunder and under Section 14 hereof, Employer’s obligations to pay to Employee any remaining installments of the Severance Payment otherwise due and owing pursuant to Section 6(d)(3) hereof, shall cease and terminate.

Section 13. Miscellaneous.

     (a)  All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith will be in writing and will be delivered by hand or by registered or certified mail, return receipt requested to the addresses set forth below in this Section 13(a):

If to Employer, to:

Input/Output, Inc.

12300 Parc Crest Drive

Stafford, TX 77477

Attention: General Counsel

If to Employee, to:

Jorge Machnizh

-17-

or to such other names or addresses as Employer or Employee, as the case may be, designate by notice to the other party hereto in the manner specified in this Section.

     (b)  This Agreement (including the Exhibit(s) attached hereto) supersedes, replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and Employer and constitutes the entire agreement between Employee and Employer with respect to the subject matter of this Agreement, except for (i) the Employee Proprietary Information Agreement referred to in Section 3(d) hereof, and (ii) the stock option, restricted stock award and other agreements of the nature contemplated under Section 8 hereof, each of which shall remain in full force and effect. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by the Board to execute such document.

     (c)  If any provision of this Agreement or application thereof to any one or under any circumstances should be determined to be invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. In addition, if any provision of this Agreement is held by an arbitration panel or a court of competent jurisdiction to be invalid, unenforceable, unreasonable, unduly restrictive or overly broad, the parties intend that such arbitration panel or court modify said provision so as to render it valid, enforceable, reasonable and not unduly restrictive or overly broad.

     (d)  The internal laws of the State of Texas will govern the interpretation, validity, enforcement and effect of this Agreement without regard to the place of execution or the place for performance thereof.

     (e)  The covenants, agreements, rights and obligations of Employer under this Agreement, and the covenants, agreements, rights and obligations of Employee under this Agreement, shall survive the termination of this Agreement for any reason including, but not limited to, the termination of Employee’s employment with Employer. All covenants, agreements, indemnities, warranties, rights and obligations contained herein shall continue for so long as necessary in order for Employer and Employee to enforce their rights hereunder.

Section 14. Arbitration.

     (a)  Employer and Employee agree to submit to final and binding arbitration any and all disputes or disagreements concerning the interpretation or application of this Agreement. Any such dispute or disagreement will be resolved by arbitration in accordance with

-18-

the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). Arbitration will take place in Houston, Texas, unless the parties mutually agree to a different location. Within 30 calendar days of the initiation of arbitration hereunder, each party will designate an arbitrator. The appointed arbitrators will then appoint a third arbitrator. Employee and Employer agree that the decision of the arbitrators will be final and binding on both parties. Any court having jurisdiction may enter a judgment upon the award rendered by the arbitrators. In the event the arbitration is decided in whole or in part in favor of Employee, Employer will reimburse Employee for his or her reasonable costs and expenses of the arbitration (including reasonable attorneys’ fees).

     (b)  Notwithstanding the provisions of Section 14(a), Employer may, if it so chooses, bring an action in any court of competent jurisdiction for injunctive relief to enforce Employee’s obligations under Sections 3(b), 3(c), 3(d), 3(e) and 12 hereof.

Section 15. Additional Agreements.

     Employer and Employee shall enter into that certain Restricted Stock Award Agreement in the form attached hereto as Exhibit A and that certain Incentive Agreement for Nonstatutory Stock Option in the form attached hereto as Exhibit B on Employee’s first date of employment with Employer.

SIGNATURES TO FOLLOW ON NEXT PAGE

-19-

     IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as to be effective as of the Effective Date.

EMPLOYER:

INPUT/OUTPUT, INC.

By: /s/ Robert P. Peebler

Chief Executive Officer

EMPLOYEE:

JORGE MACHNIZH

/s/ Jorge Machnizh

-20- EX-31.1 4 h08054exv31w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302

EXHIBIT 31.1

CERTIFICATIONS

I, Robert P. Peebler, certify that:

1.	I have reviewed this report on Form 10-Q of Input/Output, Inc.
2.	Based on my knowledge, this report does not contain any untrue statement of 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;
3.	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;
4.	The registrant’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:

a)	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 quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’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
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions):

a)	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’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Robert P. Peebler Robert P. Peebler President and Chief Executive Officer
Date: August 7, 2003

EX-31.2 5 h08054exv31w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302

EXHIBIT 31.2

CERTIFICATIONS

I, Brad Eastman, certify that:

1.	I have reviewed this report on Form 10-Q of Input/Output, Inc.
2.	Based on my knowledge, this report does not contain any untrue statement of 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;
3.	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;
4.	The registrant’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:

a)	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 quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’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
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions):

a)	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’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Brad Eastman Brad Eastman Vice President, Chief Administrative Officer and Secretary
Date: August 7, 2003

EX-32.1 6 h08054exv32w1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 906

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES — OXLEY ACT OF 2002

     In connection with the Quarterly Report of Input/Output, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert P. Peebler, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert P. Peebler
President and Chief Executive Officer
August 7, 2003

EX-32.2 7 h08054exv32w2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 906

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES — OXLEY ACT OF 2002

     In connection with the Quarterly Report of Input/Output, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brad Eastman, Vice President, Chief Administrative Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brad Eastman
Vice President, Chief Administrative Officer and Secretary
August 7, 2003

-----END PRIVACY-ENHANCED MESSAGE-----

EX-31.1

exv31w1

EX-31.2

exv31w2

EX-32.1

exv32w1

EX-32.2

exv32w2