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, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-12691

INPUT/OUTPUT, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE	22-2286646
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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 check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: x No: o

At July 30, 2004, there were 76,120,474 shares of common stock, par value $0.01 per share, outstanding.

INPUT/OUTPUT, INC. AND SUBSIDIARIES

TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2004

		PAGE
PART I.	Financial Information.
Item 1.	Unaudited Financial Statements.
	Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		3
	Consolidated Statements of Operations for the three and six months ended June 30, 2004 and June 30, 2003		4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and June 30, 2003		5
	Notes to Unaudited Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		30
Item 4.	Controls and Procedures		30
PART II.	Other Information.
Item 2.	Changes in Securities and Use of Proceeds		30
Item 4.	Submission of Matters to a Vote of Security Holders		30
Item 5.	Other Information		31
Item 6.	Exhibits and Reports on Form 8-K		31
GXT Employee Stock Option Plan
Executive Employment Agreement - Mike Lambert
First Amendment to Executive Employment Agreement
Second Amendment to Executive Employment Agreement
Employment Agreement - David L. Roland
Certification of CEO Pursuant to Rule 13a-14a/15d-14a
Certification of CFO Pursuant to Rule 13a-14a/15d-14a
Certification of CEO Pursuant to 18 U.S.C. Section 1350
Certification of CFO Pursuant to 18 U.S.C. Section 1350

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INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	June 30,			December 31,
	2004			2003
	(In thousands, except
	share data)
ASSETS
Current assets:
Cash and cash equivalents	$	36,065		$	59,507
Restricted cash		845			1,127
Accounts receivable, net		58,630			34,270
Current portion notes receivable, net		11,920			14,420
Unbilled revenue		9,791			—
Inventories		56,511			53,551
Prepaid expenses and other current assets		4,674			3,703
Total current assets		178,436			166,578
Notes receivable		5,264			6,409
Net assets held for sale		2,430			3,331
Property, plant and equipment, net		39,619			27,607
Multi-client data library, net		16,735			—
Deferred income taxes		1,149			1,149
Goodwill, net		148,270			35,025
Intangible and other assets, net		74,569			9,105
Total assets	$	466,472		$	249,204
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt and lease obligations	$	5,161		$	2,687
Accounts payable		23,035			12,531
Accrued expenses		28,956			15,833
Deferred revenue		13,134			2,060
Total current liabilities		70,286			33,111
Long-term debt and lease obligations, net of current maturities		79,976			78,516
Other long-term liabilities		3,625			3,813
Stockholders’ equity:
Common stock, $0.01 par value; authorized 100,000,000 shares; outstanding 76,086,775 shares at June 30, 2004 and 51,390,334 shares at December 31, 2003, net of treasury stock		770			522
Additional paid-in capital		472,389			296,663
Accumulated deficit		(154,909	)		(158,537	)
Accumulated other comprehensive income		579			1,292
Treasury stock, at cost, 791,869 shares at June 30, 2004 and 777,423 shares at December 31, 2003		(5,905	)		(5,826	)
Unamortized restricted stock compensation		(339	)		(350	)
Total stockholders’ equity		312,585			133,764
Total liabilities and stockholders’ equity	$	466,472		$	249,204

See accompanying Notes to Unaudited Consolidated Financial Statements.

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
	(In thousands, except share and per share data)
Net sales	$	62,326		$	34,562		$	98,614		$	75,739
Cost of sales		40,525			31,588			64,552			64,308
Gross profit		21,801			2,974			34,062			11,431
Operating expenses (income):
Research and development		5,380			4,955			9,456			10,473
Marketing and sales		5,016			3,025			8,314			5,836
General and administrative		5,852			5,362			10,545			9,427
Gain on sale of assets		(47	)		(82	)		(896	)		(37	)
Impairment of long-lived assets		—			—			—			1,120
Total operating expenses		16,201			13,260			27,419			26,819
Income (loss) from operations		5,600			(10,286	)		6,643			(15,388	)
Interest expense		(1,497	)		(843	)		(2,993	)		(2,188	)
Interest income		290			525			758			1,116
Fair value adjustment of warrant obligation		—			(1,712	)		—			(841	)
Impairment of investment		—			(2,036	)		—			(2,036	)
Other income		140			369			158			663
Income (loss) before income taxes		4,533			(13,983	)		4,566			(18,674	)
Income tax expense (benefit)		347			(297	)		938			291
Net income (loss)	$	4,186		$	(13,686	)	$	3,628		$	(18,965	)
Basic net income (loss) per common share	$	.07		$	(0.27	)	$	.07		$	(0.37	)
Weighted average number of common shares outstanding		57,073,916			51,231,189			54,596,409			51,213,041
Diluted net income (loss) per common share	$	.07		$	(0.27	)	$	.07		$	(0.37	)
Weighted average number of diluted common shares outstanding		71,425,088			51,231,189			55,004,577			51,213,041

See accompanying Notes to Unaudited Consolidated Financial Statements.

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

	Six Months Ended
	June 30,
	2004			2003
	(In thousands)
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to cash used in operating activities:
Net income (loss)	$	3,628		$	(18,965	)
Depreciation and amortization		6,421			6,609
Fair value adjustment of warrant obligation		—			841
Impairment of long-lived assets		—			1,120
Write-down of rental equipment		—			2,500
Impairment of investment in Energy Virtual Partners, Inc. (EVP)		—			2,036
Amortization of restricted stock		112			(259	)
Gain on sale of assets		(896	)		(37	)
Bad debt expense		297			288
Change in operating assets and liabilities:
Accounts and notes receivable		(18,924	)		(7,587	)
Unbilled revenue		(1,076	)		—
Inventories		(6,083	)		(474	)
Accounts payable and accrued expenses		7,148			(3,840	)
Deferred revenue		4,588			(3,005	)
Other assets and liabilities		473			2,839
Net cash used in operating activities		(4,312	)		(17,934	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(1,722	)		(2,337	)
Proceeds from the sale of assets		1,588			—
Proceeds from collection of long-term note receivable		5,800			—
Business acquisitions		(174,999	)		—
Cash of acquired businesses		2,193			—
Investment in and liquidation of EVP		117			(3,036	)
Net cash used in investing activities		(167,023	)		(5,373	)
Cash flows from financing activities:
Payments on notes payable, long-term debt and lease obligations		(2,165	)		(16,362	)
Proceeds from issuance of common stock		150,066			—
Proceeds from employee stock purchases and exercise of stock options		408			248
Purchase of treasury stock		(79	)		—
Net cash provided by (used in) financing activities		148,230			(16,114	)
Effect of change in foreign currency exchange rates on cash and cash equivalents		(337	)		1,364
Net decrease in cash and cash equivalents		(23,442	)		(38,057	)
Cash and cash equivalents at beginning of period		59,507			77,144
Cash and cash equivalents at end of period	$	36,065		$	39,087

See accompanying Notes to Unaudited Consolidated Financial Statements.

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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, 2003 has been derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 2004, the consolidated statements of operations for the three and six months ended June 30, 2004 and 2003, and the consolidated statements of cash flows for the six months ended June 30, 2004 and 2003, 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, 2004 are not necessarily indicative of the operating results for a full year or of future operations.

     On June 14, 2004, the Company acquired all of the equity interests in GX Technology Corporation, a Texas corporation (GXT), through a combination of cash and stock option value totaling approximately $151.0 million, including acquisition costs. GXT, headquartered in Houston, Texas, is a leading provider of seismic imaging technology data processing and subsurface imaging services to oil and gas companies. The Company has included in its results of operations the results of GXT from the date of its acquisition.

     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 (SEC). 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, 2003 (as amended by Forms 10-K/A). Certain amounts previously reported in the consolidated financial statements have been reclassified to conform to the current period’s presentation.

(2) Summary of Significant Accounting Policies

     Refer to the Company’s Annual Report on Form 10-K (as amended by Forms 10-K/A) for the year ended December 31, 2003 for a complete discussion of the Company’s significant accounting policies. There have been no material changes in the current period regarding the significant accounting policies. As a result of the acquisition of GXT, the Company has adopted the following accounting policies related to the capitalization and amortization of multi-client data libraries and revenue recognition for imaging services and multi-client surveys.

     Multi-Client Data Library — The multi-client data library consists of seismic surveys that are offered for licensing to customers on a nonexclusive basis. The capitalized costs include costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as imaging, salaries, benefits, and other costs incurred for seismic data project design and management.

     Costs are amortized using the greater of (i) the percentage of actual revenue to the total estimated revenue multiplied by the estimated total cost of the project or (ii) a straight-line basis over the useful economic life of the data.

     The Company forecasts the ultimate revenue expected to be derived from a particular data survey over its estimated useful economic life to determine the costs to amortize, if greater than straight-line amortization. That forecast is made by the Company at the project’s initiation and is reviewed and updated periodically. If, during any such review and update, the Company determines that the ultimate revenue for a survey is expected to be less than the original estimate of total revenue for such survey, the Company increases the amortization rate attributable to future revenue from such survey. In addition, in connection with such reviews and updates, the Company evaluates the recoverability of the multi-client data library, and, if required under SFAS No. 144 “Accounting for the Impairment and Disposal of Long-Lived Assets,” records an impairment charge with respect to such data.

     Revenue Recognition — Revenues for imaging services are recognized on the percentage of completion method. During the acquisition and processing phase of a multi-client survey, the Company recognizes pre-funding revenue based on the percentage of completion, similar to the method for imaging services. After completion of a multi-client survey, the Company recognizes revenue upon delivery of data to the customer.

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     The Company considers the percentage of completion method to be the best available measure of progress on these contracts. The percentage complete is assessed by measuring the actual progress to the estimated progress of the project. Accordingly, changes in job performance, job conditions, estimated profitability, contract price, cost estimates, and availability of human and computer resources are reviewed periodically as the work progresses and revisions to the percentage completion are reflected in the accounting period in which the facts require such adjustments become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The asset “Unbilled Revenues” represents revenues recognized in excess of amounts billed. The liability “Deferred Revenue” represents amounts billed in excess of revenues recognized.

(3) Stock-Based Compensation

     The Company has elected to continue to follow the intrinsic value method of accounting for equity-based compensation as prescribed by APB Opinion No. 25. If the Company had adopted Statement of Accounting Standards (SFAS) No. 123, net income (loss), basic net income (loss) per share and diluted net income (loss) per share for the periods presented would have changed as follows (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss)	$	4,186		$	(13,686	)	$	3,628		$	(18,965	)
Add: Stock-based employee compensation expense included in reported net income (loss) applicable to common shares		73			53			112			(259	)
Deduct: Stock-based employee compensation expense determined under fair value methods for all awards		(628	)		(907	)		(1,222	)		(1,236	)
Pro forma net income (loss)	$	3,631		$	(14,540	)	$	2,518		$	(20,460	)
Basic and diluted net income (loss) per common share – as reported	$	.07		$	(0.27	)	$	.07		$	(0.37	)
Pro forma basic and diluted net income (loss) per common share	$	.06		$	(0.28	)	$	.05		$	(0.40	)

     The above amounts are based on the Black-Scholes valuation model. The key variables used in valuing the options were as follows: average risk-free interest rate based on 5-year Treasury bonds, an estimated option term of five years, no dividends and expected stock price volatility of 60% during the three and six months ended June 30, 2004 and 2003.

(4) Segment and Geographic Information

     The Company evaluates and reviews results based on five segments (Land Imaging Systems, Marine Imaging Systems, Data Management Solutions, Seismic Imaging Solutions, and Corporate and Other) 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 income (loss) from operations.

     In June 2004, the Company acquired GXT and combined the operations of the Company’s existing Processing division with GXT to form the Seismic Imaging Solutions segment. Prior to December 31, 2003, the Company included the Processing division within the Land Imaging Systems segment due to its relatively low contribution margin to their operations. In February 2004, the Company acquired Concept Systems Holdings Limited (Concept Systems) and reports its results of operations and assets as the Data Management Solutions segment. See further discussion of the GXT and Concept acquisitions at Note 12 of Notes to Unaudited Consolidated Financial Statements. In addition, prior to June 30, 2004, the Company included its Applied MEMS division within the Land Imaging Systems segment due to its relatively insignificant results of operations. Beginning June 30, 2004, the Company has combined Applied MEMS within its Corporate and Other segment.

     A summary of segment information for the three and six months ended June 30, 2004 and 2003, reclassified for three and six months ended June 30, 2003 to reflect the Seismic Imaging Solutions segment and the combining of Applied MEMS within the Corporate and Other segment, is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Net sales:
Land Imaging Systems	$	36,637	$	22,183	$	57,275	$	53,165
Marine Imaging Systems		13,095		10,877		24,554		19,458

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Data Management Solutions		4,685			—			6,966			—
Seismic Imaging Solutions		7,672			1,284			9,179			2,732
Corporate and Other		237			218			640			384
Total	$	62,326		$	34,562		$	98,614		$	75,739
Income (loss) from operations:
Land Imaging Systems	$	5,948		$	(4,363	)	$	7,608		$	(2,542	)
Marine Imaging Systems		2,383			74			5,173			(1,803	)
Data Management Solutions		1,189			—			2,110			—
Seismic Imaging Solutions		2,615			(58	)		2,696			299
Corporate and Other		(6,535	)		(5,939	)		(10,944	)		(11,342	)
Total	$	5,600		$	(10,286	)	$	6,643		$	(15,388	)
Depreciation and amortization:
Land Imaging Systems	$	605		$	915		$	1,304		$	2,017
Marine Imaging Systems		577			695			1,133			1,607
Data Management Solutions		600			—			704			—
Seismic Imaging Solutions		1,305			178			1,491			342
Corporate and Other		912			1,247			1,789			2,643
Total	$	3,999		$	3,035		$	6,421		$	6,609

	June 30,		December 31,
	2004		2003
Total assets:
Land Imaging Systems	$	95,750	$	97,150
Marine Imaging Systems		69,191		63,423
Data Management Solutions		50,877		—
Seismic Imaging Solutions		192,766		8,133
Corporate and Other		57,888		80,498
Total	$	466,472	$	249,204
Total assets by geographic area:
North America	$	395,024	$	216,761
Europe		67,176		26,842
Middle East		4,272		5,601
Total	$	466,472	$	249,204

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
Europe	$	11,699	$	4,443	$	23,712	$	10,203
Asia Pacific		9,270		11,946		17,265		24,361
North America		12,076		6,715		19,382		16,989
Commonwealth of Independent States (CIS)		11,250		3,280		14,628		6,860
Middle East		8,226		6,061		10,721		6,434
Africa		4,504		147		6,710		3,181
Latin America		5,301		1,970		6,196		7,711
Total	$	62,326	$	34,562	$	98,614	$	75,739

     Net sales are attributed to geographical locations on the basis of the ultimate destination of the equipment or service, if known, or the geographical area processing and imaging services are provided. If the ultimate destination of such equipment is not known, net sales are attributed to the geographical location of initial shipment.

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(5) Accounts and Notes Receivable

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

	June 30,			December 31,
	2004			2003
Accounts receivable, principally trade	$	60,537		$	35,820
Allowance for doubtful accounts		(1,907	)		(1,550	)
Accounts receivable, net	$	58,630		$	34,270

     Approximately $4.5 million of the Company’s total accounts receivable at June 30, 2004 related to a July 2003 sale of an Image™ land data acquisition system to a customer located in China. This customer had experienced certain reliability issues with the system. The Company has resolved the reliability issues and is in the process of providing the customer with upgraded system components. All costs associated with the upgrade have previously been accrued as warranty expense. The Company expects to be paid in full once the customer’s Image systems have been upgraded. Therefore, no allowance has been established for this receivable.

     Notes receivable are collateralized by the products sold, bear interest at contractual rates of up to 12.7% per year and are due at various dates through 2006. The weighted average interest rate at June 30, 2004 was 7.7%. A summary of notes receivable, accrued interest and allowance for loan loss is as follows (in thousands):

	June 30,			December 31,
	2004			2003
Notes receivable and accrued interest	$	19,797		$	23,442
Less allowance for loan loss		(2,613	)		(2,613	)
Notes receivable, net		17,184			20,829
Less current portion notes receivable, net		11,920			14,420
Long-term notes receivable	$	5,264		$	6,409

     Approximately $10.4 million and $1.1 million of the Company’s total notes receivable and accounts receivable, respectively, at June 30, 2004 related to one customer, a subsidiary of Yukos, a major Russian energy company. Yukos is currently experiencing financial difficulties, which may result in its becoming subject to insolvency proceedings. During 2003, the customer became delinquent in making scheduled principal and interest payments under its notes to the Company in the amount of approximately $0.8 million, and it became delinquent in payment of approximately $1.8 million in trade payables it also owed to the Company. In January 2004, the Company refinanced these delinquent payment obligations into a new note totaling $2.6 million, with payments due in equal installments over a twelve-month period. During the second quarter of 2004, the customer then became delinquent in payment of all of its existing notes owed to the Company. The Company is currently renegotiating the terms of these notes with the customer and potential new investors in the customer, which may include extending the payment terms under the notes. Based on the discussions with the customer, its parent company, and the potential new investors, the Company expects the customer will pay all of its obligations in full and, therefore, no allowance has been established for these receivables.

(6) Inventories

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

	June 30,		December 31,
	2004		2003
Raw materials and subassemblies	$	28,985	$	32,675
Work-in-process		4,329		5,872
Finished goods		23,197		15,004
Total	$	56,511	$	53,551

     As part of the Company’s business plan, the Company is increasing the use of contract manufacturers as an alternative to in-house manufacturing. Under a few of the Company’s outsourcing arrangements, its manufacturing outsourcers first utilize the Company’s on-hand inventory, then directly purchase inventory at agreed-upon quantities and lead times in order to meet the Company’s scheduled deliveries. If demand proves to be less than the Company originally forecasted, the Company’s outsourcer has the right to require the Company to purchase inventory which the outsourcer had purchased relative to the Company’s products. However, since the Company now typically issues purchase orders to the Company’s outsourcers based upon its short-term forecast (usually six

9

months or less), the Company believes that it has reduced the risk that it may be required to purchase inventory that it may never utilize.

     In October 2003, the Company purchased certain marine equipment for $3.2 million for an anticipated sale to a potential customer. However, this potential customer ceased negotiations with the Company after it failed to be awarded an expected survey. Since the purchase, the Company has sold or leased approximately $1.7 million of costs of this equipment. As of June 30, 2004, approximately $1.5 million of this equipment remained available for sale or lease by the Company, and the Company expects to sell or lease all the equipment in 2004.

(7) Net Assets Held For Sale

     In July 2003, the Company completed the closure of its Alvin, Texas manufacturing facility and has entered into a contract for its sale, which is expected to close in the second half of 2004. At June 30, 2004, the facility and related land had a net carrying value of $2.4 million and is classified as “Held for Sale” under the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. In January 2004, the Company completed the sale of 16.75 acres of land located across from its headquarters in Stafford, Texas, receiving net proceeds of $1.5 million and resulting in a gain on the sale of $0.6 million.

(8) Multi-Client Data Library

     The multi-client data library consists of seismic surveys that are offered for licensing to customers on a nonexclusive basis. The capitalized costs include costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as imaging, salaries, benefits, and other costs incurred for seismic data project design and management. Multi-client data library creation and amortization consisted of the following:

	June 30,
	2004
Gross costs of multi-client data creation	$	17,345
Less accumulated amortization		(610	)
Total	$	16,735

(9) Non-Cash Investing and Financing Activities

     In February 2004, the Company acquired all of the share capital of Concept Systems. As part of the consideration, the Company issued 1,680,000 of its common shares. Also, in June 2004, the Company acquired all of the equity interest in GXT. As part of the purchase consideration of the GXT acquisition, the Company terminated a portion of the outstanding GXT stock options and assumed certain outstanding GXT stock options, the terms of which now provide that such stock options represent fully vested stock options to purchase up to 2,916,590 shares of the common stock of the Company at a weighted average exercise price of $1.98 per share. These options had an approximate fair value of $14.6 million. See further discussion of these acquisitions at Note 12 of Notes to Unaudited Consolidated Financial Statements.

     During the six months ended June 30, 2004 and 2003, respectively, the Company transferred $4.4 million and $1.9 million, respectively, of inventory at cost, to property, plant and equipment. Also, during the six months ended June 30, 2003, the Company sold previously leased marine rental equipment to a customer via a note agreement for $1.4 million.

(10) Net Income (Loss) per Common Share

     Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (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. The total number of options outstanding at June 30, 2004 and 2003 were 9,013,446 and 6,714,600, respectively. In December 2003, the Company issued $60.0 million of senior notes convertible into its common stock, which represents 13,888,890 total common shares. The convertible notes are dilutive for the three months ended June 30, 2004, and therefore are included in the diluted net income per common share for the three months ended June 30, 2004. However, the convertible notes are anti-dilutive for the six months ended June 30, 2004, and therefore are excluded from the diluted net income per common share for the six months ended June 30, 2004.

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     The following table summarizes the calculation of the net income impact from the assumed convertible debt conversion and the calculation of the weighted average number of common shares and weighted average number of diluted common shares outstanding for purposes of the computation of basic net income (loss) per common share and diluted net income (loss) per common share (in thousands, except share and per share amounts):

	Three Months June 30,					Six Months June 30,
	2004		2003			2004		2003
Net income (loss)	$	4,186	$	(13,686	)	$	3,628	$	(18,965	)
Income impact of assumed convertible debt conversion		648		—			—		—
Net income (loss) after impact of assumed convertible debt conversion	$	4,834	$	(13,686	)	$	3,628	$	(18,965	)
Weighted average number of common shares outstanding		57,073,916		51,231,189			54,596,409		51,213,041
Effect of convertible debt conversion		13,888,890		—			—		—
Effect of dilutive stock options		462,282		—			408,168		—
Weighted average number of diluted common shares outstanding		71,425,088		51,231,189			55,004,577		51,213,041
Basic net income (loss) per common share	$	0.07	$	(0.27	)	$	0.07	$	(0.37	)
Diluted net income (loss) per common share	$	0.07	$	(0.27	)	$	0.07	$	(0.37	)

(11) Notes Payable, Long Term Debt and Lease Obligations

     GXT has entered into a series of equipment loans that are due in installments for the purpose of financing the purchase of computer equipment, in the form of capital leases expiring in various years through 2007. Interest charged under these loans range from 5.8% to 18.0% and are collateralized by liens on the computer equipment. The assets and liabilities under these capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. The unpaid balance at June 30, 2004 was $5.5 million. In addition, GXT has in place a $1.9 million equipment line of credit. Under the terms of the agreement, each loan drawn down upon will mature at 36 months from the date of the loan’s inception. The interest rate of each loan is fixed at its inception and is determined based on the five-year treasury rate plus a margin of 3.5%. At June 30, 2004, $0.2 million was outstanding under this equipment line of credit.

     In December 2003, the Company issued $60.0 million of convertible senior notes, which mature on December 15, 2008. The notes bear interest at an annual rate per annum of 5.5%, payable semi-annually. The notes, which are not redeemable prior to their maturity, are convertible into the Company’s common stock at an initial conversion rate of 231.4815 shares per $1,000 principal amount of notes (a conversion price of $4.32 per share), which represents 13,888,890 total common shares. The Company paid $3.5 million in underwriting and professional fees, which have been recorded as deferred financing costs and are being amortized over the term of the notes.

     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 on the note were due on a monthly basis and bore interest at a rate of 5.75% per annum with final payment made in February 2004. In August 2003, the Company financed an additional $1.4 million of insurance costs on similar terms, with the final payment made in May 2004.

     In August 2002, in connection with the repurchase of its Series B 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% per annum. Interest was payable in quarterly payments, with all principal and unpaid interest due on May 7, 2004. The Company recorded 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 and in December 2003, the Company repaid in full the remaining outstanding principal balance of $16.0 million plus accrued interest.

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     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 was payable in quarterly payments of $0.2 million plus interest, with final payment due in July 2005. The unpaid balance at June 30, 2004 was $1.1 million.

     In August 2001, the Company sold its corporate headquarters and manufacturing facility located in Stafford, Texas for $21.0 million. Simultaneously with the sale, the Company entered into a non-cancelable lease with the purchaser of the property. The lease has a twelve-year term with three consecutive options to extend the lease for five years each. The Company has no purchase option under 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% per annum. The unpaid balance at June 30, 2004 was $18.3 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 lease obligation. At June 30, 2003, the Company failed to meet the tangible net worth requirement under this lease. Therefore, in the third quarter of 2003, the Company provided a letter of credit to the landlord of the property in the amount of $1.5 million. To secure the issuance of the letter of credit, the Company was required to deposit $1.5 million with the issuing bank. This letter of credit will remain outstanding until the Company is back in compliance with the tangible net worth requirement for eight consecutive quarters, or until the expiration of the eighth year of the lease in 2009. The deposit has been classified as a long-term other asset.

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

Years Ended December 31,
2004	$	2,941
2005		4,607
2006		2,354
2007		1,648
2008		61,763
2009 and thereafter		11,824
Total	$	85,137

(12) Acquisitions

     On June 14, 2004, the Company purchased all the equity interest in GXT. GXT, headquartered in Houston, Texas, is a leading provider of seismic imaging technology data processing and subsurface imaging services to oil and gas companies. The purchase price was approximately $136.3 million in cash, including acquisition costs, and the assumption of GXT stock options, which now represent fully vested stock options to purchase 2,916,590 shares of I/O common stock, valued at $14.6 million. The Company issued to certain key employees inducement options to purchase up to 434,000 shares of its common stock for an exercise price of $7.09 per share. The inducement options vest over a four-year period. The Company acquired GXT as part of its strategy to expand the range of offerings it can provide to its customers. Following the acquisition, the combined company is positioned to offer a range of seismic imaging solutions that integrate both seismic acquisition equipment and seismic imaging and data processing services.

     On February 23, 2004, the Company purchased all the share capital of Concept Systems. Concept Systems, based in Edinburgh, Scotland, is a provider of software, systems and services for towed streamer, seabed and land seismic operations. The purchase price was approximately $38.7 million in cash, including acquisition costs, and 1,680,000 shares of the Company’s common stock, valued at $10.8 million. The Company issued to certain key employees inducement options to purchase up to 365,000 shares of its common stock for an exercise price of $6.42 per share. The options vest over a four-year period. The Company acquired Concept Systems as part of its strategy to develop solutions that integrate complex data streams from multiple seismic sub-systems, including source, source control, positioning, and recording in all environments, including land, towed streamer, and seabed acquisition.

     The acquisitions were accounted for by the purchase method, with the purchase price allocated to the fair value of assets purchased and liabilities assumed. As of June 30, 2004, the allocation of the purchase price of GXT and Concept Systems was based upon preliminary fair value studies, which will be finalized in the second half of 2004. The preliminary allocations of the purchase prices, including related direct costs, for the acquisitions of GXT and Concept Systems are as follows (in thousands):

	GXT			Concept Systems
Fair values of assets and liabilities:
Net current assets (liabilities)	$	(5,830	)	$	2,289
Property, plant and equipment		11,304			548

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	GXT			Concept Systems
Multi-client data library		17,345			—
Intangible assets		46,077			21,520
Goodwill		88,186			25,059
Capital lease obligations		(6,099	)		—
Total allocated purchase price		150,983			49,416
Less non-cash consideration – issuance of common stock		—			(10,763	)
Less non-cash consideration – fair value of fully vested stock options issued		(14,637	)		—
Less cash of acquired business		(2,193	)		—
Cash paid for acquisition, net of cash acquired	$	134,153		$	38,653

     The intangible assets of GXT relate to customer relationships, propriety technology, non-compete agreements and its trade name, which are being amortized over their estimated useful lives ranging from two to 15 years. The intangible assets of Concept Systems relate to computer software, customer relationships and its trade name, which are being amortized over their estimated useful lives ranging from five to 15 years.

     The following summarized unaudited pro forma consolidated income statement information for the three and six months ended June 30, 2004 and 2003, assumes that the GXT and Concept Systems acquisitions had occurred as of the beginning of the period presented. The Company has prepared these unaudited pro forma financial results for comparative purposes only. These unaudited pro forma financial results may not be indicative of the results that would have occurred if we had completed the acquisitions as of the beginning of the period presented or the results that will be attained in the future. Amounts presented below are in thousands, except for the per share amounts:

	Pro forma					Pro forma
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2004		2003			2004		2003
Net sales	$	74,915	$	48,787		$	132,677	$	103,032
Income (loss) from operations	$	3,573	$	(9,353	)	$	5,064	$	(14,154	)
Net income (loss)	$	1,979	$	(12,937	)	$	3,158	$	(18,096	)
Basic net income (loss) per common share	$	0.03	$	(0.18	)	$	0.04	$	(0.34	)
Diluted net income (loss) per common share	$	0.03	$	(0.18	)	$	0.04	$	(0.34	)

(13) Stockholders’ Equity

     In June 2004, the Company and certain non-employee selling shareholders sold in an underwritten public offering 20,209,631 shares of common stock. The shares were priced at $7.00 per share, resulting in net proceeds of $130.9 million to the Company. The net proceeds from this equity offering were used to purchase all of the equity interests in GXT. Of the shares sold in the offering, 209,631 shares were sold by certain selling stockholders, for which the Company did not receive any proceeds. In addition, the underwriters exercised their over-allotment option, purchasing an additional 2,928,700 shares of common stock, resulting in additional net proceeds to the Company of approximately $19.2 million. The net proceeds from the over-allotment are available to support the Company’s on-going working capital requirements.

(14) Impairment of Long-Lived Assets

     During the first quarter of 2003, the Company initiated an evaluation of its solid streamer project and 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 Imaging Systems segment were deemed impaired in accordance with SFAS No. 144. 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 approximately $0.2 million was written off and included within research and development expenses in the first quarter of 2003.

     In the second quarter of 2003, the Company incurred a $2.5 million charge to cost of sales related to the write-down of equipment associated with the Company’s first generation radio-based VectorSeis® land acquisition systems. This equipment was an older generation of the Company’s technology; therefore, the market demand and its net realizable value was significantly less than the Company’s current generation VectorSeis land acquisition systems. The method of determining fair value was based on the forecasted cash flows (discounted) for the use of this equipment.

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(15) 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 12% of the outstanding voting interests. EVP provided asset management services to large oil and gas companies to enhance the value of their oil and gas properties. This investment was accounted for under the cost method for investment accounting. Robert P. Peebler, the Company’s President and Chief Executive Officer, had founded EVP in April 2001 and had served as EVP’s President and Chief Executive Officer until joining I/O in March 2003.

     During the second quarter of 2003, EVP failed to close two anticipated asset management agreements, which resulted in EVP’s management re-evaluating its business model and adequacy of capital. During August 2003, the board of directors of EVP voted to liquidate EVP. For that reason, in the second quarter of 2003, the Company wrote its investment down to its approximate liquidation value of $1.0 million. Mr. Peebler offered, and the Company agreed, that all proceeds Mr. Peebler received from the liquidation of EVP were to be paid to the Company. In December 2003, the Company received liquidation payments of $0.7 million from EVP and $0.1 million from Mr. Peebler. In March 2004, the Company received final liquidation payments of $0.1 million from EVP and $0.01 million from Mr. Peebler.

(16) Deferred Income Tax

     In 2002, the Company established an additional valuation allowance to reserve for substantially all of its net deferred tax assets. Subsequent to that date, the Company has continued to record a valuation allowance for its net deferred tax assets, which 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. At June 30, 2004 and December 31, 2003, the unreserved deferred income tax asset of $1.1 million represents the Company’s prior alternative minimum tax payments that are recoverable through the carryback of net operating losses. Income tax expense (benefit) for the three and six months ended June 30, 2004 and 2003, reflects state and foreign taxes and a federal tax refund of $0.6 million received in the second quarter of 2003.

     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. The Company’s results for those periods were heavily affected by industry conditions, and 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. Nevertheless, previous losses represented sufficient negative evidence to establish an additional valuation allowance. The Company has continued to reserve substantially all of its net deferred tax assets and will continue until there is sufficient positive evidence to warrant reversal.

(17) Comprehensive Net Income (Loss)

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss)	$	4,186		$	(13,686	)	$	3,628		$	(18,965	)
Foreign currency translation adjustment		(330	)		1,939			(713	)		1,783
Comprehensive net income (loss)	$	3,856		$	(11,747	)	$	2,915		$	(17,182	)

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(18) Restructuring Activities

     A summary of the Company’s restructuring programs is as follows (in thousands):

							2003			2004
							Restructuring			Restructuring
	2002 Restructuring Plan						Plan			Plan
	Severance			Abandoned			Severance			Severance
	Costs			Lease Costs			Costs			Costs
Accruals at January 1, 2003	$	1,009		$	1,345		$	—		$	—
Severance expense		—			—			700			—
Adjustment to accrual		—			(138	)		—			—
Cash payments during the period		(325	)		(218	)		(598	)		—
Accruals at June 30, 2003	$	684		$	989		$	102		$	—
Accruals at January 1, 2004	$	94		$	640		$	98		$	—
Severance expense		—			—			—			187
Cash payments during the period		(57	)		(143	)		(52	)		(187	)
Accruals at June 30, 2004	$	37		$	497		$	46		$	—

     In January 2004, the Company announced the consolidation of three operating units within its Land Imaging Systems segment into one division and in April 2004, consolidated two operating units within its Marine Imaging Systems segment into one division. These consolidations have and/or will eliminate approximately twenty full-time positions. The Company expects to incur additional severance charges of $0.2 million in the third and fourth quarter of 2004.

(19) Commitments and Contingencies

     Legal Matters: The Company has been named in various lawsuits or threatened actions that are incidental to its ordinary business. 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 or liquidity.

     Product Warranty Liabilities: The Company generally warrants that all manufactured equipment will be free from defects in workmanship, materials and parts. Warranty periods 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 contingencies become 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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Balance at beginning of period	$	3,150		$	2,945		$	3,433		$	2,914
Accruals for warranties issued during the period		1,199			944			1,464			1,170
Settlements made (in cash or in kind) during the period		(788	)		(498	)		(1,336	)		(693	)
Balance at end of period	$	3,561		$	3,391		$	3,561		$	3,391

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(20) Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”. The primary objective of the interpretation is to provide guidance on the identification of and financial reporting for entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIEs). FIN No. 46 provides guidance that determines (a) whether consolidation is required under the “controlling financial interest” model of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” or other existing authoritative guidance, or, alternatively, (b) whether the variable-interest model under FIN No. 46 should be used to account for existing and new entities. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (FIN 46-R) resulting in multiple effective dates based on the nature as well as creation date of the VIE. FIN No. 46, as revised, did not have an impact on the Company’s results of operations or financial position.

     In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition”, which supersedes SAB No. 101, “Revenue Recognition in Financial Statements.” SAB No. 104’s primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, which was superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” While the wording of SAB No. 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The impact of SAB No. 104 did not have a material effect on the Company’s results of operations or financial position.

     In March 2004, the FASB issued an exposure draft entitled “Share-Based Payment, and Amendment of FASB Statements No. 123 and 95.” This proposed statement addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The proposed statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and generally would require instead that such transactions be accounted for using a fair-value-based method. As proposed, this statement would be effective for the Company on January 1, 2005. The Company is currently evaluating the effect this proposed standard will have on their results of operations or financial position.

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

Executive Summary

     The prevailing low levels of traditional seismic activity for the past number of years have presented a challenging environment for companies involved in the seismic industry. This environment, along with product life cycle developments affecting our traditional product lines, have been the principal factors affecting our results of operations in recent years.

     Our traditional business segments have involved the manufacture and sale of land, marine and transition zone seismic instrumentation for oil and gas exploration and production. In the last year, however, we have changed our overall focus toward being a provider of seismic imaging technology for and solutions exploration, production and reservoir monitoring in land and marine, including shallow water and marsh, environments.

     Recently, there have been positive developments and, in the opinion of our management, favorable trends for our business, which include the following:

• The prevailing high commodity prices for oil and natural gas, which have resulted in oil and gas companies budgeting greater amounts for exploration and development activities,

• The increasing worldwide demand for hydrocarbons,

• The increasing use of advanced-technology products and services by oil companies for exploration and for enhancement of production from their existing reserves,

• The increasing needs of exploration and production companies for seismic surveys that are custom-designed to meet complex geological formation characteristics, and

• The increasing need for more sophisticated information tools to monitor and assess new and producing oil and gas reservoirs.

     Our strategy involves repositioning our company as a seismic imaging company, providing both equipment and services across a broader spectrum of the seismic technology industry than merely an equipment manufacturer and sales company. The advantages of our products and services that incorporate full-wave digital imaging capabilities will, we believe, ultimately drive the demand for new

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survey designs and the associated processing and interpretive skills that we possess. We believe that our products that digitally monitor seismic characteristics of reservoirs will reduce the costs of performing multiple seismic surveys over the same areas, thereby reducing overall seismic costs for operators and owners of the reserves.

     As part of this strategy we acquired Concept Systems in February 2004. Concept Systems, based in Edinburgh, Scotland, is a provider of software, systems and services for towed streamer, seabed and land seismic operations. We acquired Concept Systems as part of our strategy to develop solutions that integrate complex data streams from multiple seismic sub-systems, including source, source control, positioning, and recording in all environments, including land, towed streamer, and seabed acquisition.

     We also acquired GXT in June 2004. GXT, headquartered in Houston, Texas, is a leading provider of seismic imaging technology data processing and subsurface imaging services to oil and gas companies. We acquired GXT as part of our strategy to expand the range of offerings we can provide to our customers. Imaging of the subsurface requires advanced equipment technology used in the seismic data acquisition process along with specialized services to process the acquired seismic data. The historic strength of our company was in designing and manufacturing seismic equipment. GXT’s historic strength was in high-end seismic data processing. Following the acquisition, the combined company is better positioned to offer a broader range of seismic imaging solutions that integrate both seismic acquisition equipment and seismic imaging and data processing services. These integrated solutions should provide more accurate images of the subsurface which can be delivered to customers at a lower cost and in a shorter period of time.

     We continue to see market acceptance of our new products. In our Land Imaging Systems division we commercialized and sold our System Four Digital/Analog land acquisition system. This system provides a hybrid capability for recording seismic data using digital VectorSeis sensors or standard analog geophones, in any combination. In our Marine Imaging Systems division we have continued to deliver on our VectorSeis Ocean-Bottom contract with Terra Seismic Services.

Results of Operations

     Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

     Net Sales: Net sales of $62.3 million for the three months ended June 30, 2004 increased $27.8 million, or 80%, compared to the corresponding period last year. Land Imaging Systems’ net sales increased $14.5 million, or 65%, to $36.6 million compared to $22.2 million in the corresponding period of last year. The increase was due to an increase in sales of our VectorSeis® System Four cable-based land acquisition system which we commercialized in the second quarter of 2003. We also had an increase in sales of our sensor geophone and vibrator truck product lines. Also, in the second quarter of 2004 we commercialized and sold our first System Four Digital/Analog land acquisition system. Our Marine Imaging System’s net sales increased $2.2 million, or 20%, to $13.1 million compared to $10.9 million in the corresponding period of last year. The increase was due to the continued deliveries of our VectorSeis Ocean-Bottom acquisition system. This product offering was commercialized in the first quarter of 2004 and represents a new technology for seismic imaging directly from the seabed floor. Our Seismic Imaging Solutions’ net sales increased $6.4 million, to $7.7 million compared to $1.3 million in the corresponding period last year. The increase is due to the acquisition of GXT (in June 2004), which contributed $5.6 million to our net sales. Also, Concept Systems, which we acquired February 2004, contributed $4.7 million to our net sales. See further discussion of the acquisitions of GXT and Concept Systems at Note 12 of Notes to Unaudited Consolidated Financial Statements.

     Gross Profit and Gross Profit Percentage: Gross profit of $21.8 million for the three months ended June 30, 2004 increased $18.8 million, compared to the corresponding period last year. Gross profit percentage for the three months ended June 30, 2004 was 35% compared to 9% in the prior year. The improvement in gross profit was driven mainly by the contributions from Concept Systems and GXT, the sale of new products within our Marine Imaging Systems segment, such as our VectorSeis Ocean-Bottom acquisition system and follow-on sales of VectorSeis System Four land acquisition systems and our first sale of our System Four Digital/Analog land acquisition system by our Land Imaging Systems segment. Also, as noted in Note 14 of Notes to the Unaudited Consolidated Financial Statements, negatively affecting gross profits during the three months ended June 30, 2003 was a $2.5 million write-down of equipment associated with our first generation radio-based VectorSeis land acquisition system.

     Research and Development: Research and development expense of $5.4 million for the three months ended June 30, 2004 increased $0.4 million, or 9%, compared to the corresponding period last year. This increase is largely due to the acquisition of Concept Systems (in February 2004), which added $0.9 million to our research and development expenses. The significant research and development project in second quarter of 2004 was our System Four Digital/Analog land acquisition system which we commercialized in the quarter. In the second quarter of 2003, we entered the commercial phase of our VectorSeis System Four cable-based land acquisition system.

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     Marketing and Sales: Marketing and sales expense of $5.0 million for the three months ended June 30, 2004 increased $2.0 million, or 66%, compared to the corresponding period last year. The increase is primarily a result of the acquisitions of Concept Systems in February 2004 and GXT in June 2004, which added $0.5 million and $0.7 million, respectively, to our marketing and sales expense. We also had an increase in sales commissions resulting from an increase in sales between the periods of comparison.

     General and Administrative: General and administrative expense of $5.9 million for the three months ended June 30, 2004 increased $0.5 million, or 9%, compared to the corresponding period last year. The increase in general and administrative expense is primarily attributable to an increase in legal fees associated with various ongoing legal matters in our ordinary course of business. Also, a portion of this increase is due to the acquisitions of Concept Systems in February 2004 and GXT in June 2004. Included in general and administrative expenses for the three months ended June 30, 2003, were $0.6 million of executive employment contract termination costs; there were no corresponding charges incurred during the three months ended June 30, 2004.

     Net Interest Expense: Total net interest expense of $1.2 million for the three months ended June 30, 2004 increased $0.9 million compared to the corresponding period last year. The increase is largely due to the issuance of $60.0 million of our convertible senior notes, which mature in December 2008. These convertible notes were issued in December 2003 and bear interest at an annual rate of 5.5%, payable semi-annually. We acquired GXT in June 2004, which typically finances its equipment purchases through equipment loans. At June 30, 2004, GXT had $5.7 million outstanding under their equipment loans and equipment line of credit. As a result, we expect our interest expense will further increase in the second half of 2004 when compared to the first half of 2004.

     Fair Value Adjustment of Warrant Obligation: The fair value adjustment of warrant obligation totaling $1.7 million was due to a change in the fair value between April 1, 2003 and June 30, 2003 of our previously outstanding common stock warrant. No comparable adjustment was recorded in the second quarter of 2004 because this warrant was exchanged for 125,000 shares of our common stock in December 2003.

     Impairment of Investment: Impairment of investment of $2.0 million for the three months ended June 30, 2003 related to the write-down of our investment in Energy Virtual Partners, Inc. (EVP) to its approximate liquidation value of $1.0 million. See further discussion in Note 15 of Notes to the Unaudited Consolidated Financial Statements.

     Income Tax Expense (Benefit): Income tax expense for the three months ended June 30, 2004 was $0.3 million compared to an income tax benefit of $0.3 million for three months ended June 30, 2003. Income tax expense for the three months ended June 30, 2004 and 2003 reflected only state and foreign taxes, since we continue to maintain a valuation allowance for substantially all of our net deferred tax assets. The income tax benefit for the three months ended June 30, 2003, included a $0.6 million federal tax refund.

     Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

     Net Sales: Net sales of $98.6 million for the six months ended June 30, 2004 increased $22.9 million, or 30%, compared to the corresponding period last year. Land Imaging Systems’ net sales increased $4.1 million, or 8%, to $57.3 million compared to $53.2 million in the corresponding period of last year. The increase is primarily due to an increase in sales of our sensor geophones and the sale of our first System Four Digital/Analog land acquisition system which we commercialized in the second quarter of 2004. Our Marine Imaging System’s net sales increased $5.1 million, or 26%, to $24.6 million compared to $19.5 million in the corresponding period of last year. The increase was due to the first sales of our VectorSeis Ocean-Bottom acquisition system. This product offering was commercialized in the first quarter of 2004 and represents a new technology for seismic imaging directly from the seabed floor. Our Seismic Imaging Solutions’ net sales increased $6.4 million, to $9.2 million compared to $2.7 million in the corresponding period last year. The increase is due to the acquisition of GXT (in June 2004), which contributed $5.6 million to our net sales. Also, Concept Systems, which we acquired February 2004, contributed $7.0 million to our net sales.

     Gross Profit and Gross Profit Percentage: Gross profit of $34.1 million for the six months ended June 30, 2004 increased $22.6 million, compared to the corresponding period last year. Gross profit percentage for the six months ended June 30, 2004 was 35% compared to 15% in the prior year. The improvement in gross profit was driven mainly by the contributions from Concept Systems and GXT, the sale of new products within our Marine Imaging Systems segment, such as our VectorSeis Ocean-Bottom acquisition system and follow-on sales of VectorSeis System Four land acquisition systems and our first sale of our System Four Digital/Analog land acquisition system by our Land Imaging Systems segment. Negatively affecting gross profits in 2003, was a $2.5 million write-down of equipment associated with our first generation radio-based VectorSeis land acquisition system. See further discussion of this write-down at Note 14 of Notes to the Unaudited Consolidated Financial Statements.

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     Research and Development: Research and development expense of $9.5 million for the six months ended June 30, 2004 decreased $1.0 million, or 10%, compared to the corresponding period last year. This decrease primarily reflects lower prototype expenses in 2004 and the cancellation of our solid streamer project in 2003. In the first quarter of 2003, we entered into the commercial phase of our VectorSeis System Four radio-based land acquisition system project and entered the commercial phase of our VectorSeis System Four cable-based land acquisition system project in the second quarter of 2003. The significant research and development project in the first six months of 2004 was on our System Four Digital/Analog land acquisition system which we commercialized in the second quarter of 2004. The decrease in research and development expense is partially offset by the acquisition of Concept Systems, which we acquired in February 2004.

     Marketing and Sales: Marketing and sales expense of $8.3 million for the six months ended June 30, 2004 increased $2.5 million, or 42%, compared to the corresponding period last year. The increase is primarily a result of the acquisitions of Concept Systems in February 2004 and GXT in June 2004, which added $0.8 million and $0.7 million, respectively, to our marketing and sales expense. Sales commissions increased as a result of an increase in sales between the periods of comparison. Also, the increase in marketing and sales expense is due to our expanding our sales force within China and Russia. In 2002, we opened our sales representative office in Beijing, China, and we further expanded our personnel and travel to the region throughout 2003 and the first half of 2004. In addition, in the first quarter of 2004, we opened a new sales representative office in Moscow.

     General and Administrative: General and administrative expense of $10.5 million for the six months ended June 30, 2004 increased $1.1 million, or 12%, compared to the corresponding period last year. The increase in general and administrative expense is primarily attributable to an increase in legal fees associated with various ongoing legal matters in our ordinary course of business. Also, a portion of the increase is due to the acquisitions of Concept Systems in February 2004 which added $0.4 million to our general and administrative expenses. Included in general and administrative expenses for the six months ended June 30, 2003, were $0.8 million of executive employment contract termination costs, partially offset by $0.7 million credit related to the cancellation of unvested restricted stock. There were no corresponding charges incurred during the six months ended June 30, 2004.

     Gain on Sale of Assets: Gain on sale of assets of $0.9 million for the six months ended June 30, 2004 primarily related to the sale of land across from our headquarters in Stafford, Texas in the first quarter of 2004.

     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 Imaging Systems 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 14 of Notes to Unaudited Consolidated Financial Statements.

     Net Interest Expense: Total net interest expense of $2.2 million for the six months ended June 30, 2004 increased $1.2 million, compared to the corresponding period last year. The increase is largely due to the issuance of $60.0 million of our convertible senior notes, which mature in December 2008. The convertible notes were issued in December 2003 and bear interest at an annual rate of 5.5%, payable semi-annually. In May 2003, we repaid $15.0 million in outstanding debt under an unsecured promissory note which we had issued in 2002 in exchange for repurchase of our Series B Preferred Stock. We recorded interest under this note at its effective rate of 11%. In addition, at June 30, 2004, GXT had $5.7 million outstanding under their equipment loans and equipment line of credit. As a result, we expect our interest expense will further increase in the second half of 2004 when compared to the first half of 2004.

     Fair Value Adjustment of Warrant Obligation: The fair value adjustment of the warrant obligation totaling $0.8 million was due to a change in the fair value between January 1, 2003 and June 30, 2003 of our previously outstanding common stock warrant. No comparable adjustment was recorded in the six months ended June 30, 2004 because this warrant was exchanged for 125,000 shares of our common stock in December 2003.

     Impairment of Investment: Impairment of investment of $2.0 million for the six months ended June 30, 2003 related to the write-down of our investment in EVP to its approximate liquidation value of $1.0 million. See further discussion in Note 15 of Notes to the Unaudited Consolidated Financial Statements.

     Income Tax Expense: Income tax expense for the six months June 30, 2004 was $0.9 million compared to $0.3 million for the six months ended June 30, 2003. Income tax expense for the six months ended June 30, 2004 and 2003 reflected only state and foreign taxes, since we continue to maintain a valuation allowance for substantially all of our net deferred tax assets. Income tax expense for the six months ended June 30, 2003 was partially offset by a federal tax refund of $0.6 million.

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Liquidity and Capital Resources

     In June 2004, we issued 22,928,700 shares of our common stock at $7.00 per share resulting in proceeds, net of fees, of $150.1 million. Approximately $136.3 million of the proceeds from this equity offering were used to fund our acquisition of GXT, with the remainder of the proceeds being available to fund our ongoing operational requirements. Also, in February of 2004, we purchased Concept Systems for $38.7 million in cash, including acquisition costs, and issued 1,680,000 of our common shares. The proceeds to fund the Concept Systems acquisition was the result of the $60.0 million of 5.5% convertible senior notes which we issued in December 2003. These notes mature in 2008 and are convertible into our common stock at anytime prior to their maturity at an initial conversion rate of 231.4815 shares per $1,000 principal amount of notes (a conversion price of $4.32), which represents 13,888,890 total common shares.

     We currently do not have a revolving line of credit or similar debt financing sources in place, other than GXT’s $1.9 million equipment line of credit, to support our working capital requirements; however, we may seek a revolving line of credit to support our working capital requirements. We can give no assurances as to whether a line of credit will be obtained, and if so, whether the terms of such a line of credit will be advantageous to us, or if the amounts available for borrowing will be sufficient for our purposes. However, based upon our management’s internal revenue forecast, our liquidity requirements in the near term and our projected increase in seismic activity primarily outside of North America, we currently believe that the combination of our projected internally generated cash and our working capital (including cash and cash equivalents on hand), will be adequate to meet our anticipated capital and liquidity requirements for the next twelve months.

Cash Flow from Operations

     We have historically financed operations from internally generated cash and funds from equity and debt financings. Cash and cash equivalents were $36.1 million at June 30, 2004, a decrease of $23.4 million, or 39%, compared to December 31, 2003. Net cash used in operating activities was $4.3 million for the six months ended June 30, 2004, compared to cash used in operating activities of $17.9 million for the six months ended June 30, 2003. The net cash used in our operating activities for the six months ended June 30, 2004 was primarily due to increases in our receivables and inventory, which was due to our increase in sales during the six months ended June 30, 2004. Partially offsetting the increase in receivables and inventory was a corresponding increase in accounts payable and accrued expenses, also due to increased sales activity.

Cash Flow from Investing Activities

     Net cash flow used in investing activities was $167.0 million for the six months ended June 30, 2004, compared to $5.4 million for the six months ended June 30, 2003. The principal investing activity was related to our purchase of Concept Systems and GXT. In February 2004 we purchased Concept Systems for $38.7 million of cash, including acquisition costs, and delivered 1,680,000 of our common shares. In June 2004 we purchased GXT for $136.3 million of cash, including acquisition costs, and the assumption of GXT stock options, which now represent fully vested stock options for 2,916,590 shares of I/O common stock, valued at $14.6 million. See further discussion of the Concept Systems and GXT acquisitions at Note 12 of Notes to Unaudited Consolidated Financial Statements. During the six months ended June 30, 2004, we sold excess property and equipment for net proceeds of $1.6 million, most of which related to land located across from our headquarters in Stafford, Texas. Also, we received full payment on a $5.8 million note receivable that related to the sale of a subsidiary in 1999. We purchased $1.7 million of equipment during the six months ended June 30, 2004. We expect to spend an additional $8.0 million for equipment and other capital expenditures through the remainder of 2004, which approximately half is expected to be financed through GXT’s equipment loans or equipment line of credit..

Cash Flow from Financing Activities

     Net cash flow provided by financing activities was $148.2 million for the six months ended June 30, 2004, compared to $16.1 million of cash used in financing activities for the six months ended June 30, 2003. This net cash flow was primarily related to our equity offering in June 2004. Also, during the six months ended June 30, 2004 we made scheduled payments of $2.2 million on our notes payable, long-term debt and lease obligations.

Future Contractual Obligations

     The following table sets forth estimates of future payments for 2004 through 2009, and thereafter, of our consolidated contractual obligations, as of June 30, 2004 (in thousands):

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	Payments Due by Fiscal Year
													2009 and
Contractual Obligations	Total		2004		2005		2006		2007		2008		Thereafter
Long-Term Debt and Lease Obligations	$	85,137	$	2,941	$	4,607	$	2,354	$	1,648	$	61,763	$	11,824
Operating Leases		6,983		2,124		1,839		1,122		774		355		769
Product Warranty		3,561		1,781		1,780		—		—		—		—
Purchase Obligations		42,810		42,657		153		—		—		—		—
Total	$	138,491	$	49,503	$	8,379	$	3,476	$	2,422	$	62,118	$	12,593

     The long-term debt and lease obligations at June 30, 2004 consist primarily of $60.0 million in convertible senior notes that mature in December 2008. The remaining amount of these obligations consist of $1.1 million in unsecured promissory notes related to our acquisition of AXIS in 2002, $18.3 million related to the sale/leaseback arrangement housing our corporate headquarters, our Land Imaging Systems division and MEMS facility in Stafford, TX and $5.7 million related to equipment loans and the equipment line of credit of GXT. For further discussion of our notes payable, long-term debt and lease obligations, see Note 11 of the Notes to Unaudited Consolidated Financial Statements.

     The operating lease commitments at June 30, 2004 relate to our lease of certain equipment, offices, and warehouse space under non-cancelable operating leases.

     The liability for product warranties at June 30, 2004 relate to the estimated future warranty expenditures associated with our products. Our warranty periods range from 90 days to three years from the date of original purchase, depending on the product. We record an accrual for product warranties and other contingencies at the time of sale, which is when the estimated future expenditures associated with those contingencies become probable and the amounts can be reasonably estimated.

     Our purchase obligations primarily relate to our committed inventory purchase orders for which deliveries are scheduled to be made in 2004 and 2005.

Critical Accounting Policies

     Please refer to our Annual Report on Form 10-K (as amended by Forms 10-K/A) for the year ended December 31, 2003 for a complete discussion of the Company’s critical accounting policies and estimates. There have been no material changes in the current period regarding our critical accounting policies. As a result of our acquisition of GXT, we have adopted the following accounting policies related to the capitalization and amortization of multi-client data libraries and revenue recognition for imaging services and multi-client surveys.

•	Multi-Client Data Library — The multi-client data library consists of seismic surveys that are offered for licensing to customers on a nonexclusive basis. The capitalized costs include costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as imaging, salaries, benefits, and other costs incurred for seismic data project design and management.
	Costs are amortized using the greater of (i) the percentage of actual revenue to the total estimated revenue multiplied by the estimated total cost of the project or (ii) a straight-line basis over the useful economic life of the data.
	We forecast the ultimate revenue expected to be derived from a particular data survey over its estimated useful economic life to determine the costs to amortize, if greater than straight-line amortization. That forecast is made by us at the project’s initiation and is reviewed and updated periodically. If, during any such review and update, we determine that the ultimate revenue for a survey is expected to be less than the original estimate of total revenue for such survey, we increase the amortization rate attributable to future revenue from such survey. In addition, in connection with such reviews and updates, we evaluate the recoverability of the multi-client data library, and if required under SFAS No. 144 “Accounting for the Impairment and Disposal of Long-Lived Assets,” record an impairment charge with respect to such data.

•

Revenue Recognition — Revenues for imaging services are recognized on the percentage of completion method. During the acquisition and processing phase of a multi-client survey, the Company recognizes pre-funding revenue based on the percentage of completion, similar to the method for imaging services. After completion of a multi-client survey, the Company recognizes revenue upon delivery of data to our customer.

The Company considers the percentage of completion method to be the best available measure of progress on these contracts.

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The percentage complete is assessed by measuring the actual progress to the estimated progress of the project. Accordingly, changes in job performance, job conditions, estimated profitability, contract price, cost estimates, and availability of human and computer resources are reviewed periodically as the work progresses and revisions to the percentage completion are reflected in the accounting period in which the facts require such adjustments become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The asset “Unbilled Revenues” represents revenues recognized in excess of amounts billed. The liability “Deferred Revenue” represents amounts billed in excess of revenues recognized.

Credit Risk

     Historically, our principal customers were seismic contractors that operate seismic data acquisition systems and related equipment to collect data in accordance with their customers’ specifications or for their own seismic data libraries. However, through the acquisition of GXT, we have further diversified our customer base to include the major integrated and independent oil and gas companies. For the six months ended June 30, 2004 and for the entire year of 2003, approximately 12% and 28%, respectively, of our consolidated net sales related to one Chinese customer. The loss of this customer or deterioration in our relationship with them could have a material adverse effect on our results of operations and financial condition.

     Approximately $10.4 million and $1.1 million of our total notes receivable and accounts receivable, respectively, at June 30, 2004 related to one customer, a subsidiary of Yukos, a major Russian energy company. Yukos is currently experiencing financial difficulties, which may result in its becoming subject to insolvency proceedings. During 2003, the customer became delinquent in making scheduled principal and interest payments under its notes to us in the amount of approximately $0.8 million, and it became delinquent in payment of approximately $1.8 million in trade payables it also owed to us. In January 2004, we refinanced these delinquent payment obligations into a new note totaling $2.6 million, with payments due in equal installments over a twelve-month period. During the second quarter of 2004, the customer then became delinquent in payment of all of its existing notes owed to us. We are currently renegotiating the terms of these notes with the customer and potential new investors in the customer, which may include extending the payment terms under the notes. Based on the discussions with the customer, its parent company, and the potential new investors, we expect the customer will pay all of its obligations in full and, therefore, no allowance has been established for these receivables.

     During the six months ended June 30, 2004, we recognized $14.6 million of sales to customers in the CIS, $6.2 million of sales to customers in Latin American countries, $23.7 million of sales to customers in Europe, $10.7 million of sales to customers in the Middle East, $17.3 million of sales to customers in Asia and $6.7 million of sales to customers in Africa. The majority of our foreign sales are denominated in U.S. dollars. In recent years, the CIS, and certain Latin American countries have experienced economic problems and uncertainties, as well as devaluations of their currencies. Weak demand for the services provided by certain of our customers will further strain their revenues and cash resources, thereby resulting in a higher likelihood of defaults in the timely payment of their obligations to us under our credit sales arrangements. Increased levels of payment defaults by our customers with respect to our credit sales arrangements could have a material adverse effect on our results of operations. To the extent that world events or economic conditions negatively affect our future sales to customers in these and other regions of the world or the collectibility of our existing receivables, our future results of operations, liquidity and financial condition may be adversely affected.

Risk Factors

     This report contains statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms or other comparable terminology.

     Examples of other forward-looking statements contained in this report include statements regarding:

• our expected revenues, operating profit and net income;

• future growth rates and margins for certain of our products and services;

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• our future acquisitions and levels of capital expenditures;

• the adequacy of our future liquidity and capital resources;

• expectations of successfully marketing our products and services to oil and gas company end-users;

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

• future demand for seismic equipment and services;

• future seismic industry fundamentals;

• future oil and gas commodity prices;

• future worldwide economic conditions;

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

• our expectations regarding realization of deferred tax assets;

• our beliefs regarding accounting estimates we make;

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

• our proposed strategic alliances.

     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 and assumptions. While we cannot identify all of the factors that may cause actual results to vary from our expectations, we believe the following factors should be considered carefully:

We may not realize the anticipated benefits of our acquisitions of GXT or Concept Systems or be successful in integrating their operations, personnel or technology.

     There can be no assurance that the anticipated benefits of our acquisitions of GXT or Concept Systems will be realized or that our integration of their operations, personnel and technology will be successful. Likewise, no assurances can be given that our business plan with respect to GXT’s or Concept Systems’ services and products will prove successful. The integration of these companies into us will require the experience and expertise of managers and key employees of GXT and Concept Systems who are expected to be retained by us. There can be no assurance that these managers and key employees of GXT and Concept Systems retained by us will remain with us for the time period necessary to successfully integrate their companies into our operations.

The GXT and Concept Systems acquisitions will increase our exposure to the risks experienced by more technology-intensive companies.

     The businesses of GXT and Concept Systems business, being more concentrated in software, processing services and proprietary technologies than our traditional business, will expose us to the risks typically encountered by smaller technology companies that are more dependent on proprietary technology protection and research and development. These risks include:

• future competition from more established companies entering the market;

• product obsolescence;

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• dependence upon continued growth of the market for seismic data processing;

• the rate of change in the markets for GXT’s and Concept Systems’ technology and services;

• research and development efforts not proving sufficient to keep up with changing market demands;

• dependence on third-party software for inclusion in GXT’s and Concept Systems’ products and services;

• misappropriation of GXT’s or Concept Systems’ technology by other companies;

• alleged or actual infringement of intellectual property rights that could result in substantial additional costs;

• recruiting, training and retaining technically skilled personnel that could increase the costs for GXT or Concept Systems, or limit their growth; and

• the ability to maintain traditional margins for certain of their technology or services.

     GXT has recently experienced a weakening in prices for its pre-stack depth migration processing services. No assurance can be given as to whether this trend will continue, worsen or improve.

The GXT acquisition may alienate a number of our traditional seismic contractor customers with whom GXT competes and adversely affect sales to and revenues from those customers.

     GXT’s business in processing seismic data competes with a number of our traditional customers that are seismic contractors. Many of these companies not only offer their customers— generally major, independent and national oil companies— the traditional services of conducting seismic surveys, but also the processing and interpretation of the data acquired from those seismic surveys. In that regard, GXT’s processing services may directly compete with these contractors’ service offerings and may adversely affect our relationships with them, which could result in reduced sales and revenues from these seismic contractor customers.

Technologies and businesses that we have or will acquire may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.

     An important aspect of our current business strategy is to seek new technologies, products and businesses to broaden the scope of our existing and planned product lines and technologies. For instance, in February 2004 we acquired Concept Systems and in June 2004 we acquired GXT. While these acquisitions complement our technologies and our general business strategy, there can be no assurance that we will achieve the expected benefit of these acquisitions.

     In addition, these acquisitions may result in unexpected costs, expenses and liabilities. For example, during 2002, we acquired certain assets of S/N Technologies and, in April 2003, we invested $3.0 million in EVP. These transactions were not successful, therefore in 2003, we completely wrote down the costs of the assets we purchased from S/N Technologies and wrote down our investment in Energy Virtual Partners to its liquidation value of $1.0 million.

     Acquisitions expose us to:

• increased costs associated with the acquisition and operation of the new businesses or technologies and the management of geographically dispersed operations;

• risks associated with the assimilation of new technologies, operations, sites and personnel;

• the possible loss of key employees;

• risks that any technology we acquire may not perform as well as we had anticipated;

• the diversion of management’s attention and other resources from existing business concerns;

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• the potential inability to replicate operating efficiencies in the acquired company’s operations;

• potential impairments of goodwill and intangible assets;

• the inability to generate revenues to offset associated acquisition costs;

• the requirement to maintain uniform standards, controls, and procedures;

• the impairment of relationships with employees and customers as a result of any integration of new and inexperienced management personnel; and

• the risk that acquired technologies do not provide us with the benefits we anticipated.

     Integration of the acquired businesses require significant efforts from each entity, including coordinating existing business plans and research and development efforts. Integrating operations may distract management’s attention from the day-to-day operation of the combined companies. If we are unable to successfully integrate the operations of acquired businesses, our future results will be negatively impacted.

We may not gain rapid market acceptance for our 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 product lines. Because VectorSeis products rely on a new digital sensor, our ability to sell our VectorSeis products will depend on acceptance of our digital sensor and technology solutions by geophysical contractors and exploration and production companies. If our customers do not believe that our digital sensor delivers higher quality data with greater operational efficiency, our results of operations and financial condition will be materially and adversely affected.

     System reliability is an important competitive consideration for seismic data acquisition systems. Even though we attempt to assure that our systems are always reliable in the field, the many technical variables related to operations can cause a combination of factors that can and have, from time to time, caused service issues with our analog products. If our customers believe that our analog products have reliability issues, then those customers may delay acceptance of our new products and reduce demand for our analog products. Our business, our results of operations and our financial condition, therefore, may be materially and adversely affected.

     While we believe that our new VectorSeis System Four land data acquisition system has made significant improvements in both field troubleshooting and reliability compared to our legacy systems, products as complex as this system, however, sometimes contain undetected errors or bugs when first introduced. Despite our testing program, these undetected errors may not be 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. Errors may be found in future releases of our products, and these errors could impair the market acceptance of our products. If our customers do not accept our new products as rapidly as we anticipate, our business, our results of operations and our financial condition may be materially and adversely affected.

The loss of any significant customer could materially and adversely affect our results of operations and financial condition.

     We rely on a relatively small number of significant customers. Consequently, our business is exposed to the risks related to customer concentration. For the six months ended June 30, 2004 and for the entire year of 2003, approximately 12% and 28%, respectively, of our consolidated net sales related to one Chinese customer. The loss of any of our significant customers or a deterioration in our relations with any of them could materially and adversely affect our results of operations and financial condition.

Significant payment defaults under extended financing arrangements could adversely affect us.

     We often sell to customers on payment terms other than cash on delivery. We allow many of our customers to finance substantial purchases of our products through the issuance to us of promissory notes. The terms of these promissory notes initially range from eight months to five years. As of June 30, 2004, we had accounts receivable, net, of approximately $58.6 million and notes receivable, net, of approximately $17.2 million. Significant payment defaults by customers could have a material adverse effect on our results of

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operations and financial condition.

     Approximately $10.4 million and $1.1 million of our total notes receivable and accounts receivable, respectively, at June 30, 2004 related to one customer, a subsidiary of Yukos, a major Russian energy company. Yukos is currently experiencing financial difficulties, which may result in its becoming subject to insolvency proceedings. During 2003, the customer became delinquent in making scheduled principal and interest payments under its notes to us in the amount of approximately $0.8 million, and it became delinquent in payment of approximately $1.8 million in trade payables it also owed to us. In January 2004, we refinanced these delinquent payment obligations into a new note totaling $2.6 million, with payments due in equal installments over a twelve-month period. During the second quarter of 2004, the customer then became delinquent in payment of all of its existing notes owed to us. We are currently renegotiating the terms of these notes with the customer and potential new investors in the customer, which may include extending the payment terms under the notes. Based on the discussions with the customer, its parent company, and the potential new investors, we expect the customer will pay all of its obligations in full and, therefore, no allowance has been established for these receivables.

We have developed outsourcing arrangements with third parties to manufacture 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 reputation 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.

The current oversupply of seismic data and downward pricing pressures has adversely affected our operations and significantly reduced our operating margins and income and may continue to do so in the future.

     The current industry-wide oversupply of speculative surveys conducted and collected by geophysical contractors, and their practice of lowering prices to their customers for these surveys in order to recover investments in assets used to conduct 3-D surveys, have in recent years adversely affected our results of operations and financial condition. Particularly during periods of reduced levels of exploration for oil and gas, the oversupply of seismic data and downward pricing pressures limit our ability to meet sales objectives and maintain profit margins for our products and sustain growth of our business. These industry conditions have reduced, and if continued into the future, will further reduce, our revenues and operating margins.

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 80% of our consolidated net sales for the six months ended June 30, 2004, and 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 we cannot assure you that we will not experience difficulty in obtaining these 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;

26

• confiscatory taxation or other adverse tax policies;

• tariff regulations and import/export restrictions;

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

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

     There is increasing risk that our collections cycle will further lengthen as we anticipate a larger percentage of our sales will be to foreign customers, particularly those in China and the CIS.

     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 a 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, our results of operations and financial condition will be materially and adversely affected.

Further consolidation among our significant customers could materially and adversely affect us.

     Historically, a relatively small number of customers has 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 could materially and adversely affect our results of operations and financial condition.

Our outsourcing relationships may require us to purchase inventory when demand for products produced by third-party manufacturers is low.

     Under a few of our outsourcing arrangements, our manufacturing outsourcers purchase agreed-upon inventory levels to meet our forecasted demand. Since we typically operate without a significant backlog of orders for our products, our manufacturing plans and inventory levels are principally based on sales forecasts. If demand proves to be less than we originally forecasted, these manufacturing outsourcers have the right to require us to purchase any excess or obsolete inventory. Should we be required to purchase inventory under these provisions, we may be required to hold inventory that we may never utilize.

     To date, we have not been required to purchase any excess inventory under our outsourcing arrangements, and we have no existing obligation to purchase any excess inventory. We are in the process of revising our sales forecasting techniques with our outsourcers, providing short-term forecasts (usually less than six months) rather than long-term forecasts, which should assist with mitigating the risk that we will significantly overestimate our inventory needs from these outsourcers.

We may be unable to obtain broad intellectual property protection for our current and future products and we may become involved in intellectual property disputes.

     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,

27

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.

     Third parties inquire and claim from time to time that we have infringed upon their intellectual property rights. Any such claims, with or without merit, could be time consuming, result in costly litigation, result in injunctions, require product modifications, 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.

     We are not currently aware of any parties that intend to pursue intellectual property claims against us.

Our operations, and the operations of our customers, 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. Our export activities are also subject to extensive and evolving trade regulations. Certain countries are subject to restrictions, sanctions and embargoes imposed by the United States government. These restrictions, sanctions and embargoes also prohibit or limit us from participating in certain business activities in those countries. Our operations are subject to numerous local, state and federal laws and regulations in the United States and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties and the protection of the environment. These laws have been changed frequently in the past, and there can be no assurance that future changes will not have a material adverse effect on us. In addition, our customers’ operations are also significantly impacted by laws and regulations concerning the protection of the environment and endangered species. Consequently, changes in governmental regulations applicable to our customers may reduce demand for our products. For instance, regulations regarding the protection of marine mammals in the Gulf of Mexico may reduce demand for our airguns and other marine products. To the extent that our customer’s operations are disrupted by future laws and regulations, our business and results of operations may be materially and adversely affected.

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.

The loss of certain members of our senior management team (many of whom have only recently joined our company) could have a material adverse effect on our financial condition and results of operations.

     Our success depends, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, technical, engineering, manufacturing and processing skills that are critical to executing our business strategy. If we lose or suffer an extended interruption in the services of one or more of our senior officers, our financial condition and results of operations may be adversely affected. Moreover, the market for qualified individuals may be highly competitive, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.

     While many members of our current senior management team have significant experience working at various large corporations, with some of them working together at those corporations, our senior management has had limited experience working together at our company and implementing our current business strategy. In April 2003, Robert P. Peebler became our Chief Executive Officer after serving as a member of our Board of Directors since 1999. To help lead the implementation of our seismic imaging-based strategy, Mr. Peebler has recruited several new senior executives to augment our management team, including Jorge Machnizh, President of Imaging Systems, J. Michael Kirksey, Executive Vice President and Chief Financial Officer, Chris Friedemann, Vice President — Commercial Development, Jim Hollis, Vice President — Land Imaging Systems and Mick Lambert, President of GXT.

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Our significant debt obligations could limit our flexibility in managing our business and expose us to certain risks.

     As of June 30, 2004, we had $85.1 million of indebtedness outstanding (including our lease obligations under our facilities sale-leaseback arrangements). As a result, our interest expense has increased during the three and six months ended June 30, 2004, and will continued to increase in the foreseeable future when compared to 2003. Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness depends on our future business performance, which is subject to many economic, financial, competitive and other factors beyond our control. We do not have a working capital or other senior credit facility in place to finance our working capital needs. Our degree of leverage may have important consequences to our operations, including the following:

• we may have difficulty satisfying our obligations under the notes or other indebtedness and, if we fail to comply with these requirements, an event of default could result;

• we may be required to dedicate a substantial portion of our cash flow from operations to required payments on indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures and other general corporate activities;

• covenants relating to future debt may limit our ability to obtain additional financing for working capital, capital expenditures and other general corporate activities;

• covenants relating to future debt may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• we may be more vulnerable to the impact of economic downturns and adverse developments in our business; and

• we may be placed at a competitive disadvantage against any less leveraged competitors.

     The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations under the notes.

We may not be able to generate sufficient cash flows to meet our operational, growth and debt service needs.

     Our cash and cash equivalents have declined from $59.5 million at December 31, 2003 to $36.1 million at June 30, 2004, a decrease of $23.4 million, primarily related to our acquisition of Concept Systems in February 2004. In addition, in June 2004 we acquired GXT. Our ability to fund our operations, grow our business and to make scheduled payments on our indebtedness and our other obligations will depend on our financial and operating performance, which in turn will be affected by general economic conditions in the energy industry and by many financial, competitive, regulatory and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of capital will be available to us in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund our other liquidity needs.

     If we are unable to generate sufficient cash flows to fund our operations, grow our business and satisfy our debt obligations, we may have to undertake additional or alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure you that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds that may be realized from those sales, or that additional financing could be obtained on acceptable terms, if at all. Our inability to generate sufficient cash flows to satisfy debt obligations, or to refinance our indebtedness on commercially reasonable terms, would materially and adversely affect our financial condition and results of operations and our ability to satisfy our obligations under the notes.

     NOTE: The foregoing 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 that 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.

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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, interest rates and foreign currency exchange rates. We traditionally have not entered into significant derivative or other financial instruments other than the warrant granted to SCF, which was terminated in December 2003. We are not currently a borrower under any material credit arrangements that feature fluctuating interest rates, but we have $80.0 million of long-term fixed rate debt outstanding at June 30, 2004. As a result, we are subject to the risk of higher interest costs if this debt is refinanced. If rates are 1% higher at the time of refinancing, our interest costs would increase by approximately $0.8 million annually.

     We have subsidiaries in the Netherlands, United Kingdom, Norway and the United Arab Emirates. Therefore, our financial results may be affected by changes in foreign currency exchange rates. Our consolidated balance sheet at June 30, 2004 reflected approximately $12.6 million of net working capital related to our foreign subsidiaries. A majority of our foreign net working capital is within the Netherlands and United Kingdom. The subsidiaries receive their income and pay their expenses primarily in Euros and British pounds (GBP), respectively. To the extent that transactions of these subsidiaries are settled in Euros or GBP, a devaluation of these currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars. We do not hedge the market risk related to fluctuations in foreign currencies.

Item 4. Controls and Procedures

     We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded and reported. Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Exchange Act) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, the information relating to the Company (including its consolidated subsidiaries) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

     There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

     In June 2004, we entered into employment inducement stock option agreements with certain key employees of GXT as material inducements to their joining our company, under which options to purchase up to 434,000 shares of our common stock at an exercise price of $7.09 per share were granted. The grants of the inducement options were not registered under the Securities Act pursuant to exemptions from registration under that Act. However, we expect to file a Registration Statement on Form S-8 to register issuances of the shares of common stock that are issuable upon exercise of the inducement options.

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

     We held our annual meeting of stockholders in Stafford, Texas on June 22, 2004. Set forth below are the matters submitted to a vote of stockholders at the annual meeting, and the results of the voting:

     (a) Two directors were elected to our Board of Directors, each to serve until our annual meeting in 2007 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:

30

Nominee	Votes For		Votes Withheld
Franklin Myers		41,186,642		8,874,391
Bruce S. Appelbaum		49,698,003		363,029

     (b) The stockholders approved the Input/Output, Inc. 2004 Long-Term Incentive Plan by a vote of 30,236,938 shares in favor of approval of the plan, 8,286,259 shares voting against approval of the plan, and 95,059 shares abstaining.

     (c) The stockholders ratified the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2004 by a vote of 49,342,750 shares in favor of such ratification, 650,107 shares voting against, and 68,175 shares abstaining.

Item 5. Other Information

     On June 14, 2004, we purchased all of the equity interest of GXT, a Texas corporation, through a combination of cash and stock option value totaling approximately $151.0 million, including acquisition costs. The acquisition was completed under the terms of a stock purchase agreement dated as of May 10, 2004, as amended on June 11, 2004. The purchase price included the assumption of GXT stock options, which now represent fully vested stock options to purchase 2,916,590 shares of I/O common stock.

     GXT, headquartered in Houston, Texas, is a leading provider of seismic imaging technology data processing and subsurface imaging services to oil and gas companies.

     The principal source of the cash portion of the purchase price was net proceeds to us of approximately $130.9 million from an underwritten public offering of 20,209,631 shares of I/O common stock, which were priced at $7.00 per share on June 8, 2004. The source of the remainder of the cash consideration paid by us at closing of the acquisition was our cash on hand. Of the shares sold in the offering, 20,000,000 shares were sold by us and 209,631 shares were sold by certain selling stockholders, none of whom were our directors, officers, employees or their affiliates. We did not receive any proceeds from the sales of common stock by the selling stockholders. In addition, on June 17, 2004, the underwriters exercised their over-allotment option, purchasing an additional 2,928,700 shares of I/O common stock, resulting in additional net proceeds to us of approximately $19.2 million.

     In connection with this acquisition, as provided under the terms of the purchase agreement, a number of GXT’s outstanding stock options were terminated, and we assumed certain options and GXT’s obligations under its 1994 stock option plan, a copy of which is filed as Exhibit 10.1 to this Form 10-Q. The terms of these assumed GXT stock options now provide that they represent options to purchase up to 2,916,590 shares of I/O common stock. The weighted average exercise price of these assumed options is now $1.98 per share of I/O common stock.

     In addition, in connection with this acquisition, Mick Lambert, GXT’s chief executive officer, was named President – GXT. Copies of Mr. Lambert’s employment agreement with GXT, as amended by the first amendment and second amendment, both dated June 14, 2004, are filed as Exhibits 10.2, 10.3 and 10.4 to this Form 10-Q.

     Effective June 15, 2004, David L. Roland, I/O’s Vice President – General Counsel and Corporate Secretary, entered into an employment agreement with I/O, a copy of which is filed as Exhibit 10.5 to this Form 10-Q.

Item 6. Exhibits and Reports On Form 8-K

(a)	Exhibits
	10.1	GXT Employee Stock Option Plan (assumed by Input/Output, Inc.)
	10.2	Executive Employment Agreement by and between GXT and Mick Lambert dated March 26, 2004.
	10.3	First Amendment to Executive Employment Agreement dated June 14, 2004.
	10.4	Second Amendment to Executive Employment Agreement dated June 14, 2004.
	10.5	Employment Agreement by and between Input/Output, Inc. and David L. Roland dated June 15, 2004.

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	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
(b)	Reports on Form 8-K

          On May 3, 2004, we filed a Current Report on Form 8-K reporting under Item 5. “Other Events and Regulation FD Disclosure” and Item 7. “Financial Statements and Exhibits” in connection with our announced proposed acquisition of GXT.

          On May 11, 2004, we filed a Current Report on Form 8-K reporting under Item 5. “Other Events and Regulation FD Disclosure” and Item 7. “Financial Statements and Exhibits” in connection with our proposed acquisition of GXT; this Current Report on Form 8-K was amended by Forms 8-K/A-1 filed on May 28, 2004.

          On June 15, 2004, we filed a Current Report on Form 8-K/A-2, which amended Form 8-K/A-1 filed on May 28, 2004, to add a new Item 2. “Acquisition or Disposition of Assets” and amend Item 7. “Financial Statements and Exhibits” in connection with our proposed acquisition of GXT.

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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.

	INPUT/OUTPUT, INC.
	By /s/ J. Michael Kirksey
	J. Michael Kirksey
Date: August 9, 2004	Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit
No.	Description
10.1	GXT Employee Stock Option Plan (assumed by Input/Output, Inc.)
10.2	Executive Employment Agreement by and between GXT and Mick Lambert dated March 26, 2004.
10.3	First Amendment to Executive Employment Agreement dated June 14, 2004.
10.4	Second Amendment to Executive Employment Agreement dated June 14, 2004.
10.5	Employment Agreement by and between Input/Output, Inc. and David L. Roland dated June 15, 2004.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.

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EX-10.1

                                                                    EXHIBIT 10.1




                            GX TECHNOLOGY CORPORATION
                           EMPLOYEE STOCK OPTION PLAN

         1. Purpose. This 1994 Stock Option Plan (the "Plan") is intended to
encourage stock ownership by employees and directors of GX TECHNOLOGY
CORPORATION, a Texas corporation (the "Corporation"), and its Subsidiary
Corporations, including in the Section 4.2 below a specified contractor, so that
they may acquire or increase their proprietary interest in the Corporation; and
to encourage such employees and directors to remain in the employ of the
Corporation and to put forth maximum efforts for the success of the business. It
is further intended that options granted by the Committee (as defined in Section
2 below) pursuant to Section 5 hereof shall constitute "incentive stock options"
("Incentive Stock Options") within the meaning of IRC Section 422, as amended,
and the Regulations issued thereunder (the "Code"), and options granted by the
Committee pursuant to Section 6 hereof shall constitute "nonqualified stock
options" ("Nonqualified Stock Options") that, together with Incentive Stock
Options, are referred to herein as "Options".

         2. Administration. The Plan shall be administered by the Stock Option
and Compensation Committee (the "Committee"), consisting of not less than two
members of the Board of Directors of the Corporation (the "Board"), none of whom
are or shall have been for at least one year prior to such appointment, eligible
to participate in the Plan or any other plan of the Corporation or any of its
predecessor entities entitling the participants therein to acquire stock, stock
options or stock appreciation rights of the Corporation or any of said entities.
The initial Committee shall consist of Thomas D. Barrow and the Board designee
of Nationsbanc Capital Corporation pursuant to the Securityholders Agreement
with the Corporation dated November 2, 1994, presently Douglas C. Williamson.

         2.1 Authority. The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and authorities
either specifically granted to it under the Plan, or necessary or advisable in
the administration of the Plan, including, without limitation, the authority to
grant Options; to determine which Options shall constitute Incentive Stock
Options and which Options shall constitute Nonqualified Stock Options; to
determine the purchase price of the shares of Common Stock covered by each
Option (the "Option Price"); to determine the persons to whom, and the time or
times at which, Options shall be granted; to determine the number of shares of
Common Stock to be covered by each Option; to interpret the Plan; to prescribe,
amend and rescind rules and Regulations relating to the Plan; to determine the
terms and provisions of the Option Agreements (which need not be identical)
evidencing Options granted under the Plan; and to make all other determinations
deemed necessary or advisable for the administration of the Plan. This authority
does not extend to the Common Stock or the granting of the Nonqualified Stock
Options of Sections 4.2 and 6 hereof respectively, said Options being those
granted as of October 31, 1994 to meet contractual commitments of employees and
a contractor of GX Technology L.P. The Committee may delegate to one or more of
its members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any delegate may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the Plan.





         2.2 Rules. The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more Committee members and
substitute others. One member of the Committee shall be selected by the Board as
chairman. The Committee shall hold its meeting at such times and places as it
shall deem advisable. All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.

         2.3 Liability. No member of the Board or Committee shall be liable for
any action taken or determination made in good faith with respect to the Plan or
any Option.

         3. Eligibility. Options may be granted to employees, Directors of the
Corporation or its present or future divisions and Subsidiary Corporations,
including in the Section 4.2 below a specified contractor. In determining the
persons to whom Options shall be granted and the number of shares to be covered
by each Option, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success of
the Corporation sad such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan. A person to whom an
Option has been granted is sometimes referred to herein as an "Optionee." An
Optionee shall be eligible to receive more than one Option during the term of
the Plan, but only on the terms and subject to the restrictions hereinafter set
forth.

         4. Shares. The shares subject to Options hereunder shall be shares of
the Corporation's Common Stock (the "Common Stock"). Such shares may, in whole
or in part, be authorized but unissued shares or, shares that shall have been or
that may be reacquired by the Corporation.

         4.1 The aggregate number of shares of Common Stock as to which
Incentive Stock Options of Section 5 hereof may be granted from time to time
under the Plan shall not exceed 137,628 shares, provided also that a portion of
these shares shall be reserved for non-employee directors, new employees and
other members of management that are not currently shareholders of the
Corporation and that a portion of these shares may be granted to the Managers as
defined in the Stock Purchase Agreement dated November 2, 1994. The limitation
established by the preceding sentence shall be subject to adjustment as provided
in Section 7.9 hereof. If any outstanding Incentive Stock Option expires or is
terminated without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option shall (unless the Plan shall
have been terminated) become available for subsequent grants of Incentive Stock
Options.

         4.2 The aggregate number of shares of Common Stock as to which
Nonqualified Stock Options of Section 6 hereof may be granted under the Plan
shall not exceed 261,500 shares, with the same to be issued within five (5) days
of approval of this Plan by the shareholder or shareholders of the Corporation
to the former owners of the Restricted Units under the Restricted Partnership
Unit Plan and the former owners of the Unit Options under the Employee Unit
Purchase Plan of GX Technology L.P., as a predecessor entity of the Corporation.




                                       2


         5. Incentive Stock Options. Options granted pursuant to this Section 5
are intended to constitute Incentive Stock Options and shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified in Section 7 hereof.

         5.1 Value of Shares. The aggregate Fair Market Value (determined as of
the date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Options granted under this Plan and all other option plans
of the Corporation and any Subsidiary Corporation become exercisable for the
first time by an Optionee during any calendar year shall not exceed $100,000.

         5.2 Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a 10% Stockholder, (a) the Option Price shall not be less than 110%
of the Fair Market Value of the shares of Common Stock of the Corporation on the
date of grant of such Incentive Stock Option, and (b) the exercise period shall
not exceed 5 years from the date of grant of such Incentive Stock Option.

         5.3 Vesting of Options. The Incentive Stock Options shall have a
minimum vesting of twenty-five percent (25%) over each of the four (4) years
following the date such an Option is granted.

         6. Nonqualified Stock Options. Options greeted pursuant to this Section
6 are intended to constitute Nonqualified Stock Options to be valid for a period
of ten (10) years from date of granting, the vesting and exercise prices per
share to be in accordance with the specific provisions of the Nonqualified
Option Agreements as set forth below, and shall be subject to the general terms
and conditions specified in Section 7 hereof.

         6.1 The Nonqualified Stock Options that are to be issued to replace the
Restricted Units noted in Section 4.2 above shall have an exercise price of five
cents ($.05) per share and shall have the same vesting period(s) as provided in
the Restricted Unit Agreements undertaken in connection with the granting of
said Restricted Units to the employees, Directors or a contractor of GX
Technology L.P. as a predecessor entity of the Company.

         6.2 The Nonqualified Stock Options that are to be issued to replace the
Option Units noted in Section 4.2 above shall have an exercise price of five
dollars ($5.00) per share and shall have the same vesting period(s) as provided
in the Employee Unit Purchase Agreements undertaken in connection with the
granting of said Unit Options to the employees and Directors of GX Technology
L.P. as a predecessor entity of the Company.

         7. Terms and Conditions of Options. Each Option shall be evidenced by a
written Option Agreement between the Corporation and the Optionee, which
agreement shall comply with and be subject to the following terms and
conditions:

         7.1 Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.

         7.2 Type of Option. Each Option Agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock Option
and the portion, if any, which constitutes a Nonqualified Stock Option.





                                       3


         7.3 Option Price. Each Option Agreement shall state the Option Price
which, in the case of Incentive Stock Options, shall be not less than 100% of
the Fair Market Value of the shares of Common Stock of the Corporation on the
date of grant of the Option. The Option Price shall be subject to adjustment as
provided in Section 7.9 hereof. The date on which the Committee adopts a
resolution expressly granting an Option shall be considered the day on which
such Option is granted.

         7.4 Medium and Time of Payment. The Option Price shall be paid in full,
at the time of exercise, in cash or in shares of Common Stock having a Fair
Market Value equal to such Option Price or in a combination of cash and such
shares, and may be effected in whole or in part (a) with monies received from
the Corporation at the time of exercise as a compensatory cash payment, or (b)
with monies borrowed from the Corporation pursuant to repayment terms and
conditions as shall be determined from time to time by the Committee, in its
discretion, separately with respect to each exercise of Options and each
Optionee; provided, however, that each such method and time for payment and each
such borrowing and terms and conditions of repayment shall be permitted by and
be in compliance with applicable law, and provided, further, if the Option Price
is paid with monies borrowed from the Corporation, such fact shall be noted
conspicuously on the certificate evidencing such shares in accordance with
applicable law.

         7.5 Term and Exercise of Options. Options shall be exercisable over the
exercise period as and at the times and upon the conditions that the Committee
may determine, as reflected in the Option Agreement; provided, however, that the
Committee shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its sole
discretion, deems appropriate. The exercise period shall be determined by the
Committee for all Options; provided, however that such exercise period shall not
exceed 10 years from the date of grant of such Option. The exercise period shall
be subject to earlier termination as provided in Sections 7.6 and 7.7 hereof. An
Option may be exercised, as to any or all full shares of Common Stock as to
which the Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option may not be
exercised at any one time as to fewer than 100 shares (or such number of shares
as to which the Option is then exercisable if such number of shares is less than
100).

         7.6 Termination. Except as provided in Section 7.5 and in this Section
7.6 hereof, an Option may not be exercised unless the Optionee is then in the
employ of the Corporation or a division or Subsidiary Corporation (or a
corporation issuing or assuming the Option in a transaction to which IRC Section
424(a) applies), and unless the Optionee has remained continuously so employed
since the date of grant of the Option. If the employment of an Optionee shall
terminate (other than by reason of death, disability or retirement), all Options
of such Optionee that are exercisable at the time of such termination may,
unless earlier terminated in accordance with their terms, be exercised within
three months after such termination; provided, however, that if the employment
of an Optionee shall terminate for cause, all Options theretofore granted to
such Optionee shall, to the extent not theretofore exercised, terminate
forthwith. Nothing in the Plan or in any Option shall confer upon an individual
any right to continue in the employ of the Corporation or any of its divisions
or Subsidiary Corporations or interfere in any way with the right of the
Corporation or any such division or Subsidiary Corporation to terminate such
employment.





                                       4


         7.7 Death, Disability, or Retirement. If an Optionee shall die while
employed by the Corporation, or a Subsidiary Corporation thereof, or within
three months after the termination of such Optionee's employment, other than for
cause, or if the Optionee's employment shall terminate by reason of disability
or retirement, all Options theretofore granted to such Optionee (to the extent
otherwise exercisable) may, unless earlier terminated in accordance with their
terms, be exercised by the Optionee or by the Optionee's estate or by a person
who acquired the right to exercise such Option by bequest or inheritance or
otherwise by reason of the death or disability of the Optionee, at any time
within one year after the date of death, disability or retirement of the
Optionee.

         7.8 Nontransferability of Options. Options granted under the Plan shall
not be transferable otherwise than (a) by will; or (b) by the laws of descent
and distribution. Options may be exercised, during the lifetime of the Optionee,
only by the Optionee, his or her guardian, or legal representative.

         7.9 Effect of Certain Changes.

                  (1) If there is any change in the number of shares of Common
         Stock through the declaration of stock dividends, or through
         recapitalization resulting in stock splits, or combinations or
         exchanges of such shares, the number of shares of Common stock
         available for Options, the number of such shares covered by outstanding
         Options and the price per share of such Options shall be
         proportionately adjusted by the Committee to reflect any increase or
         decrease in the number of issued shares of Common Stock; provided,
         however, that any fractional shares resulting from such adjustment
         shall be eliminated.

                  (2) In the event of the proposed dissolution or liquidation of
         the Corporation, in the event of any corporate separation or division,
         including, but not limited to, split-up, split-off or spin-off, or in
         the event of a merger or consolidation of the Corporation with another
         corporation, the Committee may provide that the holder of each Option
         then exercisable shall have the right to exercise such Option (at its
         then Option Price) solely for the kind and amount of shares of stock
         and other securities, property, cash or any combination thereof
         receivable upon such dissolution, liquidation, or corporate separation
         or division, or merger or consolidation by a holder of the number of
         shares of Common Stock for which such Option might have been exercised
         immediately prior to such dissolution, liquidation, or corporate
         separation or division, or merger or consolidation; or the Committee
         may provide, in the alternative, that each Option granted under the
         Plan shall terminate as of a date to be fixed by the Committee;
         provided, however, that not less than 30-days' written notice of the
         date so fixed shall be given to each Optionee, who shall have the
         right, during the period of 30 days preceding such termination, to
         exercise the Options as to all or any part of the shares of Common
         Stock covered thereby, including shares as to which such Options would
         not otherwise be exercisable; provided, further, that failure to
         provide such notice shall not invalidate or affect the action with
         respect to which such notice was required.





                                       5


                  (3) If while unexercised Options remain outstanding under the
         Plan, the stockholders of the Corporation approve a definitive
         agreement to merge or consolidate the Corporation with or into another
         corporation or to sell or otherwise dispose of all or substantially all
         of its assets, or adopt a plan of liquidation (each, a "Disposition
         Transaction"), then the Committee may (a) make an appropriate
         adjustment to the number and class of shares available for options, and
         to the amount and kind of shares or other securities or property
         (including cash) receivable upon exercise of any outstanding options
         after the effective date of such transaction, and the price thereof,
         or, in lieu of such adjustment, provide for the cancellation of all
         options outstanding at or prior to the effective date of such
         transaction; (b) provide that exercisability of all Options shall be
         accelerated, whether or not otherwise exercisable; or (c) in its
         discretion, permit Optionees to surrender outstanding options for
         cancellation; provided, however, that if the stockholders approve such
         Disposition Transaction within five years of the date of adoption of
         this Plan and before the Corporation is taken public, the Committee
         shall provide for the alternative in (b) above. Upon any cancellation
         of an outstanding Option pursuant to this Section, the Optionee shall
         be entitled to receive, in exchange therefor, a cash payment under any
         such Option in an amount per share determined by the Committee in its
         sole discretion, but not less than the difference between the per share
         exercise price of such Option and the Fair Market Value of a share of
         the Corporation Common Stock on such date as the Committee shall
         determine.

                  (4) Paragraphs (2) and (3) of this Section 7.9 shall not apply
         to a merger or consolidation in which the Corporation is the surviving
         corporation and shares of Common Stock are not converted into or
         exchanged for stock, securities of any other corporation, cash or any
         other thing of value. Notwithstanding the preceding sentence, in case
         of any consolidation or merger of another corporation into the
         Corporation in which the Corporation is the surviving corporation and
         in which there is a reclassification or change (including a change to
         the right to receive cash or other property) of the shares of Common
         Stock (other than a change in par value, or from par value to no par
         value, or as a result of a subdivision or combination, but including
         any change in such shares into two or more classes or series of
         shares), the Committee may provide that the holder of each Option then
         exercisable shall have the right to exercise such Option solely for the
         kind and amount of shares of stock and other securities (including
         those of any new direct or indirect parent of the Corporation),
         property, cash or any combination thereof receivable upon such
         reclassification, change, consolidation or merger by the holder of the
         number of shares of Common Stock for which such Option might have been
         exercised.

                  (5) In the event of a change in the Common Stock of the
         Corporation as presently constituted which is limited to a change of
         all of its authorized shares with par value into the same number of
         shares with a different par value or without par value, the shares
         resulting from any such change shall be deemed to be the Common Stock
         within the meaning of the Plan.

                  (6) To the extent that the foregoing adjustments relate to
         stock or securities of the Corporation, such adjustments shall be made
         by the Committee, whose determination in that respect shall be final,
         binding and conclusive, provided that each Incentive Stock Option
         granted pursuant to this Plan shall not be adjusted in a manner that
         causes such option to fail to continue to qualify as an Incentive Stock
         Option within the meaning of IRC Section 422.




                                       6


                  (7) Except as hereinbefore expressly provided in this Section
         7.9, the Optionee shall have no rights by reason of any subdivision or
         consolidation of shares of stock or any class or the payment of any
         stock dividend or any other increase or decrease in the number of
         shares of stock of any class or by reason of any dissolution,
         liquidation, merger, or consolidation or spin-off of assets or stock of
         another corporation; and any issue by the Corporation of shares of
         stock of any class shall not affect, and no adjustment by reason
         thereof shall be made with respect to, the number or price of shares of
         Common Stock subject to the Option. The grant of an Option pursuant to
         the Plan shall not affect in any way the right or power of the
         Corporation to make adjustments, reclassifications, reorganizations or
         changes of its capital or business structures or to merge or to
         consolidate or to dissolve, liquidate or sell, or transfer all or part
         of its business or assets.

         7.10 Rights as a Shareholder. An Optionee or a transferee of an Option
shall have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate evidencing such shares.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distribution of other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 7.9 hereof.

         7.11 Other Provisions. The Option Agreements authorized under the Plan
shall contain such other provisions, including, without limitation, (a) the
imposition of restrictions upon the exercise of an Option; (b) in the case of an
Incentive Stock Option, the inclusion of any condition not inconsistent with
such Option qualifying as an Incentive Stock Option; and (c) conditions relating
to compliance with applicable federal and state securities laws, as the
Committee shall deem advisable.

         8. Agreement By Optionee Regarding Withholding Taxes. If the Committee
shall so require, as a condition of the exercise, each Optionee shall agree that
(a) no later than the date of exercise of any Option, the Optionee will pay to
the Corporation or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such Options, and (b) the Corporation shall, to
the extent permitted or required by law, have the right to deduct federal, state
and local taxes of any kind required by law to be withheld upon the exercise of
such Option from any payment of any kind otherwise due to the Optionee.

         9. Term of Plan. Options may be granted pursuant to the Plan from time
to time within a period of 10 years from the date the Plan is approved by the
stockholders of the Corporation.

         10. Definitions. As used in this Plan, the following words and phrases
shall have the meanings indicated:

                  (a) "DISABILITY" shall mean an Optionee's inability to engage
         in any substantial gainful activity by reason of any medically
         determinable physical or mental impairment that can be expected to
         result in death or that has lasted or can be expected to last for a
         continuous period of not less than twelve (12) months.





                                       7


                  (b) "FAIR MARKET VALUE" per share as of a particular date
         shall mean (i) the closing sales price per share of Common Stock on a
         national securities exchange for the last preceding date on which there
         was a sale of such Common Stock an such exchange; or (ii) if the shares
         of Common Stock are then traded on an over-the-counter market, the
         average of the closing bid and asked prices for the shares of Common
         Stock in such over-the-counter market for the last preceding date on
         which there was a sale of such Common Stock in such market; or (iii) in
         case no reported sale takes place, the average of the closing bid and
         asked prices on the National Association of Securities Dealers'
         Automated Quotations System ("NASDAQ") or any comparable system, or if
         the shares of Common Stock are not listed on NASDAQ or comparable
         system, the closing sale price or, in case no reported sale takes
         place, the average of the closing bid and asked prices, as furnished by
         any member of the National Association of Securities Dealers, Inc.
         selected from time to time by the Corporation for that purpose; or (iv)
         if the shires of Common Stock are not then listed on a national
         securities exchange or traded in an over-the-counter market, such value
         as the Committee in its discretion may determine using reasonable
         valuation methodology, which may include the use of an expert
         professional appraiser(s).

                  (c) "PARENT CORPORATION" shall mean any corporation (other
         than the Corporation) in an unbroken chain of corporations ending with
         the employer corporation if, at the time of granting an Option, each of
         the corporations other than the employer corporation owns stock
         possessing 50% or more of the total combined voting power of all
         classes of stock in one of the other corporations in such chain.

                  (d) "SUBSIDIARY CORPORATION" shall mean any corporation (other
         than the Corporation) in an unbroken chain of corporations beginning
         with the employer corporation if, at the time of granting an Option,
         each of the corporations other than the last corporation in the
         unbroken chain owns stock possessing 50% or more of the total combined
         voting power of all classes of stock in one of the other corporations
         in such chain.

                  (e) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at
         the time an Incentive Stock Option is granted, owns stock possessing
         more than 10% of the total combined voting power of all classes of
         stock of the Corporation or of its Parent or Subsidiary Corporations.

         11. Amendment and Termination of the Plan. The Board at any time and
from time to time may suspend, terminate, modify or amend the Plan; provided,
however, that any amendment that would materially increase the aggregate number
of shares of Common Stock as to which Options may be granted under the Plan or
materially increase the benefits accruing to participants under the Plan or
materially modify the requirements as to eligibility for participation in the
Plan shall be subject to the approval of the holders of a majority of the Common
Stock issued and outstanding, except that any such increase or modification that
may result from adjustments authorized by section 7.9 hereof shall not require
such approval. Except as provided in Section 7 hereof, no suspension,
termination, modification or amendment of the Plan may adversely affect any
Option previously granted, unless the written consent of the Optionee is
obtained.




                                       8


         12. Approval of Stockholders. The Plan shall take effect upon the
approval of the holders of a majority of the issued and outstanding shares of
Common Stock of the Corporation.

         13. Effect of Headings. The section and subsection headings contained
herein are for convenience only and shall not affect the construction hereof.

Approved by the Written Consent of Sole Shareholder in lieu of Special Meeting
of the Shareholders on October 31, 1994.


                                       9

EX-10.2

                                                                    EXHIBIT 10.2


                         EXECUTIVE EMPLOYMENT AGREEMENT


This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of the 26th day of March, 2004, by and between GX Technology Corporation, a
Texas corporation (the "Company"), located at 5847 San Felipe, Suite 3800,
Houston, Texas 77057 and Michael K. Lambert ("Executive"), located at 5034
Yarwell Drive, Houston, Texas 77096.

                            SECTION 1 - DEFINITIONS

1.1  "Party" or "Parties" - references either Company or Executive or both.

1.2  "Board" - the Board of Directors of Company or the Board of Directors of
     any successor company created by a Change of Control.

1.3  "Compensation" - remuneration to Executive, as defined in Section 3.

1.4  "Public Offering" - the sale of shares of the Company's common stock,
     approved by the Board, in an underwritten public offering, registered under
     the Securities Act of 1933, as amended from time to time. The completion of
     a Public Offering shall not constitute a Change of Control, as defined in
     Paragraph 1.4 above.

1.5  "Change of Control" - is deemed to have occurred when one or more of the
     following events occur: a) prior to a Public Offering (i) as a result of a
     transaction or series of transactions, the Company's shareholders who were
     shareholders immediately prior to such transaction(s) own, directly or
     indirectly, securities representing less than 50% of the combined voting
     power of the Company's then outstanding securities (whether by merger,
     consolidation, reorganization, combination, sale or transfer of the
     Company's capital stock, shareholder or voting agreement, proxy, power of
     attorney or otherwise); (ii) as a result of a transaction or series of
     transactions, the Company's shareholders who were shareholders immediately
     prior to such transaction(s) no longer own, directly or indirectly,
     securities possessing the voting power sufficient to elect the Company's
     board of directors (whether by merger, consolidation, reorganization,
     combination, sale or transfer of the Company's capital stock, shareholder
     or voting agreement, proxy, power of attorney or otherwise) or (iii) any
     sale or transfer of all or substantially all (substantially being more than
     50%) of the assets of the Company, or b) following a Public Offering (i)
     any transaction or series of transactions that results in all or
     substantially all (substantially being more than 50%) of the outstanding
     securities of the Company becoming owned or controlled by one company or
     business entity (whether by merger, consolidation, reorganization,
     combination, sale or transfer of the Company's capital stock, shareholder
     or voting agreement, proxy, power of attorney or otherwise); or (ii) any
     transaction or series of transactions that results in the possession by one
     company or business entity of voting power sufficient to elect the
     Company's Board (whether by merger, consolidation, reorganization,
     combination, sale or transfer of the Company's capital stock, shareholder
     or voting agreement, proxy, power of attorney or otherwise).

1.6  "Change of Control Date" - the effective date of any Change of Control.


1.7  "Termination Date" - the date of the termination of this Agreement.

1.8  "Termination Payments" - The payments, associated benefits and vesting of
     stock options due to Executive upon termination of this Agreement, as
     defined in Section 8.

1.9  "Termination Period" - The time period that Executive will receive
     Termination Payments from Company, as defined in Section 8.

                   SECTION 2 - JOB TITLE AND JOB DESCRIPTION

Upon the effective date of this Agreement, Executive holds the job title of
President and Chief Executive Officer at Company, located in Houston.
Executive's Job Description includes all of the responsibilities and functions
normally associated with the position of President and Chief Executive Officer
in other companies of similar size and scope to Company.

                            SECTION 3 - COMPENSATION

The Company agrees to provide the following Compensation to Executive. Both the
Company and Executive acknowledge that such Compensation is fair and adequate
remuneration for Executive's services, and for the mutual promises defined
herein.

     o    "Salary" - a base salary of $220,000 per annum, payable semi-monthly,
          in accordance with the Company's ordinary payroll policies. The Salary
          may be increased periodically, at the sole discretion of the Board.

     o    "Supplemental Compensation" - an annual bonus calculated as follows:

               o    An annual bonus of approximately 100% of Salary, subject to
                    the Company meeting its overall projected annual financial
                    and business goals. If Company falls short of meeting its
                    overall projected annual financial and business goals then
                    the bonus may be reduced, at the discretion of the Board.

               o    The annual bonus will be paid within thirty days of the
                    availability of the final audited financial statements for
                    the then preceding fiscal year.

     o    "Stock Options" - Company stock options, issued to Executive under the
          terms of the Company stock option plan and issued at the sole
          discretion of the Board.

     o    "Benefits" - all incidental benefits of employment received by other
          executives of the Company as set forth by the Board including medical
          insurance, life insurance, retirement plans and any other similar
          benefit in effect from time to time, and will be subject to all of the
          regularly established employee policies for executives of the Company.

     o    Expense reimbursement - reimbursement for reasonable expenses,
          including, but not limited to, travel expenses, lodging expenses,
          meals or entertainment expenses, that Executive may incur in the
          performance of the duties and obligations under this Employment
          Agreement; provided, however, that Executive shall submit receipts or


                                       2


          other documentation to the Company to verify such expenses prior to
          any reimbursements, in accordance with the rules promulgated by the
          Internal Revenue Service.

                          SECTION 4 - RESPONSIBILITIES

4.1  Executive covenants and agrees that he will faithfully and diligently
     perform the services and functions commensurate with Executive's position
     in the Company, throughout the term of this Agreement. Executive may,
     however, devote reasonable periods of time in connection with speaking
     engagements, charitable and community activities and serving as a director,
     officer or committee member of any organization, if such activities enhance
     the business of the Company, do not substantially interfere with the
     performance of the Executive's duties hereunder, and do not violate any
     other provisions of this Agreement.

4.2  The Executive will have the duties, functions, responsibilities and
     authority customarily associated with the position that the Executive
     holds, as well as such additional duties appropriate to such office that he
     may, from time to time, be directed to perform by the Board.

4.3  Executive acknowledges and agrees that he has a fiduciary duty of loyalty
     to the Company, and that he will not engage in any activity that will or
     would, in any way, materially harm the business, business interests or
     reputation of the Company.

4.4  Executive acknowledges and agrees that he will not directly or indirectly
     engage in competition with the Company at any time during the existence of
     the employment relationship between the Company and Executive, and
     Executive will not on his own behalf, or as another's agent, employee,
     partner, shareholder or otherwise, engage in any of the same or similar
     duties and/or responsibilities required by Executive's position with the
     Company, other than as an employee of the Company pursuant to this
     Agreement.

                           SECTION 5 - NONDISCLOSURE

5.1  Executive acknowledges and agrees that, prior to and subsequent to the
     execution of this Agreement, Executive has had, and will have access to
     certain confidential and highly sensitive information relating to the
     Company, incident to his employment by the Company, including, but not
     limited to, information pertaining to: (i) the identity of the Company's
     customers, suppliers and prospects for new supplier or customer
     relationships; (ii) the special needs of the Company's customers and
     suppliers; (iii) confidential market studies; (iv) pricing studies,
     information and analyses; (v) current and prospective products and
     inventories; (vi) business projections; (vii) business plans and
     strategies; (viii) financial statements and information; (ix) special
     processes, procedures and services of the Company and its suppliers.
     Executive acknowledges and agrees that this confidential and highly
     sensitive information, if disclosed, could place the Company at a
     competitive disadvantage. Consequently, Executive acknowledges and agrees
     that such confidential and highly sensitive information constitutes either
     a Trade Secret or Confidential Information, and Executive acknowledges and
     agrees not to disclose such confidential and highly sensitive information
     to any person who is not a current employee


                                       3


     or Board member of the Company at any time prior, or for three (3) years
     subsequent, to the termination (whether the termination is with or without
     cause) of this Agreement without the express written consent of the
     Company.

5.2  As used herein: "Trade Secret" shall mean any technical or scientific
     information, design, process, procedure, formula or improvement, or any
     portion or phase thereof, whether or not patentable, that is of value to
     the Company and is not generally known to competitors of the Company. Trade
     Secrets include but are not limited to unpatented information relating to
     development, manufacture or servicing of the Company's products and
     services, information concerning proposed new products or services, market
     feasibility studies, proposed or existing marketing techniques or plans,
     computer software, including source and object codes, flow charts,
     algorithms, work flows, doctrines, sub-routines, design concepts and
     related documentation and manuals. Trade Secrets also include any
     information described above which the Company obtains from another Party
     and which the Company treats as proprietary or designates as Trade Secrets.

5.3  As used herein, "Confidential Information" shall mean any data or
     information, other than Trade Secrets, that is of value to the Company and
     is not generally known to competitors of the Company. Confidential
     Information shall include but is not limited to lists of the Company's
     current or potential customers, the identity of various suppliers,
     information about the Company's executives and employees, financial
     information, marketing techniques, price lists, pricing policies and the
     Company's business methods. Confidential Information also includes any
     information described above which the Company obtains from another Party
     and which the Company treats as proprietary or designates as Confidential
     Information. Confidential Information does not include any of the foregoing
     items if they become publicly known and/or are made generally available by
     Company through no wrongful act of Executive or by others who were under
     confidentiality obligations.

5.4  Executive will not discuss the existence of this Agreement or the terms
     contained herein, with any employee, contractor or agent of Company, except
     Executive will be free to discuss this Agreement with the his/her direct
     Supervisor and with any other Company manager, in the Executive's direct
     reporting structure. Executive will not discuss the existence of this
     Agreement or the terms contained herein, to any person who is not an
     employee of Company, except for direct family members and financial, tax or
     legal professionals.

                             SECTION 6 - INVENTIONS

6.1  Executive agrees to promptly disclose to the Company any and all
     inventions, discoveries, improvements, trade secrets, formulas,
     compositions, code, designs, programs, techniques, processes, and know-how,
     whether or not reduced to writing or practice, conceived by Executive
     during the period of his employment, either alone or jointly with others,
     which relate to or result from the actual or anticipated business, work,
     research or investigations of the Company, or which result from use of the
     Company's premises or property (the work being hereinafter collectively
     referred to as the "Intellectual Property"). Further, Executive shall
     disclose in confidence to the Company


                                       4


     all patent and copyright applications filed by or on behalf of Executive
     during the term of his employment and, to the extent such application
     relates to the Intellectual Property of the Company at the date Executive's
     employment terminates, for a period of twelve (12) months thereafter.

6.2  Executive acknowledges and agrees that during the term of this Agreement
     and as further provided herein, all the Intellectual Property will be the
     sole property of the Company or any other entity designated by it, and
     Executive hereby assigns to the Company the Executive's entire right and
     interest in and to all Intellectual Property. Executive further agrees as
     to all Intellectual Property to reasonably assist the Company (at the
     Company's expense) to obtain and from time to time enforce patents and
     copyrights on the Intellectual Property in any and all countries during the
     term of this Agreement. To that end, by way of illustration but not
     limitation, Executive will testify in any suit or other proceeding
     involving any of the Intellectual Property, execute all documents which the
     Company reasonably determines to be necessary or convenient for use in
     applying for and obtaining patents and copyrights thereon and enforcing
     same, and execute all necessary assignments thereof to the Company or
     persons designated by it.

6.3  Executive's obligation to assist the Company in obtaining and enforcing
     patents and copyrights for the Intellectual Property shall continue beyond
     the termination of his employment, but the Company shall compensate
     Executive at a reasonable rate after such termination for the time actually
     spent by Executive at the Company's request on such assistance and the
     Company's requests for assistance shall be reasonable in light of
     Executive's then existing commitments.

6.4  Executive hereby irrevocably appoints the Company, and its duly authorized
     officers and agents, as Executive's agent and attorney-in-fact to act for
     and on behalf of Executive in filing all patent and copyright applications,
     amendments, renewals, and all other appropriate documents in any way
     related to Intellectual Property. The Company will promptly notify
     Executive following any such filing, provided that the Company will not be
     obligated to make such notification if as a result the Company would be in
     violation of any agreement or order to which it is subject or bound.

6.5  For the purposes of this Agreement, an invention or other Intellectual
     Property is deemed to have been made or conceived during the duration of
     employment if during such time, the invention or other Intellectual
     Property was conceived or first actually reduced to writing or practice.

                              SECTION 7 - REMEDIES

7.1  In the event that Executive violates any of the provisions set forth in
     Sections 4 through 6 of this Agreement relating to responsibilities,
     nondisclosure or inventions, Executive acknowledges and agrees that the
     Company could suffer immediate and irreparable harm, which cannot be
     accurately calculated in monetary damages. Consequently, Executive
     acknowledges and agrees that the Company shall be entitled to seek
     injunctive relief, either by temporary or permanent injunction, to prevent
     such a violation. Executive


                                       5


     acknowledges and agrees that this injunctive relief shall be in addition to
     any other legal or equitable relief to which the Company would be entitled.

7.2  In the event that the Parties to this Agreement fail to agree on the one or
     more of the clauses incorporated in this Agreement, both Parties agree to
     attempt to resolve this disagreement amicably by direct negotiations
     between Executive and the Board. If such attempts to resolve any
     disagreement have not been successful after a period of thirty (30) days,
     then the Parties agree to submit the disagreement to a mutually agreeable
     mediator, with the costs of such mediation services being shared equally by
     the Parties.

                        SECTION 8 - TERM AND TERMINATION

8.1  This Agreement will become effective as of the date hereof, and will expire
     and terminate by its own terms on December 31, 2006, unless there is a
     Change of Control prior to December 31, 2006.

8.2  During the term of this agreement and prior to a Change of Control, either
     Party may terminate this Agreement with ninety (90) days written notice.
     After a Change of Control, the options to terminate this Agreement are
     defined in Sections 8.4 through 8.7.

8.3  Executive acknowledges and agrees that the Board may terminate Executive's
     employment at any time, for "cause" in the event (i) Executive violates any
     material provision of this Agreement, and such violation continues after
     thirty (30) days written notice to Executive and Executive fails to cure
     such violation (ii) Executive is convicted of a felony or other crime that
     would materially damage the reputation and goodwill of the Company or (iii)
     in the course and scope of employment, Executive engages in fraud,
     embezzlement, theft or repeated and willful violations of Company policies.

     Upon termination of Executive's employment for "cause" the Company will be
     obligated, up to and through the Termination date, to pay all compensation
     due to the Executive through that date, all accrued Supplemental
     Compensation through that date and other Benefits through that date.
     Employee will be entitled to exercise all or part of any stock options
     vested up to and through the Termination Date, for a period of ninety (90)
     days from the Termination Date.

8.4  In the event of a Change of Control, prior to December 31, 2006, the then
     remaining term of this Agreement ("Remaining Term") will automatically
     reset to two (2) years, commencing on the Change of Control Date.

8.5  In the event of a Change of Control, and during the Remaining Term of this
     Agreement, Executive acknowledges and agrees that the Board may terminate
     this Agreement, without cause, at the sole discretion of the Board, by
     providing Executive with ninety (90) days written notice of such
     termination. If the Board exercises this termination option and so long as
     Executive complies with the terms of Sections 5 and 6 of this Agreement,
     the Company will pay to Executive, Termination Payments, defined as (i) the
     then current Salary (as of the Termination Date) during the Termination
     Period (ii) the average Supplemental Compensation earned by the Executive
     in the most recent two fiscal year period, divided by 12 and paid monthly
     during the Termination Period (iii) all


                                       6


     relevant Benefits to which Executive was entitled as of the Termination
     Date, and paid as applicable during the Termination Period and (iv) all
     unvested stock options held by the Executive will immediately fully vest
     and Executive will have three (3) years in which to exercise all or any
     part of those stock options after Termination Date. The payments made
     pursuant to section (ii) of this paragraph shall be in lieu of all
     Supplemental Compensation that may have been accrued by Executive for the
     then current fiscal year (unless Executive elects in writing to take the
     Supplemental Compensation that may have accrued for the then current fiscal
     year), as of the Termination Date but not in lieu of any Supplemental
     Compensation that has been previously awarded to Executive from a previous
     fiscal year but not actually paid by Company.

8.6  In the event of a Change of Control, and during the Remaining Term of this
     Agreement, Executive may terminate this Agreement, within ninety (90) days
     of the occurrence of any one or more of the following events: (i) the
     Company causes a material adverse change in the overall level of the
     responsibilities and/or the duties of the Executive (ii) the Company causes
     a adverse change in Executive's base compensation with base compensation
     meaning the Executive's Salary, Benefits and Stock Options; (iii) the
     Company causes a material adverse change in the terms of Executive's
     Supplemental Compensation, unless offset by an increase in other
     compensation; (iv) the Company requires that the Executive change his/her
     primary work location by more than fifty (50) miles or; (v) there occurs a
     material breach of this Agreement by the Company that continues for more
     than thirty (30) days after Executive gives written notice to the Company
     regarding such breach. If the Executive terminates this Agreement pursuant
     to this Paragraph, the Executive will be entitled to receive the same
     Termination Payments after termination, as if Executive had been terminated
     by Company, without cause.

8.7  The Termination Period shall be the time period of thirty six (36) months,
     but shall terminate earlier if Company can show that (i) Executive directly
     or indirectly, owns, manages, operates, controls, becomes employed by,
     participates in, permits his/her name to be used by or becomes connected in
     any other manner with the ownership, management, operation or control of
     any business offering seismic processing services or seismic data library
     products or services, or (ii) Executive recruits, hires, or attempts to
     recruit or hire, directly or by assisting others, any other employee of the
     Company, nor shall Executive contact or communicate with any other employee
     of the Company for the purpose of inducing an employee to terminate his or
     her employment with the Company. For purposes of this paragraph, "other
     employee" shall refer to any employee who is still actively employed by the
     Company at the time of the attempted recruiting or hiring.

8.8  Executive acknowledges and agrees that in the event of Executive's death,
     this Agreement will terminate immediately, without notice, on the date of
     Executive's death. Executive acknowledges and agrees that, in the event of
     his death, the Company will pay to Executive's estate all Salary and
     Supplemental Compensation due and owing through the date of Executive's
     death and will immediately vest all unvested stock options and will provide
     Executive's executor or estate three years to exercise all stock options.

8.9  Executive acknowledges and agrees that this Agreement will terminate
     immediately, without notice, in the event Executive becomes physically or
     mentally disabled, as


                                       7


     defined by 29 C.F.R. Section 1630.2(g)(1), and cannot perform the essential
     functions of his/her position as set forth herein, with or without
     reasonable accommodation. In such event, the Company will pay Executive's
     Salary during the waiting period under a disability policy maintained for
     Executive for a period not to exceed six (6) months. The Company agrees to
     use all reasonable efforts to obtain disability insurance at regular
     premium rates to provide disability income protection for Executive for at
     least a ten (10) year period following such disability.

8.10 Executive acknowledges and agrees that in the event of termination of this
     Agreement, for whatever reason, whether at the insistence of Executive or
     at the insistence of the Company, Executive will return to the Company,
     within ninety (90) days of the time when notice of termination is
     communicated by either Party, or sooner if requested by the Company, any
     and all equipment, literature, documents, data, information, order forms,
     memoranda correspondence, customer and prospective customer lists,
     customer's orders, records, cards or notes acquired, supplier and
     prospective supplier lists, franchisee and prospective franchisee lists and
     Trade Secrets and Confidential Information, compiled or coming into
     Executive's knowledge, possession or control in connection with his
     activities as an employee of the Company, as well as all machines, parts,
     equipment or other materials received from the Company or from any of its
     customers, agents or suppliers, in connection with such activities.

                            SECTION 9 - SEVERABILITY

Executive and Company acknowledge and agree that each covenant and/or provision
of this Agreement shall be enforceable independently of every other covenant
and/or provision. Furthermore, Executive and Company acknowledge and agree that,
in the event that any covenant and/or provision of this Agreement is determined
to be unenforceable for any reason, the remaining covenants and/or provisions
will remain effective, binding and enforceable provided however that an
Executive's right to Termination Payments cannot be severed from the conditions
set forth in Sections 5, 6 and 8.

                              SECTION 10 - WAIVER

Both Parties acknowledge and agree that the failure of either Party to enforce
any provision of this Agreement shall not constitute a waiver of that particular
provision, or of any other provisions of this Agreement.

                      SECTION 11 - SUCCESSORS AND ASSIGNS

11.1 Executive acknowledges and agrees that this Agreement may be assigned by
     the Company to any successor-in-interest, without the notice or consent of
     Executive, and shall inure to the benefit of, and be fully enforceable by,
     any successor and/or assignee.

11.2 Executive acknowledges and agrees that his obligations, duties and
     responsibilities under this Agreement are personal and may not be assigned,
     and that this Agreement shall be enforceable by Executive only. In the
     event of Executive's death or disability, this Agreement shall be
     enforceable by Executive's estate, executors and/or legal representatives,
     only to the extent provided herein.


                                       8


                           SECTION 12 - CHOICE OF LAW

Both Parties acknowledge and agree that the laws of the State of Texas will
govern the validity, interpretation and effect of this Agreement, and any other
dispute relating to, or arising out of, the employment relationship between the
Company and Executive.

                           SECTION 13 - MODIFICATION

13.1 Both Parties acknowledge and agree that this Agreement constitutes the
     complete and entire agreement between the Parties; that the Parties have
     executed this Agreement based upon the express terms and provisions set
     forth herein; that the Parties have not relied on any representations, oral
     or written, which are not set forth in this Agreement; that no previous
     agreement, either oral or written, shall have any effect on the terms or
     provisions of this Agreement; and that all previous agreements, either oral
     or written, are expressly superseded and revoked by this Agreement,
     specifically including any prior agreements concerning confidentiality.

13.2 Both Parties acknowledge and agree that the covenants and/or provisions of
     this Agreement may not be modified by any subsequent agreement unless the
     modifying agreement: (i) is in writing; (ii) contains an express provision
     referencing this Agreement; (iii) is signed by an authorized officer of the
     Company; (iv) is signed by Executive; and (v) is approved by the Board.

                        SECTION 14 - LEGAL CONSULTATION

Executive and the Company acknowledge and agree that both Parties have been
accorded a reasonable opportunity to review this Agreement with legal counsel
prior to executing the agreement.

EXECUTED as of the date first set forth above.


         /s/Michael K. Lambert
- ---------------------------------------
Executive


GX TECHNOLOGY CORPORATION


By:      /s/ Signature
   ------------------------------------

Title:   Officer
      ---------------------------------


                                       9

EX-10.3

                                                                    EXHIBIT 10.3


                               FIRST AMENDMENT TO
                         EXECUTIVE EMPLOYMENT AGREEMENT


         This First Amendment to the Executive Employment Agreement (the "FIRST
AMENDMENT") originally entered into as of the 26th day of March, 2004 is made
and entered into as of June 14, 2004 (the "EFFECTIVE DATE"), by and between GX
Technology Corporation, a Texas corporation (the "COMPANY"), located at 5847 San
Felipe, Suite 3800, Houston, Texas 77057 and Michael K. Lambert (the
"EXECUTIVE"), residing at 5034 Yarwell Dr., Houston, TX 77098.

                                   WITNESSETH:

         WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement dated as of March 26, 2004 (the "ORIGINAL AGREEMENT"); and

         WHEREAS, the Company and the Executive desire to amend the Original
Agreement in accordance with the terms contained in this First Amendment.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

         1. Amendment of Section 8. As of the Effective Date specified above, a
new Section 8.11 is added to the end of Section 8 to read as follows:

            "8.11 Notwithstanding any of the provisions of this Agreement, the
            amount of all Termination Payments to be made pursuant to Section
            8.5 and Section 8.6 after a Change of Control as defined in Section
            280G of the Internal Revenue Code of 1986, as amended and then in
            effect at the time of such payment (the "CODE"), shall be
            conditioned and restricted as follows. Executive shall not be
            entitled to any Termination Payments under this Agreement after a
            Change of Control that would otherwise be payable without regard to
            this Section 8.11 unless, immediately before the Change of Control,
            no stock of the Company is readily tradeable on an established
            securities market or otherwise, the Termination Payments are
            approved by more than 75% of the voting power of all outstanding
            stock of the Company entitled to vote immediately before the Change
            of Control and there is adequate disclosure to all persons entitled
            to vote of all material facts concerning all material payments which
            (but for this provision) would be parachute payments as defined in
            Section 280G of the Code. The requirements for shareholder approval
            of the Termination Payments shall be determined in a manner that is
            consistent with the provisions of Treas. Regs. Section 1.280G-1, Q&A
            7."

         2. Amendment of Section 3. As of the Effective Date specified above, a
new paragraph is added to the end of Section 8 to read as follows:

            "Notwithstanding the foregoing, the amount of the Supplemental
            Compensation for the current fiscal year of the Company that
            includes the Effective Date shall be $220,000 and shall be made at
            such time after the closing ("Closing") of the transactions
            contemplated by the Stock Purchase Agreement dated as of May 10,



            2004 between the Company, the holders of all of the outstanding
            shares of capital stock of the Company, as Sellers and Input/Output,
            Inc. (the "Purchaser") when the purchaser determines in good faith
            that such payment will not materially adversely affect the operating
            cash needs of the Company after the Closing, but in no event later
            than September 30, 2004. Executive shall not be entitled to any
            Supplemental Compensation under this Agreement for such fiscal year
            that would otherwise be payable without regard to this paragraph
            unless, immediately before the Change of Control, no stock of the
            Company is readily tradeable on an established securities market or
            otherwise, the Supplemental Compensation bonus amounts are approved
            by more than 75% of the voting power of all outstanding stock of the
            Company entitled to vote immediately before the Closing and there is
            adequate disclosure to all persons entitled to vote of all material
            facts concerning all material payments which (but for this
            provision) would be parachute payments as defined in Section 280G of
            the Code. The requirements for shareholder approval of the
            Supplemental Compensation for the fiscal year that includes the date
            of the Closing shall be determined in a manner that is consistent
            with the provisions of Treas. Regs. Section 1.280G-1, Q&A 7."

         3. Ratification. The Company and Executive hereby agree that except as
expressly modified or amended herein, the terms, conditions and covenants of the
Original Agreement are hereby ratified and confirmed and shall remain in full
force and effect. To the extent there is any conflict between the terms and
provisions of the Original Agreement and this First Amendment, the Company and
Executive agree that this First Amendment shall control.

                            [SIGNATURE PAGE FOLLOWS]



         This document may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument. The execution of a facsimile copy of this Agreement shall be
deemed an original.

         IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the day and year first above written.

                                    COMPANY:

                                    GX TECHNOLOGY CORPORATION



                                    By:                /s/Signature
                                           -------------------------------------
                                    Name:
                                           -------------------------------------
                                    Title:
                                           -------------------------------------



                                    EXECUTIVE:



                                              /s/Michael K. Lambert
                                  ----------------------------------------------
                                  MICHAEL K. LAMBERT, in his individual capacity

EX-10.4

                                                                    EXHIBIT 10.4


                              SECOND AMENDMENT TO
                         EXECUTIVE EMPLOYMENT AGREEMENT


         This Second Amendment to the Executive Employment Agreement (the
"Second Amendment") originally entered into as of the 26th day of March 2004 is
made and entered into as of June 14, 2004 (the "Effective Date"), by and between
GX Technology Corporation, a Texas corporation (the "Company").

                                   WITNESSETH:

         Whereas, the Company and the Executive are parties to that certain
Employment Agreement dated as of March 26, 2004 together with the First
Amendment thereto dated of even date herewith (the "Original Agreement"); and

         Whereas, the Company and the Executive desire to amend the Original
Agreement in accordance with the terms contained in this Second Amendment;

         Now, therefore, in consideration of the mutual promises and covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledges, the parties agree as follows:

         1. Section 7 of the Original Agreement is amended by the addition of
the following new Section 7.3:

                  "7.3 Upon demand by Executive made to Company, Company shall
         reimburse Executive for the reasonable expenses (including attorneys'
         fees and expenses) incurred by Executive after a Change in Control in
         enforcing or seeking to enforce the payment of any amount or other
         benefit to which Executive shall have become entitled under this
         Agreement as a result of the termination of Executive's employment with
         Company within two (2) years after the Executive's date of termination;
         provided that the Executive is the prevailing party in such action."

         2. Section 8.3 of the Original Agreement is amended by the addition of
the following paragraph to Section 8.3:

                  "Notwithstanding the foregoing, Executive shall not be deemed
         to have been terminated as a result of "Cause" hereunder unless and
         until reasonable notice to Executive has been given together with an
         opportunity for Executive, together with his counsel, to be heard
         before the CEO of the Company's parent and a finding that, in the good
         faith opinion of such person, Executive has committed an act set forth
         above in this Section 8.3 and specifying the particulars thereof in
         detail. Nothing herein shall limit the right of Executive or his legal
         representatives to contest the validity or propriety of any such
         determination."



         3. Section 8 of the Original Agreement is amended by the addition of
the following new Sections 8.11 and 8.12:


                  "8.11 Executive shall not be required to mitigate the amount
of any payment or other benefit required to be paid to Executive 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 Executive as a result of employment by another person.

         Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any setoff, counterclaim, recoupment, defense or other claim, right
or action which Company may have against Executive or others.

                  8.12 Company represents, warrants and covenants that the
Company and its shareholders have taken all steps and actions necessary and
proper pursuant to Section 280G(b)(5) of the Code to ensure that Termination
Payments that may become due or payable to Executive in the event of a "Change
of Control" as defined in Section 280G of the Code shall not be construed as
parachute payments."

         4. The Company and the Executive hereby agree that except as expressly
modified or amended herein, the terms, conditions and covenants of the Original
Agreement are hereby ratified and confirmed and shall remain in full force and
effect. To the extent there is any conflict between the terms and provisions of
the Original Agreement and this Second Amendment, the Company and the Executive
Agree that this Second Amendment shall control.



         This document may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument. The execution of a facsimile copy of this Second Amendment
shall be deemed an original.

         In Witness Whereof, the parties have executed this Second Amendment as
of the date first above written.

COMPANY:

GX TECHNOLOGY CORPORATION


By:      /s/ Signature
   --------------------------
Name:
Title



EXECUTIVE:


    /s/ Michael K. Lambert
- -----------------------------

EX-10.5

                                                                    EXHIBIT 10.5



                              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 David L. Roland, an individual currently resident in
Harris County, Texas (hereinafter referred to as "Employee"), effective as of
June 15, 2004 (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 Vice President - General Counsel and Corporate Secretary. At the
commencement of this Agreement, Employee will report to the Executive Vice
President and Chief Financial Officer of Employer. The powers, duties and
responsibilities of Employee as Vice President - General Counsel and Corporate
Secretary 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 Executive Vice President and Chief Financial Officer 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 may faithfully perform his 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 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 $175,000 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 2004 with a potential target of
40% and a maximum of 60% of Employee's Base Salary for such fiscal year. Any
incentive earned in fiscal year 2004 will be prorated based on Employee's actual
period of employment during such fiscal year. 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) Subject to Compensation Committee approval, Employer will
issue to Employee 25,000 stock options to be granted in 2004. Such stock options
will vest 25% annually over a four year period on the anniversary date of
Employee's employment. The stock option exercise price will be set at the time
of Compensation Committee approval. All terms of the stock options will be
determined by the Employer's Option Agreement and any amendments to it.

                  (e) Subject to Compensation Committee approval, the Employer
will award Employee 10,000 shares of I/O restricted stock. The restricted stock
will vest 33% annually over a three year period on the anniversary date of
Employee's employment.

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

                  (g) Employee will accrue vacation pay of 4.615 hours per pay
period. Vacation may be taken by Employee at the time and for such periods as
may be mutually agreed upon between Employer and Employee.

                  (h) 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 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.

                  (i) 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.

                  (j) 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.

                  (k) 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





                                      -3-


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 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 will disclose to the Board any facts which might
involve a conflict of interest that has not been approved by the Board.

                  (b) As part of Employee's fiduciary duties to Employer and his
obligations as an attorney for 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 employment by Employer or thereafter, directly or indirectly, use for
his 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 non-confidential 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 employment with Employer, Employee
will immediately deliver to Employer all documents in Employee's possession or
under his 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
April 19, 2004 by and between Employer and Employee.

                  (e) Employee will comply with Employer's Code of Ethics issued
on January 17, 1994, and any amendments or replacement policies adopted by the
Board (the "Code of Ethics").




                                      -4-



Section 4. Term of Agreement.

         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 June 15, 2006 (the "Initial Term"), 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 employment with Employer is at will and that
Employer may terminate his 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.

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; or

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

                  (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 obligations under this Agreement
                  (other than any such failure resulting from his Disability)
                  after a demand for substantial performance has been delivered
                  to him by the Board which specifically identifies the manner
                  in which






                                      -5-


                  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, other
                  willful misconduct, gross negligence or conviction of a felony
                  or any crime of moral turpitude; or

                           (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 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





                                      -6-


                           (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
                  9(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).

                  (e) Any termination by Employer or Employee of Employee's
employment with Employer 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 11(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 11(a).




                                      -7-


                  (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;

                           (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; or

                           (4) if Employee's employment with Employer is
                  terminated for any reason other than Employee's Disability,
                  Employee's death or Cause, 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 during the
Initial Term, 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 8; (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 8;
(iii) Employee's Base Salary through the Date of Termination; (iv) any incentive





                                      -8-


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.

                  (c) If Employee's employment with Employer is terminated (i)
by Employer for no reason or for any reason other than Cause or the death or
Disability of Employee, 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) an aggregate amount (the "Severance Payment")
                  equal to one times (1x) 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), which Severance Payment will
                  be paid to Employee in twelve (12) 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 one (1) year 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 Section 8, 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 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






                                      -9-


provided by the applicable benefit plan. As a condition to making the payments
and providing the benefits specified in this Section 6(c), 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.

Section 7. 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 8. 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 9. 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.




                                      -10-


                  (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 9(c) or which otherwise becomes bound by
the terms and provisions of this Agreement by operation of law or otherwise.

Section 10. 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 10(a):

                  If to Employer, to:

                           Input/Output, Inc.
                           12300 Parc Crest Drive
                           Stafford, TX  77477
                           Attention: Chief Financial Officer

                  If to Employee, to:

                           David L. Roland
                           12214 Cobblestone Drive
                           Houston, Texas  77024

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.




                                      -11-


                  (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 11. 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 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 11(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), and 3(e).

                        SIGNATURES TO FOLLOW ON NEXT PAGE




                                      -12-



         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/J. Michael Kirksey
                                       ---------------------------------------
                                        J. Michael Kirksey
                                        Executive Vice President and
                                        Chief Financial Officer

                                    EMPLOYEE:

                                    David L. Roland

                                            /s/David L. Roland
                                    ------------------------------------------





                                      -13-

EX-31.1

                                                                    EXHIBIT 31.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                  PURSUANT TO RULE 13A-14(a) OR RULE 15D-14(a)


I, Robert P. Peebler, certify that:

1.       I have reviewed the quarterly report on Form 10-Q for the period ended
         June 30, 2004 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 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 the
         registrant's board of directors (or persons performing 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.


Date: August 9, 2004                             /s/ Robert P. Peebler
                                       -----------------------------------------
                                       Robert P. Peebler
                                       President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                  PURSUANT TO RULE 13A-14(a) OR RULE 15D-14(a)


I, J. Michael Kirksey, certify that:

1.       I have reviewed the quarterly report on Form 10-Q for the period ended
         June 30, 2004 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 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 the
         registrant's board of directors (or persons performing 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.


Date: August 9, 2004                            /s/ J. Michael Kirksey
                                       -----------------------------------------
                                       J. Michael Kirksey
                                       Executive Vice President and
                                       Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350

         In connection with the quarterly report of Input/Output, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2004, 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), as applicable, 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.


         Date: August 9, 2004                     /s/ Robert P. Peebler
                                       -----------------------------------------
                                       Robert P. Peebler
                                       President and Chief Executive Officer

EX-32.2

                                                                    EXHIBIT 32.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350

         In connection with the quarterly report of Input/Output, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Michael Kirksey, Executive Vice President and Chief Financial 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), as applicable, 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.


         Date: August 9, 2004                   /s/ J. Michael Kirksey
                                       -----------------------------------------
                                       J. Michael Kirksey
                                       Executive Vice President and
                                       Chief Financial Officer