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                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC 20549
                                          
                                          
                                     FORM 10-Q/A


     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934       

          FOR THE QUARTERLY PERIOD ENDED:   NOVEMBER 30, 1998

                                         OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
          SECURITIES EXCHANGE ACT OF 1934
          FOR THE TRANSITION PERIOD FROM _____________ TO ____________ 

          COMMISSION FILE NUMBER:  1-13402

                                 INPUT/OUTPUT, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           DELAWARE                                                 22-2286646
(STATE OR OTHER JURISDICTION OF                                  (IRS EMPLOYER
INCORPORATION OR ORGANIZATION)                             IDENTIFICATION NO.)


11104 WEST AIRPORT BLVD., 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 [ ]

At November 30, 1998 there were 50,395,434 shares of common stock, par value
$0.01 per share, outstanding.

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                         INPUT/OUTPUT, INC. AND SUBSIDIARIES
                                          
                                 INDEX TO FORM 10-Q/A
                      FOR THE QUARTER ENDED NOVEMBER 30, 1998



PART I.  Financial Information.


                                                                           Page
                                                                           ----
                                                                        

Item 2.  Management's Discussion and Analysis of Results of Operations and 
             Financial Condition . . . . . . . . . . . . . . . . . . . .     1  




ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND 
         FINANCIAL CONDITION

RESULTS OF OPERATIONS

      INTRODUCTION.  The Company's net sales are directly related to the 
level of worldwide oil and gas exploration activities and the profitability 
and cash flows of oil and gas companies and seismic contractors, which in 
turn are affected by expectations regarding the supply and demand for oil and 
natural gas, energy prices and finding and development costs. Oil and gas 
supply and demand and pricing, in turn, are influenced by numerous factors 
including, but not limited to, those described below in "Cautionary Statement 
for Purposes of Forward-Looking Statements - Uncertainty of Energy Industry 
Conditions" and "-Risk From Significant Amount of Foreign Sales." The Company 
believes that when significant decreases in worldwide oil production were not 
evident by the summer of 1998, the Company's customers anticipated a 
continuation of low prices for an extended period and began to reduce their 
intended levels of expenditures for seismic equipment.  Until confidence in 
future oil prices above current levels is restored, orders for the Company's 
equipment are expected to remain at lower levels than experienced in fiscal 
1998. Additional declines in oil prices or prolonged expectations for little 
or no improvement in prices could cause the Company's customers to further 
reduce their spending and further adversely affect the Company's results of 
operation and financial condition. Although order cancellations and defaults 
on financed sales have to date been minimal, the risk of such cancellations 
and defaults exists, which could deteriorate the Company's anticipated 
performance and future financial condition.

      NET SALES.  The Company's second quarter net sales decreased $29.8 
million, or 28.7%, to $73.9 million as compared to the prior year's second 
quarter net sales of $103.7 million. The decrease in net sales was primarily 
due to lower sales levels of the Company's land systems and components. The 
decline in sales of land systems and components is primarily attributable to 
the decrease in oil prices resulting in delayed or reduced capital or 
exploration spending by oil and gas companies during the quarter, which 
caused several projects to be postponed or canceled. See "INTRODUCTION" 
above. During fiscal 1999's second quarter, five System 2000 land systems and 
two MSX marine system were sold, along with other seismic data acquisition 
recording equipment and components (representing a total channel count of 
5,928 land and 4,496 marine channels); the prior year's second quarter sales 
consisted of 17 I/O SYSTEM TWO-Registered Trademark- land systems and one MSX 
marine system and other recording equipment and components (for a total 
channel count of 33,720 land and 3,838 marine channels).

      Net sales for the first six months of the current year decreased $45.7 
million, or 24.5%, to $140.9 million as compared to the prior year's first 
six months net sales of $186.7 million. The decrease in net sales was 
primarily due to lower sales levels of the Company's land systems and 
components, primarily attributable to the decrease in oil prices resulting in 
delayed or reduced exploration spending by oil and gas companies during the 
first six months of the current fiscal year, which caused several projects to 
be postponed or canceled. Sales of seven I/O SYSTEM TWO and System 2000 land 
systems and three MSX marine systems were recorded 

                                      1



during the first six months of fiscal 1999 compared to 31 I/O SYSTEM TWO land 
systems and two MSX marine systems for the prior year's first six months.

      GROSS PROFIT MARGIN.  The Company's gross profit margin decreased for 
the second quarter and year-to-date compared to the prior year periods, from 
40.3% to 37.9%, and 40.2% to 35.4% respectively. Reduced demand for 
higher-margin land seismic equipment and instrumentation was the major 
contributing factor to the decreased gross profit margins. The Company's 
gross profit margin for any particular reporting period is dependent on the 
product mix sold and the pricing scheme for the products sold for that 
period, and may vary materially from period to period.

      OPERATING EXPENSES.  Operating expenses increased $2.7 million, or 
12.7%, for fiscal 1999's second quarter over the prior year's second quarter 
operating expenses. Research and development expenses increased $1.8 million, 
or 22.2%, compared to the prior year's second quarter, primarily resulting 
from increased product development expenses and expenses related to recent 
acquisitions, offset in part by decreased accruals for bonus and related 
compensation expenses. Marketing and sales expenses increased $255,000, or 
6.9%, compared to the prior year's second quarter primarily due to expenses 
related to recent acquisitions, offset in part by decreased accruals for 
bonus and related compensation expenses and decreased expense for third party 
commissions on sales. General and administrative expenses decreased $342,000, 
or 4.1%. Amortization of intangibles increased $997,000, or 81.1%, primarily 
due to increased goodwill expense resulting from recent acquisitions.

      Operating expenses for the first six months of the current year were 
$6.4 million, or 16.4%, above the amount of operating expenses for the first 
six months of the prior year. Research and development expenses increased 
$3.5 million, or 22.4%, primarily resulting from increased product 
development expenses and expenses related to recent acquisitions, offset in 
part by decreased accruals for bonus and related compensation expenses. 
Marketing and sales expenses increased $1.3 million, or 20.2%, compared to 
the prior year's first six months primarily due to expenses related to recent 
acquisitions and increased convention and exhibit expenses, offset in part by 
decreased accruals for bonus and related compensation expense and decreased 
expense for third party commissions on sales. General and administrative 
expenses decreased $75,000, or 0.5%, compared to the prior year's first six 
months. Amortization of intangibles increased $1.6 million, or 47.2%, 
compared to the prior year's first six months primarily due to increased 
goodwill expense resulting from recent acquisitions.

      INTEREST EXPENSE.  Interest expense for the second quarter and the 
first six months of the current year (related to the ten-year term facilities 
financing) was $217,000 and $459,000, respectively. See "Note (5) - Long-term 
Debt" of the Notes to Consolidated Financial Statements. Interest expense for 
the prior year's second quarter and first six months was $258,000 and 
$580,000, respectively, also representing interest on this facility.

      INCOME TAX EXPENSE.  The Company's effective income tax rate was 
approximately 32%, both for the second quarters and the first six months of 
fiscal 1999 and fiscal 1998.

                                       2



LIQUIDITY AND CAPITAL RESOURCES

     GENERAL.  The Company has traditionally financed its operations from 
internally generated cash flows, funds from equity financings and its credit 
facilities. Cash flows from operating activities before changes in working 
capital items were $15.7 million for the six months ended November 30, 1998. 
Cash flows from operating activities after changes in working capital items 
were a negative $17.6 million for the six months ended November 30, 1998, 
primarily due to decreases in accounts payable and accrued expenses (which 
represented a use of cash), increased income tax payments (primarily due to 
foreign subsidiaries settling prior years' tax liabilities) and increased 
inventories (primarily due to the lower sales level). As of November 30, 
1998, no amounts of indebtedness were outstanding under the Company's Credit 
Agreement and the Company had approximately $49.8 million available for 
borrowings under the Credit Agreement. 

     The Company had outstanding long-term indebtedness of $9.5 million as of 
November 30, 1998 secured by the land, buildings and improvements housing the 
Company's executive offices, research and development headquarters and 
electronics manufacturing facility in Stafford, Texas. The loan bears 
interest at the rate of 7.875% per annum and is repayable in equal monthly 
installments of principal and interest of $151,439. The promissory note, 
which matures on September 1, 2006, contains prepayment penalties.  See "Note 
(5) - Long-term Debt" of the Notes to Consolidated Financial Statements.

     Capital expenditures for plant, property and equipment totaled $8.3 
million for the first six months of fiscal 1999. Total capital expenditures 
are currently expected to aggregate $13.0 million for fiscal 1999. The 
Company believes that the combination of its existing working capital, unused 
credit available under its revolving credit facility, internally generated 
cash flows and access to other financing sources will be adequate to meet its 
anticipated capital and liquidity requirements for the foreseeable future.

     CREDIT AGREEMENT.  In February 1998, the Company entered into a Credit 
Agreement with certain lenders, including Bank One, Texas, N.A., as 
administrative agent for the lenders, replacing the Company's former 
revolving working capital line of credit. The maximum amount available for 
borrowings under the Credit Agreement is $50 million. In addition, up to $15 
million of credit available under the Credit Agreement may be used, as 
needed, by the Company for letters of credit. Indebtedness under the Credit 
Agreement will mature on February 27, 2001. Borrowings under the Credit 
Agreement may be made to finance the Company's working capital, capital 
expenditures, acquisitions permitted under the Credit Agreement and for 
general corporate purposes. Outstanding indebtedness under the Credit 
Agreement will bear interest, at the Company's option, at fluctuating 
interest rates based upon a prime rate or a eurodollar rate plus a credit 
margin that fluctuates depending upon the Company's ratio of funded debt to 
capitalization. In addition, the Company must pay a commitment fee for unused 
amounts available under the credit facility, in an amount also based upon the 
Company's ratio of funded debt to capitalization.

                                       3



     The obligations of the Company under the Credit Agreement are unsecured, 
except for a first lien pledge of the capital stock of certain wholly owned 
subsidiaries of the Company that the lenders consider to be "material 
subsidiaries". Additionally, certain of these wholly owned subsidiaries have 
guaranteed the Company's obligations under the Credit Agreement.

     ACQUISITION.  On September 30, 1998, the Company and The Laitram 
Corporation entered into a definitive merger agreement for the Company's 
acquisition of DigiCourse, Inc., a wholly owned subsidiary of The Laitram 
Corporation. Under the terms of the agreement, the Company acquired for 
5,794,000 shares of Company common stock, all of the capital stock of 
DigiCourse, Inc. The Company closed the transaction on November 16, 1998. As 
a result of the transaction, The Laitram Corporation beneficially owns 
approximately 11.7% of the outstanding common stock of the Company. The 
transaction was accounted for as a purchase business combination. The 
amortization life of the resulting goodwill will be 17 years. The proforma 
effects of the acquisition are not considered material.

     YEAR 2000. Many currently installed computer systems and software 
products are coded to accept only two-digit entries in the date code field 
and cannot distinguish 21st century dates from 20th century dates. These date 
code fields will need to distinguish 21st century dates from 20th century 
dates and, as a result, many companies' software and computer systems may 
need to be upgraded or replaced in order to comply with such "Year 2000" 
requirements. The Company is currently working to resolve the potential 
impact of the Year 2000 issue on the computerized systems it utilizes 
internally, and with regard to its products and customers.

     STATE OF READINESS. The Company is in the process of evaluating the Year 
2000 readiness of the hardware and software products sold by it ("products"), 
the information technology systems used in its operations ("IT Systems"), and 
its non-IT Systems, such as building security, voice mail and other systems. 
The Company has substantially completed its assessment of its IT Systems used 
in the United States, which have been tested to be Year 2000 compliant. 
Beginning in calendar 1996, the Company commenced replacement of its then 
current U.S. IT System with a new system. This replacement, which was 
substantially completed in fiscal 1998, was required in order to meet current 
and future needs of the Company's business as well as to make more efficient 
various administrative and operating functions. Because the Company did not 
undertake this replacement for reasons of Year 2000 compliance (the Company 
understands that its previous IT system was also Year 2000 compliant), the 
costs of this conversion have not been identified as Year 2000 compliance 
costs. The Company has not yet, however, completed its assessment of its IT 
Systems at its European locations. It is currently planned that these systems 
will be replaced with a version of the Company's current U.S. IT System or a 
smaller-scale Year 2000-compliant system by late calendar year 1999. The 
Company's Year 2000 IT/facilities compliance program is expected to cover the 
following phases: (i) inventory of all non-tested IT Systems and non-IT 
Systems; (ii) assessment of repair or replacement requirements; (iii) 
planning and remediation; (iv) testing; and (v) implementation.

     With regard to its products, the Company is continuing its testing 
procedures to determine the nature and extent of their Year 2000 compliance. 
The Company's cross-functional focus team has continued to review these 
issues and to assist its customers and suppliers in identifying and 

                                       4



resolving Year 2000 issues. The Company believes that its products will be 
Year 2000 compliant by mid-1999; however, the overall assessment of the 
operational status of the Company's products will depend, in large part, on 
the Year 2000 compliance of the products' components, many of which are 
supplied by parties other than the Company. Year 2000 testing work on the 
Company's products, which commenced in early 1998, is ongoing and expected to 
be completed in April 1999. Prior to the end of April 1999, the Company 
intends to (i) complete its internal review of the Year 2000 compliance of 
its products and (ii) assimilate information from a questionnaire circulated 
to vendors and customers in order to obtain information regarding their Year 
2000 compliance. Until this additional information is obtained and evaluated, 
the Company will not be able to effectively evaluate whether further 
remediation efforts will be required with respect to its products.

     The Company also relies, both domestically and internationally, upon 
various vendors, governmental agencies, utility companies, telecommunications 
service companies, delivery service companies and other service providers, 
which are outside of the Company's control. There is no assurance that such 
parties will not suffer a Year 2000 business disruption, which could have a 
material adverse effect on the Company's financial condition and results of 
operations.

     COSTS. To date, the Company has not incurred any material expenditures 
in connection with identifying, evaluating or remediating Year 2000 
compliance issues. The Company has not retained an outside consultant to 
assist it in its review and assessment of its Year 2000 issues. Most of its 
expenditures have related to the opportunity cost of time spent by employees 
of the Company in evaluating the Company's Year 2000 issues for its IT 
Systems, its non-IT Systems and its products. While the Company has not yet 
completed its evaluation of the estimated costs required to remediate the 
Year 2000 issues concerning its products and internal systems (primarily 
expected to be costs in connection with replacing systems and modifying 
software), management currently believes that these expenditures will not 
have a material adverse effect on its operations, results of operations or 
financial condition. However, no assurances can be given that until the 
Company fully completes its cost evaluation, the economic effects of these 
remediation efforts will not have a material adverse effect on its 
operations, results of operations or financial condition.

     A portion of the Company's Year 2000 compliance expenditures expected to 
be incurred relate to the Company's limited warranty coverage. As of November 
30, 1998, no specific amounts have been accrued to the warranty reserve for 
such costs, as the Company has not been able to make an estimate of such 
costs based on its current level of assessment. For instances in which the 
limited warranty has expired or there was no warranty coverage, the Company 
will offer, on a fee basis, upgrades (if technically achievable) to those 
products to render them Year 2000 compliant. In general, the Company is 
constantly upgrading the systems and software incorporated into its products 
in connection with its ongoing customer service efforts. As a result of these 
efforts, the Company identifies and remediates certain Year 2000 problems. 
The Company believes that internally generated funds or available cash will 
be sufficient to cover the projected costs associated with its Year 2000 
remediation requirements.

                                       5



     RISKS. The Company does not yet possess the information necessary to 
estimate the potential impact of Year 2000 compliance issues relating to its 
products or vendors if such products or vendors were not Year 2000 compliant. 
In addition, a relatively small number of customers have traditionally 
accounted for most of the Company's net sales from fiscal year to fiscal 
year, although the degree of sales concentration with any one customer has 
varied. The loss of any significant customer due to reasons related to Year 
2000 non-compliance of the Company's products could have a material adverse 
impact on the Company's operations, results of operations or financial 
position. 

     Failure to timely reprogram or replace the Company's European financial 
and accounting software could, in a worse case scenario, result in the 
Company's inability to process accounting and financial data in Europe. At 
this time, the Company does not possess all of the information necessary to 
estimate the potential impact of Year 2000 compliance issues relating to its 
European IT Systems, its non-IT Systems, its products, its vendors and its 
customers. Such impact, including the effect of a Year 2000 business 
disruption, would not be expected to have a material adverse effect on the 
Company's financial condition and results of operations.

     CONTINGENCY PLAN. The Company has not yet developed a Year 2000 specific 
contingency plan. The Company intends to prepare a contingency plan with 
respect to its financial and accounting software and its products no later 
than mid-calendar 1999. In addition, if further Year 2000 compliance issues 
are discovered, the Company then will evaluate the need for one or more 
contingency plans relating to those particular issues.

     OTHER.  Demand for the Company's products is dependent upon the level of 
worldwide oil and gas exploration and development activity. Such activity in 
turn is primarily dependent upon oil and gas prices, which have been subject 
to wide fluctuation in recent years. Since the beginning of fiscal 1999, 
worldwide oil prices have been at their lowest levels since 1986. Continuing 
low prices for hydrocarbon production have in certain instances resulted in 
lower exploration budgets by oil companies, which situation during the first 
six months of fiscal 1999 resulted in a reduction in demand for the Company's 
seismic data acquisition equipment and services. 

     A continuation of depressed prices for hydrocarbon production and 
reduced demand for the services of the Company's customers may further strain 
the revenues and cash resources of the customers of the Company, thereby 
resulting in a higher likelihood of defaults in the customers' timely payment 
of their obligations under the Company's financed sales arrangements. 
Increased levels of payment defaults with respect to the Company's financed 
sales arrangements could have a material adverse effect of the Company's 
results of operations.

     In addition, during 1999 there has been considerable turmoil and 
uncertainty in the Russian financial markets, prompted in large part by the 
crisis in the Asian financial markets, and the economic and political 
problems being experienced by a number of Asian countries. The Russian ruble 
has been under significant pressure, requiring the Russian government to 
raise interest rates substantially, and to seek special assistance from the 
International Monetary Fund in order to defend its currency. At the present 
time, it is not possible to predict whether the 

                                       6



Russian government will be successful in avoiding another devaluation of the 
ruble, or when stability will return to its financial markets. Any 
devaluation of the ruble could exacerbate existing economic problems in 
Russia. Historically, customers in Russia and other Former Soviet Union 
countries have accounted for approximately 5-9% of the Company's net sales. 
The Company's combined trade accounts receivable and trade notes receivable 
balance from customers in Russia and other Former Soviet Union countries as 
of November 30, 1998 was approximately $27.6 million; these receivables are 
denominated in US dollars. To the extent that economic conditions in the 
Former Soviet Union or in Asia negatively affect future sales to the 
Company's customers in those regions or the collectibility of the Company's 
existing receivables, such conditions may adversely effect the Company's 
future results of operations, liquidity and financial condition.
     
     In January 1999, the Company paid $1,661,000 to a creditor of a Company 
customer in satisfaction of the Company's obligations under a guaranty with 
respect to a defaulted equipment lease between the customer and that creditor.
     
     See "Cautionary Statement for Purposes of Forward-Looking Statements 
- -Uncertainty of Energy Industry Conditions," "- Credit Risks from Sales 
Arrangements" and "- Risk from Significant Amount of Foreign Sales".

CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS

     Certain information contained in this Quarterly Report on Form 10-Q as 
well as other written and oral statements made or incorporated by reference 
from time to time by the Company and its representatives in other reports, 
filings with the Securities and Exchange Commission, press releases, 
conferences, or otherwise, may be deemed to be forward-looking statements 
within the meaning of Section 21E of the Securities Exchange Act of 1934 and 
are subject to the "Safe Harbor" provisions of that section. This information 
includes, without limitation, statements concerning future operations, future 
revenues, future earnings, future costs, future margins and future expenses; 
anticipated product releases and technological advances; the future mix of 
business and future asset recoveries; contingent liabilities; Year 2000 
issues; the inherent unpredictability of adversarial proceedings; and future 
demand for the Company's products, future capital expenditures and future 
financial condition of the Company; energy industry conditions; and economic 
conditions in Asia and Former Soviet Union countries. These statements are 
based on current expectations and involve a number of risks and 
uncertainties, including those set forth below and elsewhere in this 
Quarterly Report on Form 10-Q. Although the Company believes that the 
expectations reflected in such forward-looking statements are reasonable, it 
can give no assurance that such expectations will prove to be correct.

     When used in this report, the words "anticipate," "estimate," "expect," 
"may," "project" and similar expressions are intended to be among the 
statements that identify forward-looking statements. Important factors which 
could affect the Company's actual results and cause actual results to differ 
materially from those results which might be projected, forecast, estimated 
or budgeted by the Company in such forward-looking statements include, but 
are not limited to, the following: 

                                       7



     RISKS RELATED TO PRODUCTS AND TECHNOLOGICAL CHANGE. The markets for the 
Company's product lines are characterized by rapidly changing technology and 
frequent product introductions. Whether the Company can develop and produce 
successfully, on a timely basis, new and enhanced products that embody new 
technology, meet evolving industry standards and practice, and achieve levels 
of capability and price that are acceptable to its customers, will be 
significant factors in the Company's ability to compete in the future. There 
can be no assurance that the Company will not encounter resource constraints 
or technical or other difficulties that could delay introduction of new 
products in the future. If the Company is unable, for technological or other 
reasons, to develop competitive products in a timely manner in response to 
changes in the seismic data acquisition industry or other technological 
changes, its business and operating results will be materially and adversely 
affected. In addition, the Company's continuing development of new products 
inherently carries the risk of inventory obsolescence with respect to its 
older products.
     
     UNCERTAINTY OF ENERGY INDUSTRY CONDITIONS.  Demand for the Company's 
products is dependent upon the level of worldwide oil and gas exploration and 
development activity. Such activity in turn is primarily dependent upon oil 
and gas prices, which have been subject to wide fluctuation in recent years 
in response to relatively minor changes in the supply and demand for oil and 
natural gas, market uncertainty and a variety of additional factors that are 
beyond the control of the Company. Recent worldwide oil prices have been at 
their lowest levels since 1986. Continuing low prices for hydrocarbon 
production have resulted in lower exploration budgets by oil companies, which 
has resulted in reduced demand for the Company's seismic data acquisition 
equipment. It is impossible to predict future oil and natural gas price 
movements or the duration of the current environment of lower oil and natural 
gas prices with any certainty. No assurances can be given as to future levels 
of worldwide oil and natural gas prices, the future level of activity in the 
oil and gas exploration and development industry and their relationship(s) to 
the demand for the Company's products.
     
     CREDIT RISK FROM SALES ARRANGEMENTS.  The Company sells to many 
customers on extended-term arrangements. Moreover, in connection with certain 
sales of its systems and equipment, the Company has guaranteed certain loans 
from unaffiliated parties to purchasers of such systems and equipment. In 
addition, the Company has sold contracts and leases to third-party financing 
sources, the terms of which often obligate the Company to repurchase the 
contracts and leases in the event of a customer default or upon certain other 
occurrences. Performance of the Company's obligations under these 
arrangements could have a material adverse effect on the Company's financial 
condition. Significant payment defaults by customers could have a material 
adverse effect on the Company's financial position and results of operations. 
See also Note 9 of Notes to Consolidated Financial Statements - Commitments 
and Contingencies - Credit Risk.

     RELIANCE ON SIGNIFICANT CUSTOMERS.  A relatively small number of 
customers have accounted for most of the Company's net sales, although the 
degree of sales concentration with any one customer has varied from fiscal 
year to year.  During fiscal 1998, 1997 and 1996 the two largest customers in 
each of those years accounted for 35%, 45% and 42%, respectively, of the 
Company's net sales. The loss of these customers could have a material 
adverse effect on the 

                                       8



Company's net sales.
     
     RISK FROM SIGNIFICANT AMOUNT OF FOREIGN SALES.  Sales outside the United 
States have historically accounted for a significant part of the Company's 
net sales. Foreign sales are subject to special risks inherent in doing 
business outside of the United States, including the risk of war, civil 
disturbances, embargo and government activities, which may disrupt markets 
and affect operating results. Foreign sales are also generally subject to the 
risks of compliance with additional laws, including tariff regulations and 
import/export restrictions. The Company is, from time to time, required to 
obtain export licenses and there can be no assurance that it will not 
experience difficulty in obtaining such licenses as may be required in 
connection with export sales.
     
     Demand for the Company's products from customers in developing countries 
(including Russia and other Former Soviet Union countries as well as certain 
Asian countries) is difficult to predict and can fluctuate significantly from 
year to year. The Company believes that these changes in demand result 
primarily from the instability of economies and governments in certain 
developing countries, changes in internal laws and policies affecting trade 
and investment, and because those markets are only beginning to adopt new 
technologies and establish purchasing practices. These risks may adversely 
affect the Company's future operating results and financial position. In 
addition, sales to customers in developing countries on extended terms can 
present heightened credit risks for the Company, for the reasons discussed 
above. See, in particular above, "Liquidity and Capital Resources - Other" 
for further information concerning these risks in those countries.
     
     RISKS RELATED TO TIMING OF PRODUCT SHIPMENTS. Due to the relatively high 
sales price of the Company's products and relatively low unit sales volume, 
the timing in the shipment of systems and the mix of products sold can 
produce fluctuations in quarter-to-quarter financial performance. One of the 
factors which may affect the Company's operating results from time to time is 
that a substantial portion of its net sales in any period may result from 
shipments during the latter part of a period. Because the Company establishes 
its sales and operating expense levels based on its operational goals, if 
shipments in any period do not meet goals, net sales and net earnings may be 
adversely affected. The Company believes that factors which could affect such 
timing in shipments include, among others, seasonality of end-user markets, 
availability of purchaser financing, manufacturing lead times and shortages 
of system components. In addition, because the Company typically operates, 
and expects to continue to operate, without a significant backlog of orders 
for its products, the Company's manufacturing plans and expenditure levels 
are based principally on sales forecasts, which could result in inventory 
excesses and imbalances from time to time.

     RISKS RELATED TO YEAR 2000 ISSUES.  While the Company is currently 
assessing aspects of the potential impact of the Year 2000 issue, it has not 
yet completed its review. The problems actually encountered by the Company in 
addressing its Year 2000 issues may be more pervasive than anticipated by 
management, and if so, could have adverse effects on the Company's 
operations, results of operations or financial condition. See " - Liquidity 
and Capital Resources - Year 2000."

                                       9



     RISKS RELATED TO GROSS MARGIN.  The Company's gross margin percentage is 
a function of the product mix sold in any period. Continuing increased 
percentages of lower margin marine seismic equipment and related components 
in the overall sales mix may result in margins remaining below their 
historically higher levels. Other factors, such as unit volumes, inventory 
obsolescence, heightened price competition, changes in sales and distribution 
channels, shortages in components due to untimely supplies or inability to 
obtain items at reasonable prices, and unavailability of skilled labor, may 
also continue to affect the cost of sales and the fluctuation of gross margin 
percentages in future periods.
     
     COMPETITION.  The design, manufacture and marketing of seismic data 
acquisition systems are highly competitive and are characterized by continual 
and rapid changes in technology. The Company's current principal competitor 
for land seismic equipment is Societe d'Etudes Recherches et Construction 
Electroniques, an affiliate of Compagnie General de Geophysique which, unlike 
the Company, possesses the advantage of being able to sell to an affiliated 
seismic contractor.
     
     Competition in the industry is expected to intensify and could adversely 
affect the Company's future results. Several of the Company's competitors 
have greater name recognition, more extensive engineering, manufacturing and 
marketing capabilities, and greater financial, technological and personnel 
resources than those available to the Company. In addition, certain companies 
in the industry have expanded their product lines or technologies in recent 
years as a result of acquisitions. There can be no assurance that the Company 
will be able to compete successfully in the future with existing or new 
competitors. Pressures from competitors offering lower-priced products or 
products employing new technologies could result in future price reductions 
for the Company's products.
     
     A continuing trend toward consolidation, concentrating buying power, in 
the oil field services industry may have the effect of adversely affecting 
the prices and demand for the Company's products and services.
     
     DISRUPTION IN VENDOR SUPPLIES.  The Company's manufacturing process 
requires a high volume of quality components. Certain components used by the 
Company are currently provided by only one supplier. In the future, the 
Company may, from time to time, experience supply or quality control problems 
with its suppliers, and such problems could significantly affect its ability 
to meet production and sales commitments. The Company's 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, increases in component costs and reduced control over 
delivery schedules, any of which could adversely affect the Company's future 
financial results.

     PROTECTION OF INTELLECTUAL PROPERTY. The Company believes that 
technology is the primary basis of competition in the industry. Although the 
Company currently holds certain intellectual property rights relating to its 
product lines, there can be no assurance that these rights will not be 
challenged by third parties or that the Company will obtain additional 
patents or other intellectual property rights in the future. Additionally, 
there can be no assurance that the 

                                       10



Company's efforts to protect its trade secrets will be successful or that 
others will not independently develop products similar to the Company's or 
design around any of the intellectual property rights owned by the Company.
     
     DEPENDENCE ON PERSONNEL.  The Company's success depends upon the 
continued contributions of its personnel, many of whom would be difficult to 
replace. The success of the Company will depend on the ability of the Company 
to attract and retain skilled employees. Changes in personnel, therefore, 
could adversely affect operating results.
     
     RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION. The 
Company's operations are also subject to laws, regulations, government 
policies, and product certification requirements worldwide. Changes in such 
laws, regulations, policies, or requirements could affect the demand for the 
Company's 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 the Company's future operating results.
     
     RISKS OF STOCK VOLATILITY AND ABSENCE OF DIVIDENDS. In recent years, the 
stock market in general and the market for energy and technology stocks in 
particular, including the Company's common stock, have experienced extreme 
price fluctuations. The sales price for the Company's Common Stock has 
declined from $25 7/8 per share at November 28, 1997 to $8 3/16 per share at 
November 30, 1998 (based on New York Stock Exchange composite tape closing 
sales prices). There is a risk that stock price fluctuation could impact the 
Company's operations. Changes in the price of the Company's common stock 
could affect the Company's ability to successfully attract and retain 
qualified personnel or complete desirable business combinations or other 
transactions in the future. The Company has historically not paid, and does 
not intend to pay in the foreseeable future, cash dividends on its capital 
stock.

     RISKS RELATED TO ACQUISITIONS.  To implement its business plans, the 
Company may make further acquisitions in the future. Acquisitions require 
significant financial and management resources both at the time of the 
transaction and during the process of integrating the newly acquired business 
into the Company's operations. The Company's operating results could be 
adversely affected if it is unable to successfully integrate such new 
companies into its operations. Certain acquisitions or strategic transactions 
may be subject to approval by the other party's shareholders, United States 
or foreign governmental agencies, or other third parties. Accordingly, there 
is a risk that important acquisitions or transactions could fail to be 
concluded as planned. Future acquisitions by the Company could also result in 
issuances of equity securities or the rights associated with the equity 
securities, which could potentially dilute earnings per share. In addition, 
future acquisitions could result in the incurrence of additional debt, taxes, 
or contingent liabilities, and amortization expenses related to goodwill and 
other intangible assets. These factors could adversely affect the Company's 
future operating results and financial position.

     OIL AND GAS OPERATIONS. The Company's oil and gas operations are subject 
to the economic risks typically associated with exploration, development, and 
production activities. In conducting exploration and development activities, 
the Company may drill unsuccessful wells 

                                       11



and experience losses and charges to earnings. Historically, the markets for 
oil and natural gas have been volatile and are likely to continue to be 
volatile in the future. The nature of the oil and gas business involves 
certain operating hazards such as well blowouts, cratering, explosions, 
uncontrollable flows of oil, natural gas or well fluids, fires, formations 
with abnormal pressures, pollution, releases of toxic gas and other 
environmental hazards and risks, any of which could result in losses to the 
Company. While the Company's current practice is not to act as operator of 
any drilling prospect, and while the Company does maintain insurance in 
accordance with customary industry practices under the circumstances against 
some, but not all, of such risks and losses, the occurrence of such an event 
not fully covered by insurance could have a material adverse affect on the 
Company's financial position and results of operation.

     The foregoing review of factors pursuant to the Private Securities 
Litigation Reform Act of 1995 should not be construed as exhaustive.  In 
addition to the foregoing, the Company wishes to refer readers to other 
factors discussed elsewhere in this report as well as the Company's other 
filings and reports with the Securities and Exchange Commission, including 
its most recent Annual Report on Form 10-K, for a further discussion of risks 
and uncertainties which could cause actual results to differ materially from 
those contained in forward-looking statements. The Company undertakes 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.
     


                                     SIGNATURE

PURSUANT TO THE REQUIREMENTS 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/ Ronald A. Harris 
                                          -------------------------------------
                                           Ronald A. Harris
                                           Vice President and Controller
                                           (Chief Accounting Officer)


Dated: January 27, 1999
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