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<SEC-DOCUMENT>0000950129-02-001660.txt : 20020415
<SEC-HEADER>0000950129-02-001660.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950129-02-001660
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020401

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: INPUT OUTPUT INC
CENTRAL INDEX KEY: 0000866609
STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829]
IRS NUMBER: 222286646
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0531

FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12691
FILM NUMBER: 02595745

BUSINESS ADDRESS:
STREET 1: 11104 W AIRPORT BLVD
STREET 2: SUITE 200
CITY: STAFFORD
STATE: TX
ZIP: 77477
BUSINESS PHONE: 2819333339

MAIL ADDRESS:
STREET 1: 11104 W AIRPORT BLVD
STREET 2: SUITE 200
CITY: STAFFORD
STATE: TX
ZIP: 77477
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>h94917e10-k405.txt
<DESCRIPTION>INPUT/OUTPUT INC - DECEMBER 31, 2001
<TEXT>
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K

<Table>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

</Table>

COMMISSION FILE NUMBER 1-13402

INPUT/OUTPUT, INC.
(Exact name of registrant as specified in its charter)

<Table>
<S> <C>
DELAWARE 22-2286646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

12300 PARC CREST DR., 77477
STAFFORD, TEXAS (Zip Code)
</Table>

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<Table>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)
</Table>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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: [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at March 1, 2002 (for purposes of the
below-stated amount only, all directors, officers and 5% or more stockholders
are presumed to be affiliates):

$143,004,904

Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.

<Table>
<Caption>
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS OF COMMON STOCK AT MARCH 1, 2002
----------------------------------- ----------------------------
<S> <C>
Common Stock, $0.01 par value 50,911,902
</Table>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART I

PRELIMINARY NOTE: THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS AS DEFINED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD-LOOKING STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE CAUTIONARY
STATEMENTS AND OTHER IMPORTANT FACTORS INCLUDED IN THIS FORM 10-K. SEE ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS FOR
A DESCRIPTION OF IMPORTANT FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS.

ITEM 1. BUSINESS

INPUT/OUTPUT, INC.

We are a leading designer and manufacturer of seismic data acquisition
products. Our data acquisition products are particularly well suited for
advanced three-dimensional ("3-D") and four dimensional ("4-D") data collection
techniques, as well as the newer and more advanced three-component ("3C") data
collection techniques. Seismic data is used extensively in the oil and gas
industry as an exploration risk management tool and is also increasingly
employed in field development and reservoir management activities.

We offer a broad range of related products for land and marine
environments. These include central electronics units, remote ground equipment,
vibrators, energy source control and positioning equipment, geophones, specialty
cables and connectors, land geophysical survey planning software, marine
streamers, in-water and shipboard electronics, hydrophones, airguns, data
telemetry quality control systems and streamer positioning systems, compasses,
acoustical devices, and velocimeters. You can find information about the
performance of our Land and Marine Divisions, as well as information about
geographic distribution of our sales, in Management's Discussion and Analysis of
Results of Operations and Financial Condition and Note 10 to Consolidated
Financial Statements.

RECENT DEVELOPMENTS

Traditionally our net sales have been directly related to the level of
worldwide oil and gas exploration activity and the profitability and cash flows
of oil and gas companies and seismic contractors. These factors are affected by
expectations regarding the supply and demand for oil and natural gas, energy
prices, and discovery and development costs. The recent decline in oil and
natural gas prices combined with the use of surplus seismic data, principally
library data, to generate prospects rather than new exploration activity has
significantly reduced demand for our products. Other factors which may limit the
demand for our products may include, but are not limited to, those described in
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Cautionary Statement for Purposes of Forward Looking Statements.

In response to prevailing seismic industry conditions and in order to
return to profitability, we have concentrated on lowering our cost structure,
consolidating product offerings and reorganizing into a products-based operating
structure. We continue to evaluate additional restructuring and cost control
solutions with the goal of increasing profitability where practicable.

During the year ended December 31, 2001, conditions marginally improved due
to an increase in demand for our products, principally land products. However,
by year-end, commodity prices, rig counts and seismic crew counts all declined,
creating uncertainty about the continued level of demand for seismic services
and equipment in the near term. Recent world events and a weakened world economy
coupled with continuing equipment oversupply in the marine seismic fleets
indicate that demand for seismic equipment in the near term will be less robust.
This has led us to conclude that near-term revenue and operating profits will be
substantially lower than recent levels and we have previously issued earning
guidance stating our expectation of a loss in the first quarter. We expect
revenues for the first quarter of 2002 to be in the range of $23-27 million,
depending in part on the timing of a large international shipment, and we expect
to report a net loss applicable to common shareholders between ($0.09) and
($0.13). Actual first quarter results will be announced in the first week of May
2002. In response to a weakening demand in the short-term, we have reduced our
total work force by over 18% since December 31, 2001, and look to further reduce
our cost

1
<PAGE>

structure without hindering our long-term growth prospects. However, we believe
long term fundamentals for the sector remain strong and that we should be
well-positioned to benefit from new product sales and potentially strengthening
sector fundamentals when economic conditions improve.

Simultaneous with the filing of this Form 10-K, we are also filing a Form
8-K discussing the accounting treatment of the lease for our Stafford facilities
which we sold and leased back during the third quarter of 2001. See Note 5 of
Notes to Consolidated Financial Statements.

LAND PRODUCTS

During the fiscal year ended December 31, 2001, net sales of data
acquisition products of our Land Division accounted for 77% of total revenues.
Data acquisition products for the Land Division primarily include the following:

Data Acquisition Systems. Our land data acquisition system consists of a
central electronics unit and multiple remote ground equipment modules, which are
either connected by cable or utilize radio transmission and retrievable data
storage. The central electronics unit, which acts as the control center of our
data acquisition system, is typically mounted within a vehicle or helicopter
transportable enclosure. The central electronics unit receives digitized data,
stores the data on storage media for subsequent processing and displays the data
on optional monitoring devices. The central electronics unit also provides
calibration, status and test functionality. The remote ground equipment of the
I/O system consists of multiple remote modules ("MRX(TM)") and line taps
positioned over the survey area. Seismic signals from geophones are collected by
the MRX, which collects multiple channels of analog seismic data. The MRX
filters and digitizes the data, which is then transmitted by the MRX via cable
to a line tap. Alternatively, our radio telemetry system ("RSR(TM)") records
data across a variety of environments, including transition zones, swamps,
mountain ranges, jungles and other seismic environments. RSR's are radio
controlled, and do not require cables for data transmission since the
information is stored at the unit source and subsequently retrieved. To
complement our new VectorSeis(R) digital sensor we also offer an all-digital
version of our radio telemetry system ("VRSR(TM)").

Geophones and Digital Sensors. Geophones are analog mechanical seismic
sensor devices designed to detect acoustical energy reflected from the earth's
subsurface. The product line includes low distortion seismic sensors designed
for land and transition zone environments. Our newly commercialized VectorSeis
sensor is a revolutionary fully digital sensor which is capable of both
traditional single component compression wave ("P-wave") data collection, as
well as shear wave multi-component 3C data collection. The VectorSeis digital
sensor uses three micro-machined accelerometers configured to measure
compression and shear waves. The inclusion of information from shear waves can
be used to create better structural images of complex geological prospects and
to infer physical properties of rock structures to reduce exploration risk.

Vibrators and Traditional Energy Sources. Vibrators are mechanical devices
carried by a large vehicle and used as a source of seismic energy on land. Our
vibrators offer patented features which extend the life of the vibrator and
lower the distortion of the sound source. In addition, we offer a new tracked
vibrator principally for use in Arctic and desert environments, providing a more
environmentally friendly, as well as efficient option to our customers. Our
Pelton acquisition in early 2001 adds energy source control and positioning
systems to our vibrator product offerings as well as control units for managing
traditional energy sources such as dynamite.

Specialty Cables and Connectors. Cables and connectors are used in
conjunction with most seismic equipment. Our cables not only offer a replacement
option to correct for ordinary wear, but also offer performance improvement and
specialization for new environments and applications.

Applications Software. We offer a wide range of geophysical software used
in seismic planning and execution.

2
<PAGE>

MARINE PRODUCTS

During the fiscal year ended December 31, 2001, net sales of data
acquisition products by our Marine Division accounted for 23% of total revenues.
Data acquisition products for the Marine Division primarily include the
following:

Data Acquisition Systems. Our marine data acquisition system consists
primarily of towed marine streamers and shipboard electronics ("MSX(TM)") that
collect seismic data in deep-water environments. Marine streamers, which contain
hydrophones, electronic modules and cabling, may measure up to 12,000 meters in
length and are towed behind a seismic acquisition vessel. Hydrophones are
seismic sensor devices designed to detect acoustical energy reflected from the
earth's subsurface. Marine electronics include seismic and data telemetry
quality control systems and related software products, as well as electronics
for shipboard recording.

Airguns. Airguns are the primary seismic energy source used in marine
environments to initiate the energy transmitted through the earth's subsurface.
An airgun fires a high compression burst of air under water to create an energy
wave for seismic measurement. Additionally, we offer an airgun source
synchronizing system that can control up to 128 airguns simultaneously.

Marine Positioning Systems. Our positioning systems include birds,
compasses, velocimeters and acoustical devices. Positioning systems control
streamer cable depth during towing, ensuring consistent data recovery while
minimizing turbulence induced distortions.

RESERVOIR PRODUCTS

For 2002 we formed a Reservoir Division which will include ocean bottom
systems (previously accounted for as part of the Marine Division) and in-well
applications (previously accounted for as part of the Land Division).

Ocean Bottom Systems. Our ocean bottom systems historically have been very
similar to our land systems with modifications to adapt these products for use
in water depths of several thousand meters and to provide for deployment in a
marine environment. We are currently developing ocean bottom products that will
utilize our VectorSeis technology to collect multi-component seismic data with
the potential to dramatically improve economics of ocean bottom seismic data
acquisition.

In-Well Applications. We are developing in-well systems for production
monitoring and optimization that utilize our VectorSeis multi-component data
technology. Our recently commercialized retrievable vertical seismic profiling
device ("MegaLevel VSP(TM)") allows more of a reservoir to be imaged, and at a
higher resolution than the bore hole imaging provided by traditional VSP
products. Currently our MegaLevel VSP product uses conventional multi-component
analog geophones, but we are developing a version that incorporates our
VectorSeis technology. We are also developing permanently placed arrays for
reservoir monitoring and recently installed our first permanent installation
utilizing a combination of VectorSeis and conventional technology in the Middle
East.

APPLIED MEMS

We recently formed a business unit, Applied MEMS, to hold our
micro-electro-mechanical systems ("MEMS") technology and manufacturing
capabilities. In addition to producing the accelerometers for our VectorSeis
digital sensor, this business unit is also actively pursuing sales of
accelerometer products for nonseismic applications, foundry services for third
parties, and other MEMS opportunities.

PRODUCT RESEARCH AND DEVELOPMENT

Our strategic focus for research and development is driven by our desire to
improve the quality of the subsurface image and the overall acquisition
economics of our customers. Our ability to compete effectively and maintain a
leading market position in the manufacture and sale of seismic instruments and
data acquisition systems depends upon continued technological innovation.
Development cycles, from initial

3
<PAGE>

conception through product introduction, may extend over several years. Research
and development expenditures have principally related to the continued
enhancement and evolution of our land, marine data acquisition and reservoir
product lines.

During 2001, our primary research and development efforts were focused on
field testing and commercialization of a land-based seismic data acquisition
recording system incorporating VectorSeis digital sensors for single and
multi-component recording. In 2002 our principal research and development goals
include the migration of our VectorSeis platform into ocean-bottom systems and
in-well products.

We continue to develop a lightweight land seismic system with a view toward
commercial introduction of this system during 2002 and are developing a next
generation marine seismic data acquisition system, based in part on components
used in our new land system, for commercial deployment in 2003. We have a number
of other products under development including reservoir monitoring applications
for land, transition zone (i.e. marshes and shallow bays) and ocean-bottom
reservoirs.

Because the new products are under development, their commercial
feasibility or degree of commercial acceptance, if any, is not yet known. No
assurance can be given concerning the successful development of any new products
or enhancements, the specific timing of their release or their level of
acceptance in the market place.

MARKETS AND CUSTOMERS

Our principal customers are seismic contractors, which operate seismic data
acquisition systems and related equipment to collect data in accordance with
their customers' specifications or for their own seismic data libraries. In
addition, we market and sell products to oil and gas companies. During the year
ended December 31, 2001, three customers (PGS Offshore, Schlumbeger and Veritas
DGC) accounted for approximately 51% of consolidated net sales. PGS Offshore and
Veritas DGC have recently announced their intention to merge. The loss of any
one of these customers could have a material adverse effect on the results of
operations and financial condition. See Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Cautionary Statement for
Purposes of Forward Looking Statements -- Further consolidation among our
significant customers could materially and adversely affect us and Note 10 of
Notes to Consolidated Financial Statements.

A significant part of our marketing efforts are focused on areas outside
the United States. Foreign sales are subject to special risks inherent in doing
business outside of the United States, including the risk of war, civil
disturbances, exchange rate fluctuations, embargo and governmental activities,
as well as risks of non-compliance with U.S. and foreign laws, including tariff
regulations and import/export restrictions. We sell products through a direct
sales force consisting of employees and through several international
third-party sales representatives responsible for key geographic areas. During
the year ended December 31, 2001, sales to areas outside the United States
accounted for approximately 63% of net sales. Further, systems sold to domestic
customers are frequently deployed internationally and, from time to time,
certain foreign sales require export licenses. See Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Cautionary
Statement for Purposes of Forward Looking Statements -- We derive a substantial
amount of our revenues from foreign sales which pose additional risks and Note
10 of Notes to Consolidated Financial Statements.

Sales to customers are normally on standard net 30-day terms. We also
provide financing arrangements to customers through long-term notes receivable.
Notes receivable are generally collateralized by the products sold, bear
interest at contractual rates up to 13% per year and are due at various dates
through 2004. See Note 1 and 7 of Notes to Consolidated Financial Statements.

SUPPLIERS

We purchase a substantial portion of the electronic components used in our
systems and products from third-party vendors. Certain items, such as integrated
circuits used in I/O systems are purchased from sole source vendors. Although we
attempt to maintain an adequate inventory of these single source items, the loss

4
<PAGE>

of ready access to any of these items could temporarily disrupt our ability to
manufacture and sell certain products. Since our components are designed for use
with these single source items, replacing the single source items with
functional equivalents could require a redesign of our components and costly
delays could result.

COMPETITION

The market for seismic data acquisition systems and seismic instrumentation
is highly competitive and is characterized by consolidation, as well as
continual and rapid changes in technology. Our principal competitors for land
and marine seismic equipment are, among others, Fairfield Industries; Geo-X
Systems, Limited; JGI, Incorporated; OYO Geospace Corporation; Bolt Technology
Corporation; Teledyne Brown Engineering, an affiliate of Allegheny Teledyne
Company; Thomson Marconi Sonar P/L; Geoscience Corp. and Societe d'etudes
Recherches et Construction Electroniques ("Sercel"), both affiliates of
Compagnie General de Geophysique. Unlike I/O, companies such as Sercel and
Geoscience Corp. possess an advantage of selling to an affiliated seismic
contractor.

INTELLECTUAL PROPERTY

We rely on a combination of trade secrets, patents, copyrights and
technical measures to protect our proprietary hardware and software
technologies. Although patents are considered important to our operations, no
one patent is considered essential to our success. Copyright and trade secret
protection may be unavailable in certain foreign countries in which we sell
products. In addition, we seek to protect trade secrets through confidentiality
agreements with employees and agents and through ownership of a number of
trademarks.

REGULATORY MATTERS

Our export activities are subject to extensive and evolving trade
regulations. Certain countries in which products may be utilized are subject to
trade restrictions, embargoes and sanctions imposed by the U.S. government.
These restrictions and sanctions, generally speaking, 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. We do not currently foresee the
need for significant expenditures to ensure continued compliance with current
environmental protection laws. Regulations in this area are subject to change,
and there can be no assurance that future laws or regulations will not have a
material adverse effect on us.

EMPLOYEES

At December 31, 2001, we had 799 full-time employees worldwide, 634 of whom
were employed in the United States. U.S. employees are not subject to any
collective bargaining agreements and we have never experienced a work stoppage.
We consider ourselves to have a good relationship with our employees.

5
<PAGE>

ITEM 2. PROPERTIES

Primary manufacturing facilities are as follows:

<Table>
<Caption>
SQUARE
MANUFACTURING FACILITIES FOOTAGE
- ------------------------ -------
<S> <C>
Stafford, Texas**........................................... 110,000
Alvin, Texas*............................................... 240,000
New Orleans, Louisiana**.................................... 40,000
Norwich, England**.......................................... 31,000
Voorschoten, The Netherlands**.............................. 30,000
-------
451,000
=======
</Table>

- ---------------

* Owned

** Leased

Our executive headquarters (utilizing approximately 25,000 square feet) are
located at 12300 Parc Crest Drive, Stafford, Texas. The machinery, equipment,
buildings and other facilities leased are considered by management to be
sufficiently maintained and adequate for current operations.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

6
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

GENERAL

Our common stock trades on the New York Stock Exchange ("NYSE") under the
symbol "IO." The following table sets forth the high and low sales prices of the
common stock for the periods indicated, as reported on the NYSE composite tape.

<Table>
<Caption>
PRICE RANGE
--------------
PERIOD HIGH LOW
- ------ ------ -----
<S> <C> <C>
Year ended December 31, 2001
Fourth Quarter............................................ $ 9.45 $7.10
Third Quarter............................................. 12.70 7.90
Second Quarter............................................ 14.25 8.67
First Quarter............................................. 13.10 8.50
Seven months ended December 31, 2000
December.................................................. $10.25 $7.50
Second Quarter............................................ 10.25 7.38
First Quarter............................................. 9.63 6.81
Year ended May 31, 2000
Fourth Quarter............................................ $ 8.25 $5.50
Third Quarter............................................. 6.69 4.25
Second Quarter............................................ 8.38 4.94
First Quarter............................................. 8.94 7.00
</Table>

We have not historically paid, and do not intend to pay in the foreseeable
future, cash dividends on our common stock. We presently intend to retain cash
from operations for use in our business, with any future decision to pay cash
dividends on our common stock dependent upon our growth, profitability,
financial condition and other factors our Board of Directors considers relevant.
We are permitted to pay dividends on our common stock, as long as all dividends
on our outstanding Series B and Series C Preferred Stock are current. See Note 8
of Notes to Consolidated Financial Statements.

On December 31, 2001, there were 313 stockholders of record of common stock
outstanding and one stockholder of 55,000 shares of Series B and Series C
Preferred Stock outstanding.

In October 2001 our Board of Directors authorized the repurchase of up to
1,000,000 shares of our common stock in the open market and privately negotiated
transactions at such prices and at such times as management deems appropriate.
As of December 31, 2001, we had repurchased 461,900 shares of our common stock
under this repurchase program for a total purchase price of $3.6 million and at
an average price of $7.78 per share. Under a prior repurchase program, we had
repurchased 37,898 shares of our common stock during 2001, for a total purchase
price of $0.4 million.

7
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to
our consolidated statements of operations for the year ended December 31, 2001,
the seven months ended December 31, 2000 and the four fiscal years ended May 31,
2000, 1999, 1998, and 1997, and with respect to our consolidated balance sheets
at December 31, 2001, and 2000 and May 31, 2000, 1999, 1998, and 1997 have been
derived from our audited consolidated financial statements. Our results of
operations and financial condition have been affected by acquisitions of
businesses and significant charges during certain periods presented, which may
affect the comparability of the financial information. This information should
be read in conjunction with Management's Discussion and Analysis of Results of
Operations and Financial Condition and the consolidated financial statements and
the notes thereto included elsewhere in this Form 10-K.

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, ------------------------------------------
2001 2000 2000 1999 1998 1997
------------ ------------ -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $212,050 $ 78,317 $121,454 $ 197,415 $385,861 $281,845
Cost of sales(1)............... 135,798 58,554 106,642 205,215 226,514 183,438
-------- -------- -------- --------- -------- --------
Gross profit (loss).......... 76,252 19,763 14,812 (7,800) 159,347 98,407
-------- -------- -------- --------- -------- --------
Operating expenses:
Research and development(2).... 29,442 16,051 28,625 42,782 32,957 22,967
Marketing and sales............ 14,274 5,934 10,284 14,193 14,646 13,288
General and
administrative(3)............ 19,695 8,127 21,885 80,932 28,295 36,186
Amortization and impairment of
intangibles(4)............... 4,936 2,757 39,488 16,247 6,008 4,551
-------- -------- -------- --------- -------- --------
Total operating
expenses........... 68,347 32,869 100,282 154,154 81,906 76,992
-------- -------- -------- --------- -------- --------
Earnings (loss) from
operations................... 7,905 (13,106) (85,470) (161,954) 77,441 21,415
Interest expense............... (695) (627) (826) (897) (1,081) (793)
Interest income................ 4,685 4,583 4,930 7,981 7,517 3,942
Other income (expense)......... 574 176 1,306 (370) (202) (267)
-------- -------- -------- --------- -------- --------
Earnings (loss) before income
taxes........................ 12,469 (8,974) (80,060) (155,240) 83,675 24,297
Income tax (benefit) expense... 3,128 1,332 (6,097) (49,677) 26,776 7,700
-------- -------- -------- --------- -------- --------
Net earnings (loss)............ 9,341 (10,306) (73,963) (105,563) 56,899 16,597
Preferred dividend............. 5,632 3,051 4,557 -- -- --
-------- -------- -------- --------- -------- --------
Net earnings (loss) applicable
to common shares............. $ 3,709 $(13,357) $(78,520) $(105,563) $ 56,899 $ 16,597
======== ======== ======== ========= ======== ========
Basic earnings (loss) per
common share................. $ 0.07 $ (0.26) $ (1.55) $ (2.17) $ 1.29 $ 0.38
======== ======== ======== ========= ======== ========
Weighted average number of
common shares outstanding.... 51,166 50,840 50,716 48,540 43,962 43,181
======== ======== ======== ========= ======== ========
Diluted earnings (loss) per
common share................. $ 0.07 $ (0.26) $ (1.55) $ (2.17) $ 1.28 $ 0.38
======== ======== ======== ========= ======== ========
Weighted average number of
diluted common shares
outstanding.................. 52,309 50,840 50,716 48,540 44,430 43,820
======== ======== ======== ========= ======== ========
</Table>

8
<PAGE>

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, ------------------------------------------
2001 2000 2000 1999 1998 1997
------------ ------------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
YEAR):
Working capital................ $204,600 $181,366 $183,412 $ 213,612 $245,870 $170,427
Total assets......... 383,171 365,633 381,769 451,748 493,016 384,658
Short-term debt, including
current maturities of
long-term debt............... 2,312 1,207 1,154 1,067 986 912
Long-term debt, net of current
maturities................... 20,088 7,077 7,886 8,947 10,011 11,000
Stockholders' equity........... 331,037 325,403 335,015 396,974 415,700 338,614
OTHER DATA:
Capital expenditures........... $ 9,202 $ 2,837 $ 3,077 $ 9,326 $ 6,960 $ 26,966
Depreciation and
amortization................. 17,535 11,448 22,835 20,776 16,816 12,558
</Table>

- ---------------

(1) Results for the year ended May 31, 2000 include charges of $12.0 million and
results for the year ended May 31, 1999 include charges of $77.0 million.
See Note 15 of Notes to Consolidated Financial Statements for further
information with respect to these charges.

(2) Results for the year ended May 31, 1999 include charges of $1.1 million. See
Note 15 of Notes to Consolidated Financial Statements for information with
respect to these charges.

(3) Results for the year ended May 31, 2000 include charges of $7.2 million;
results for the year ended May 31, 1999 include charges of $53.2 million and
results for the year ended May 31, 1997 include charges of $15.6 million.
See Note 15 of Notes to Consolidated Financial Statements for information
with respect to these charges.

(4) Results for the year ended May 31, 2000 include charges for $31.6 million
and results for the year ended May 31, 1999 include charges of $7.7 million.
See Note 15 of Notes to Consolidated Financial Statements for information
with respect to these charges.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

SUMMARY REVIEW AND OUTLOOK

Our key strategies remain optimizing the performance of our core business,
bringing our key technology initiatives to fruition, monetizing our
underutilized assets and growing our business through acquisitions and
alliances.

Our focus on optimizing the performance of our core business began with
organizing our existing land and marine divisions into a series of individually
accountable business units focused along product lines within the land and
marine divisions. The formation of these business units has led to improved cost
control, faster customer response and better identification of market
opportunities. An example of this was the rapid development and successful
introduction of our new tracked vibrators during 2001. These new tracked units,
which carry our vibrator control and positioning systems, were not only designed
with input from our customers to be more environmentally friendly than
traditional wheeled vehicles, but also increase efficiency of seismic crews when
deployed in the field.

Our efforts to bring key technology initiatives to fruition has led to
commercialization of our VectorSeis line of products and the construction of the
first VectorSeis fleet of approximately 3,500 stations for deployment in early
2002. Veritas DGC, our initial VectorSeis commercialization partner, conducted
sixteen pilot surveys during 2001 using prototype VectorSeis stations. In March
2002 we entered into an alliance with Veritas in which we will provide use of
VectorSeis recording equipment in exchange for a portion of the revenues derived
from use of our equipment. Feedback from Veritas and the end-users has been
favorable. We

9
<PAGE>

are continuing to invest resources and seek improvements in seismic data
acquisition technology. Other goals for 2002 include further development of our
land seismic ground equipment and central electronics, commencing development of
a next generation marine seismic data acquisition system, and development of new
product offerings in hydrocarbon reservoir monitoring and characterization.

Monetizing under-utilized assets has included the identification of
alternative revenue-producing opportunities for other assets. We have created a
new business unit for our MEMS facility to provide for the production of MEMS
components for VectorSeis products and also to seek additional non-seismic
applications and revenue sources for our MEMS facility's capacity and
technology.

FISCAL YEAR CHANGE

In September 2000, our Board of Directors approved changing our fiscal
year-end to December 31 of each year. The consolidated statements of operations,
stockholders' equity and comprehensive loss and cash flows for the period from
June 1, 2000 to December 31, 2000 represent a transition period of seven months.
The following is a comparative summary of the operating results for the years
ended December 31, 2001 and 2000 and the seven month periods ended December 31,
2000 and 1999 (in thousands, except per share amounts).

<Table>
<Caption>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
2001 2000 2000 1999
-------- ----------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................... $212,050 $137,384 $ 78,317 $ 62,244
Cost of sales........................... 135,798 117,493 58,554 47,703
-------- -------- -------- --------
Gross profit............................ 76,252 19,891 19,763 14,541
-------- -------- -------- --------
Operating expenses:
Research and development.............. 29,442 28,084 16,051 16,590
Marketing and sales................... 14,274 10,504 5,934 5,713
General and administrative............ 19,695 17,632 8,127 12,396
Amortization and impairment of
intangibles........................ 4,936 37,758 2,757 4,471
-------- -------- -------- --------
Earnings (loss) from operations......... 7,905 (74,087) (13,106) (24,629)
Interest expense........................ (695) (973) (627) (480)
Interest and other income............... 5,259 8,223 4,759 2,767
Income tax expense (benefit)............ 3,128 5,372 1,332 (6,702)
Preferred dividend...................... 5,632 5,000 3,051 2,608
-------- -------- -------- --------
Net earnings (loss) applicable to common
shares................................ $ 3,709 $(77,209) $(13,357) $(18,248)
======== ======== ======== ========
Net earnings (loss) per common share:
Basic................................. $ 0.07 $ (1.52) $ (0.26) $ (0.31)
======== ======== ======== ========
Diluted............................... $ 0.07 $ (1.52) $ (0.26) $ (0.31)
======== ======== ======== ========
</Table>

COMPARABILITY OF PERIODS

Results of operations and financial condition have been affected by
acquisitions of businesses and pre-tax charges during certain periods discussed,
which may affect the comparability of the financial information. See Notes 9 and
15 of Notes to Consolidated Financial Statements.

10
<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net Sales: Net sales of $212.1 million for the year ended December 31,
2001 increased $74.7 million, or 54%, compared to the prior year. The increase
is primarily due to increased demand for products produced by our Land Division.
Our Land Division's net sales increased $70.5 million, or 77%, to $162.3
million, primarily as a result of improving industry conditions and introduction
of products such as our new tracked vibrator. Our Marine Division's net sales
increased $4.2 million or 9%, to $49.8 million, compared to the prior year.
Marine sales remain lackluster primarily due to over capacity in this sector and
an abundance of marine library data.

Cost of Sales: Cost of sales of $135.8 million for the year ended December
31, 2001 increased $18.3 million, or 16%, compared to the prior year. Cost of
sales of our Land Division was $106.7 million and cost of sales of our Marine
Division was $29.1 million. Results for the year ended December 31, 2000
included $10.6 million, net, in pre-tax charges for inventory write-downs
partially offset by favorable legal settlements. Excluding the effect of these
pre-tax net charges, cost of sales increased $28.9 million, or 27%, compared to
the prior year.

Gross Profit and Gross Profit Percentage: Gross profit of $76.3 million
for the year ended December 31, 2001 increased $56.4 million, or 283%, compared
to the prior year. Excluding the effect of pre-tax charges in the prior period,
gross profits for the year ended December 31, 2001 increased $45.8 million, or
150%, compared to the prior year. Gross profit percentage for the year ended
December 31, 2001 was 36% compared to 14% in the prior year. Excluding the
effect of pre-tax charges, gross profit percentage for the year ended December
31, 2000 was 22%. The return to a more normal pricing regime, success in
reducing costs, improving absorption of fixed and semi-fixed overhead, as well
as the continued elimination from the sales mix of products that had been highly
discounted during recent periods of weaker demand contributed to the higher 2001
gross profit percentage.

Research and Development: Research and development expense of $29.4
million for the year ended December 31, 2001 increased $1.4 million, or 5%,
compared to the prior year. Research and development expense has remained
relatively constant due to the ongoing VectorSeis development efforts.

Marketing and Sales: Marketing and sales expense of $14.3 million for the
year ended December 31, 2001 increased $3.8 million, or 36%, compared to the
prior year. The increase is primarily related to higher sales in certain foreign
jurisdictions for which we owe commissions to independent sales representatives.
Compensation expense to our in-house sales force also increased because of the
higher net sales and gross profit percentage compared to the prior year.
Marketing and sales expense as a percentage of revenues remained relatively
constant in both years.

General and Administrative: General and administrative expense of $19.7
million for the year ended December 31, 2001 increased $2.1 million, or 12%,
compared to the prior year. This increase in general and administrative expense
is primarily attributable to increased compensation expense, reflecting
profit-based bonuses in 2001, and the inclusion of Pelton in the current year's
results.

Amortization and Impairment of Intangibles: Amortization and impairment of
intangibles of $4.9 million for the year ended December 31, 2001 decreased $32.8
million, or 87%, compared to the prior year. The decrease is due to the
impairment of $31.6 million of goodwill during the prior year.

Total Other Income: Total net interest and other income of $4.6 million
for the year ended December 31, 2001 decreased $2.7 million, or 37%, compared to
the prior year, primarily due to fluctuations in exchange rates and falling
interest rates.

Income Tax Expense (Benefit): Income tax expense of $3.1 million for the
year ended December 31, 2001 decreased $2.2 million from the prior year. Income
tax expense decreased from the prior period despite higher earnings before
income taxes because: (i) we returned to profitability and are currently
recording an income tax provision that reflects a year-end effective tax rate of
38% before resolution of certain tax issues, (ii) during the prior period we
were profitable in certain foreign tax jurisdictions but recognized no
offsetting

11
<PAGE>

benefit from domestic net operating losses, and (iii) we resolved certain tax
issues in the current year and received a $1.6 million cash benefit. This
benefit is not expected to recur in future periods.

In assessing the realizability of our deferred income tax assets, we
considered whether it is more likely than not that some portion or all of the
deferred income tax assets will be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those deferred income tax assets become
deductible. We considered the scheduled reversal of deferred income tax
liabilities and projected future taxable income in making this assessment.

In order to fully realize the deferred income tax assets, we will need to
generate future U.S. taxable income of approximately $120 million over the next
19-20 years. Although we have experienced significant losses in recent fiscal
years, taxable income for the years 1996 through 1998 aggregated approximately
$128 million. Regardless, the ultimate realization of the net deferred tax
assets, prior to the expiration of the net operating loss carry-forward in the
next 19-20 years, will require a return to sustained profitability.

Preferred Stock Dividends: Preferred stock dividends for the year ended
December 31, 2001 and 2000 are related to outstanding Series B and Series C
Preferred Stock. We recognize the dividends as a charge to retained earnings at
a stated rate of 8% per year, compounded quarterly (of which 7% is accounted for
as a non-cash event recorded to additional paid-in capital so as to reflect
potential dilution at time of preferred stock conversion and 1% is paid as a
quarterly cash dividend. See Note 8 of Notes to Consolidated Financial
Statements). The preferred stock dividend charge for the year ended December 31,
2001 was $5.6 million, compared to $5.0 million for the prior year.

SEVEN MONTHS ENDED DECEMBER 31, 2000 COMPARED TO SEVEN MONTHS ENDED DECEMBER
31, 1999

Net Sales: Net sales of $78.3 million for the seven months ended December
31, 2000 increased $16.1 million, or 26%, compared to the corresponding period
one year prior. The increase is primarily due to increased demand for products
produced by our Land Division. Our Land Division's net sales increased $18.7
million or 45%, to $60.6 million, compared to the corresponding period one year
prior. Increased sales of our Land Division were partially offset by decreased
net sales of our Marine Division where equipment oversupply in the marine
seismic fleets adversely affected sales. Our Marine Division's net sales
decreased $2.6 million or 13%, to $17.7 million, compared to the corresponding
period one year prior.

Cost of Sales: Cost of sales of $58.6 million for the seven months ended
December 31, 2000 increased $10.9 million, or 23%, compared to the corresponding
period one year prior. Cost of sales of our Land Division was $44.7 million and
cost of sales of our Marine Division was $13.9 million. Results for the seven
months ended December 31, 1999 included $1.4 million in pre-tax charges
primarily for product-related warranties. Excluding the effect of these pre-tax
charges, cost of sales increased $12.3 million, or 26% compared to the
corresponding period one year prior.

Gross Profit and Gross Profit Percentage: Gross profit of $19.8 million
for the seven months ended December 31, 2000 increased $5.2 million, or 36%,
compared to the corresponding period one year prior. Excluding the effect of
pre-tax charges in the prior period, gross profits for the seven months ended
December 31, 2000 increased $3.8 million compared to the corresponding period
one year prior. Gross profit percentage for the seven months ended December 31,
2000 was 25%. Excluding the effect of these pre-tax charges, gross profit
percentage remained relatively constant with the corresponding period one year
prior.

Research and Development: Research and development expense of $16.1
million for the seven months ended December 31, 2000 decreased $0.5 million, or
3%, compared to the corresponding period one year prior. Research and
development expense remained relatively constant due to ongoing VectorSeis
development efforts.

Marketing and Sales: Marketing and sales expenses of $5.9 million for the
seven months ended December 31, 2000 remained relatively constant, increasing
$0.2 million, or 4%, compared to the corresponding period one year prior. The
increase reflects higher commissions attributable to higher net sales and gross
profit percentage, partially offset by our cost reduction initiatives
implemented during the current year.

12
<PAGE>

General and Administrative: General and administrative expenses of $8.1
million for the seven months ended December 31, 2000 decreased $4.3 million, or
34%, compared to the corresponding period one year prior. The decrease is
primarily due to $3.3 million prior period pre-tax charges for employee
severance and facility closings.

Amortization and Impairment of Intangibles: Amortization and impairment of
intangibles of $2.8 million for the seven months ended December 31, 2000
decreased $1.7 million, or 38%, compared to the corresponding period one year
prior. The decrease is due to the impairment of $31.6 million of goodwill during
early calendar year 2000.

Total Other Income: Total net interest and other income of $4.1 million
for the seven months ended December 31, 2000 increased $1.8 million, or 81%,
compared to the corresponding period one year prior. The increase is a result of
increased interest earned on notes receivable and new treasury management
strategies.

Income Tax Expense (Benefit): Income tax expense of $1.3 million for the
seven months ended December 31, 2000 increased $8.0 million, compared to a $6.7
million tax benefit in the corresponding period one year prior. The change in
income tax expense (benefit) is primarily the result of: (i) increased
profitability of operations in foreign tax jurisdictions, and (ii) no
recognition for benefit from domestic net operating losses (see discussion of
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000).

Preferred Stock Dividends: Preferred stock dividends for the seven months
ended December 31, 2000 and 1999 are related to outstanding Series B and Series
C Preferred Stock. We recognize the dividends as a charge to retained earnings
at a stated rate of 8% per year, compounded quarterly (of which 7% is accounted
for as a non-cash event recorded to additional paid-in capital so as to reflect
potential dilution at time of preferred stock conversion and 1% is paid as a
quarterly cash dividend). The preferred stock dividend charge for the seven
months ended December 31, 2000 was $3.1 million, compared to $2.6 million for
the corresponding period one year prior.

YEAR ENDED MAY 31, 2000 COMPARED TO YEAR ENDED MAY 31, 1999

Net Sales: Net sales of $121.5 million for the year ended May 31, 2000
decreased $76.0 million, or 39%, compared to the prior year. Our Land Division's
net sales for the year ended May 31, 2000 decreased $23.1 million, or 24%, to
$73.2 million. Our Marine Division's net sales decreased $52.9 million, or 52%,
to $48.3 million. The decline in both our Land and Marine Division net sales was
attributable to the deterioration in the seismic service industry, resulting in
weak demand for seismic data acquisition equipment and pricing pressures from
competitors.

Cost of Sales: Cost of sales of $106.6 million for the year ended May 31,
2000 decreased $98.6 million, or 48%, compared to the prior year. Cost of sales
of our Land Division was $66.8 million and cost of sales of our Marine Division
was $39.8 million, compared to $100.6 million and $104.6 million, respectively,
for the prior year. Results for both periods include pre-tax charges of $12.0
million and $77.0 million in the years ended May 31, 2000 and 1999,
respectively. The charges for the year ended May 31, 2000 were primarily for
inventory write downs of $12.3 million and increases in product related warranty
reserves, net of recoveries of $.6 million. The charges for the year ended May
31, 1999 were primarily for inventory write downs of $57.0 million and increases
in product related warranty reserves of $20.0 million. Excluding the effect of
pre-tax charges, cost of sales decreased $33.6 million, or 26% compared to the
prior year.

Gross Profit and Gross Profit Percentage: Gross profit of $14.8 million
for the year ended May 31, 2000 increased $22.6 million or 290% compared to the
prior year. Excluding the effect of pre-tax charges, gross profit decreased
$42.4 million or 61% compared to the prior year. Gross profit percentage was
12.2% and (0.03)% for the years ended May 31, 2000 and 1999, respectively.
Excluding the effect of pre-tax charges in both years, gross profit percentage
was 22% and 35% for the years ended May 31, 2000 and 1999. Pricing pressures
from competitors, a shift in product mix to lower margin product lines and lower
volumes leading to under absorption of fixed overhead costs contributed to the
lower gross profit percentage.

Research and Development: Research and development expenses of $28.6
million for the year ended May 31, 2000 decreased $14.2 million, or 33%,
compared to the prior year. The decrease is primarily due to

13
<PAGE>

reduced costs and expenditures for salaries, contract labor, outside services,
and product development relating to a significantly narrowed focus on our
development of new product offerings.

Marketing and Sales: Marketing and sales expense of $10.3 million for the
year ended May 31, 2000 decreased $3.9 million, or 28%, compared to the prior
year. The decrease is primarily due to cost reduction initiatives and
commissions on lower levels of sales.

General and Administrative: General and administrative expense of $21.9
million for the year ended May 31, 2000 decreased $59.0 million, or 73%,
compared to the prior year. Results for the years ended May 31, 2000 and 1999
include pre-tax charges of $7.2 million and $53.2 million, respectfully. Charges
for the year ended May 31, 2000 were for receivable related charges of $6.0
million, facility charges of $0.7 million and personnel related charges of $10.7
million, offset by favorable settlement for previously reserved receivables.
Charges for the year ended May 31, 1999 were for receivable related charges of
$39.9 million, facility closure and asset impairments of $6.8 million and
personnel related costs of $6.5 million. Excluding the pre-tax charges for the
years ended May 31, 2000 and 1999, general and administrative expenditures for
the year ending May 31, 2000 were $14.7 million, a decrease of $13.0 million, or
47%, compared to the prior year. The decrease is due to reductions in work
force, cost reduction initiatives and decreased contractor and professional
service fees.

Amortization and Impairment of Intangibles: Amortization and impairment of
intangibles of $39.5 million for the year ended May 31, 2000 increased $23.2
million, or 143%, compared to the prior year. The increase was principally the
result of a charge for intangible asset impairment of $31.6 million. Excluding
the charge, amortization of identified intangibles for the year ended May 31,
2000 was $7.9 million, a decrease of $8.4 million from the prior year.

Total Other Income: Total net interest income and other income of $5.4
million for the year ended May 31, 2000 decreased $1.3 million or 19% primarily
due to impairments and other reductions in notes receivable balances. This was
offset by an increase in income from investments as a result of higher average
cash balances on hand during the year.

Income Tax Expense (Benefit): Income tax benefit of $6.1 million for the
year ended May 31, 2000 decreased $43.6 million, or 88%, compared with the tax
benefit in the year ended May 31, 1999. The change in income tax expense
(benefit) is primarily the result of (i) lower pretax losses for year ended May
31, 2000 compared to year ended May 31, 1999, and (ii) reduced recognition for
benefit from domestic net operating losses (see discussion of Year Ended
December 31, 2001 Compared to Year Ended December 31, 2000.)

Preferred Stock Dividends: Preferred stock dividends for the year ended
May 31, 2000 are related to outstanding Series B and Series C Preferred Stock.
We recognize the dividends as a charge to retained earnings at a stated rate of
8% per year, compounded quarterly (of which 7% is accounted for as a non-cash
event recorded to additional paid-in capital so as to reflect potential dilution
at time of preferred stock conversion and 1% is paid as a quarterly cash
dividend). The preferred stock dividend charge for the year ended May 31, 2000
was $4.6 million.

LIQUIDITY AND CAPITAL RESOURCES

We have typically financed operations from internally generated cash and
funds from equity financings. Cash and cash equivalents were $101.7 million at
December 31, 2001, an increase of $9.3 million, or 10%, compared to December 31,
2000. The increase is due to cash flows provided by operating activities and
financing activities, offset by cash flows used in investing activities. Net
cash provided by operating activities was $17.5 million for the year ended
December 31, 2001 compared to the net cash used in operating activities of $3.7
million for the seven months ending December 31, 2000. The changes in working
capital items for the year ended December 31, 2001 represented a $8.7 million
use of cash, due primarily to an increase in receivables as a result of
increased net sales and a decrease in accounts and tax payable. The various
working capital accounts can vary in amount substantially from period to period,
depending upon timing and levels of sales, product mix sold, demand for
products, percentages of cash versus credit sales, collection rates,

14
<PAGE>

inventory levels, and general economic and industry factors. Excluding changes
in working capital items, operating cash flow was a positive $26.2 million.

Net cash flow used in investing activities was $14.8 million for the year
ended December 31, 2001, a decrease of $11.9 million, compared to the seven
months ended December 31, 2000. The principal investing activities were capital
expenditure projects and the acquisition of Pelton. Planned capital expenditures
for 2002 are approximately $9.9 million, including the purchase of advanced
manufacturing machinery and additions of VectorSeis equipment for use in
acquiring seismic data in conjunction with our alliance partner. Capital
expenditures could increase should the Company enter into additional similar
alliances to commercialize VectorSeis.

Cash flow provided by financing activities was $7.6 million for the year
ended December 31, 2001, an increase of $8.0 million compared to the seven
months ending December 31, 2000. The principal source was proceeds from the
financing transaction related to the sale of our Stafford Facilities, offset by
repayment of other long-term debt and the purchase of treasury stock.

We believe the combination of existing working capital, current cash on
hand and access to other financing sources will be adequate to meet anticipated
capital and liquidity requirements for the foreseeable future.

RECENT ACCOUNTING PRONOUNCEMENTS.

SFAS No. 141 entitled "Business Combinations" was issued in June 2001 and
became effective July 1, 2001. SFAS No. 141 requires that all business
combinations be accounted for using the purchase method of accounting, which
requires that acquisitions be recorded at fair value as of the date of
acquisition. The pooling-of-interests method of accounting allowed under prior
standards, which reflected business combinations using historical financial
information, is now prohibited.

In June 2001, the FASB issued SFAS No. 142 entitled "Goodwill and Other
Intangible Assets", which became effective on January 1, 2002. Under SFAS 142,
existing goodwill ($45.6 million at December 31, 2001) will no longer be
amortized, but will be tested for impairment using a fair value approach. SFAS
No. 142 requires goodwill to be tested for impairment at a level referred to as
a reporting unit, generally one level lower than reportable segments. SFAS No.
142 requires us to perform the first goodwill impairment test on all reporting
units within six months of adoption. The first step is to compare the fair value
with the book value of a reporting unit. If the fair value of the reporting unit
is less than its book value, the second step will be to calculate the impairment
loss, if any. Any impairment loss from the initial adoption of SFAS No. 142 will
be recognized as a change in accounting principle. After the initial adoption,
we will test goodwill for impairment on an annual basis and between annual tests
if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. We are
still reviewing SFAS No. 142 to determine the effect, if any, of the initial
goodwill impairment testing. During the year ended December 31, 2001, the seven
months ended December 31, 2000, and the years ended May 31, 2000 and May 31,
1999, we recorded goodwill amortization of $3.9 million, $2.2 million, $37.1
million and $9.0 million, respectively.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Due to the nature of our
business, this new accounting pronouncement is not expected to have a
significant impact on our reported results of operations and financial
condition.

15
<PAGE>

This Statement also amends ARB No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. SFAS No. 144 became effective on January 1, 2002. The
provisions of this Statement are to be applied prospectively.

FUTURE CONVERSION OF SERIES B AND SERIES C PREFERRED STOCK

In 1999, we issued 40,000 shares of Series B Preferred Stock and 15,000
shares of Series C Preferred Stock to SCF-IV, L.P. ("SCF") for approximately $55
million in a privately negotiated transaction. Both the Series B and Series C
Preferred Stock are convertible into shares of our Common Stock at SCF's option
at any time after May 7, 2002, and will automatically convert into shares of our
Common Stock on May 7, 2004. SCF may convert the shares of Series B and Series C
Preferred Stock into shares of our Common Stock at either:

- SCF's initial per share purchase price divided by a fixed conversion
price (currently $8.00 for the Series B Preferred Stock and $8.50 for the
Series C Preferred Stock); or

- SCF's initial per share purchase price increased at a rate of 8% per year
compounded quarterly, less any cash dividends paid, divided by a trailing
10 day average market price for our Common Stock.

If the conversion of the Series B and Series C Preferred Stock would result
in more than 10,099,979 shares of Common Stock being issued, we would be
required to redeem any excess in cash. Therefore, if we experience a significant
decline in our stock price prior to conversion of the Series B and Series C
Preferred Stock, our liquidity and capital resources may be materially and
adversely affected.

Under the terms of a registration rights agreement, SCF has the right,
first exercisable on March 8, 2002, to demand us to file a registration
statement for the resale of the shares of Common Stock SCF acquires upon
conversion of the Series B and Series C Preferred Stock. Sales or the
availability for sale of a substantial number of our shares of Common Stock in
the public market could adversely affect the market price for our Common Stock.

We recognize dividends on the preferred stock as a charge to retained
earnings at a stated rate of 8% per year, compounded quarterly (of which 7% is
accounted for as a non-cash event recorded to additional paid-in capital so as
to reflect potential dilution at time of preferred stock conversion and 1% is
paid as a quarterly cash dividend). The charge to retained earnings will cease
following conversion.

Because the number of shares we will issue upon conversion of the Series B
and Series C Preferred Stock depends on the market price of our common stock at
the time of conversion, we do not know the ultimate impact conversion will have
on our reported results. However, if conversion had occurred at December 31,
2001, it would have been accretive to our earnings per share for the year ended
December 31, 2001. See Note 8 of Notes to Consolidated Financial Statements.

CREDIT RISK

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

16
<PAGE>

idation among our significant customers could materially and adversely affect us
and Note 10 of Notes to Consolidated Financial Statements.

During the year ended December 31, 2001, there were $23.5 million of sales
to customers in Russia and other former Soviet Union countries, $3.8 million of
sales to customers in Latin American countries and $20.8 million of sales to
customers in China (substantially all sales to Russia and China were backed by
irrevocable letters of credit). The majority of our foreign sales are
denominated in U.S. dollars. Russia and certain Latin American countries have
experienced economic problems and uncertainties and devaluations of their
currencies in recent years. To the extent that economic conditions negatively
affect our future sales to customers in those regions or the collectibility of
our existing receivables, our future results of operations, liquidity and
financial condition may be adversely affected.

ACCOUNTING ESTIMATES AND CHOICES

Preparation of financial statements under generally accepted accounting
principles in the United States requires us to make choices between acceptable
methods of accounting and to make estimates of future events to determine the
value we report for certain assets and liabilities at the date of our financial
statements and the value we report for revenues and expenses in a period covered
by our financial statements. While we try to be as precise as possible in making
these estimates, many of them are subjective in nature and involve matters of
judgement. We believe the most subjective and material estimates in our
financial statements are the reserve for uncollectible accounts and notes
receivable, inventory, the recoverability of our deferred tax assets and the
extent of future warranty obligations.

- When an account or note is considered impaired, the amount of the
impairment is measured based on the present value of expected future cash
flows or the fair value of collateral. Impairment losses (recoveries) are
included in the allowance for doubtful accounts and for loan loss through
an increase (decrease) in bad debt expense. Notes receivable are
generally collateralized by the products sold, bear interest at
contractual rates up to 13% per year and are due at various dates through
2004. Cash receipts on impaired notes are applied to reduce the principal
amount of such notes until the principal has been recovered and are
recognized as interest income thereafter.

- We provide reserves for estimated obsolescence or excess inventory equal
to the difference between cost of inventory and estimated market value
based upon assumptions about future demand for our products and market
conditions. We note that due to declines in recent levels of our sales,
some portion of our inventory at December 31, 2001 is in excess of our
near-term requirements. We have developed a program to reduce our
inventory to a more desirable level in the near term and believe no loss
will be incurred on its disposition in excess of current reserve
estimates. However, if we are unsuccessful we will need to take a larger
reserve for inventory and this could materially affect our results of
operations.

- We record a valuation allowance to reduce our deferred income tax assets
to the amount that we believe to be realizable under the
"more-likely-than-not" recognition criteria. While we considered future
taxable income and ongoing prudent, feasible tax planning strategies in
assessing the need for a valuation allowance, in the future we may change
our estimate of the amount of the deferred income tax assets that would
"more-likely-than-not" be realized, resulting in an adjustment to the
deferred income tax asset valuation allowance that would either increase
or decrease, as applicable, reported net income in the period.

- We record an accrual for product warranty and other contingencies when
estimated future expenditures associated with such contingencies become
probable, and the amounts can be 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).

17
<PAGE>

We believe that all of the estimates used to prepare our financial
statements were reasonable at the time we made them, but circumstances may
change requiring us to revise our estimates in ways that could be materially
adverse.

RELATED PARTIES

In connection with the acquisition of DigiCourse in November 1998, we
entered into a service agreement under which Laitram agreed to provide
accounting, software, manufacturing and maintenance services. The service
agreement expired September 30, 2001 and Laitram now charges us on an invoice
basis. Our chairman of the board is the chairman and a principal stockholder of
Laitram. We paid Laitram an aggregate $1.4 million, $0.8 million, $1.5 million
and $2.7 million under the services agreement for the year ended December 31,
2001, seven months ended December 31, 2000 and years ended May 31, 2000 and
1999, respectively.

A former director and former officer assisted in the collection efforts of
certain accounts and notes receivable. In return, he was paid a commission on
actual amounts collected. Commissions earned amounted to $0, $0.1 million, $0.5
million and $0 for the year ended December 31, 2001, seven months ended December
31, 2000 and years ended May 31, 2000 and 1999, respectively.

We have guaranteed $0.2 million of bank indebtedness for one officer
related to the open market purchases of our common stock. The share purchases
were made in conjunction with shares issued in May 2000 under the Input/Output,
Inc. 2000 Restricted Stock Plan. The outstanding loan balance at December 31,
2001 was $0.2 million.

CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS

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

- our expected revenues, operating profit and net income for 2002 or the
three months ended March 31, 2002;

- future demand for seismic equipment and services;

- future commodity prices;

- future economic conditions, including conditions in Russia and certain
Asian and Latin American countries;

- anticipated timing of commercialization and capabilities of our products
under development;

- potential alliances with strategic partners for development of new
products;

- non-seismic applications for our Applied MEMS business unit;

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

- our expectations regarding realization of our deferred tax assets;

- the anticipated effects of changes in accounting standards;

- our belief regarding accounting estimates we make;

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

- our future levels of capital expenditures.

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

18
<PAGE>

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

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

We may not gain rapid market acceptance for our new products which could
materially and adversely affect our results of operations and financial
condition. Seismic exploration requires sensitive scientific instruments
capable of withstanding harsh operating environments. In addition, our customers
demand broad functionality from our products. We require long development and
testing periods before releasing major new product enhancements and new
products. We currently intend to release for commercial use our next generation
land seismic data acquisition system and our next generation marine seismic data
acquisition system. If our anticipated product introductions are delayed, our
customers may turn to alternate suppliers and our results of operations and
financial condition will be adversely affected. We have on occasion experienced
delays in the scheduled introduction of new and enhanced products. In addition,
products as complex as those we offer sometimes contain undetected errors or
bugs when first introduced that, despite our rigorous testing program, are not
discovered until the product is purchased and used by a customer. If our
customers deploy our new products and they do not work correctly, our
relationship with our customers may be materially and adversely affected. We
cannot assure you that errors will not be found in future releases of our
products, or that these errors will not impair the market acceptance of our
products. If our new products are not accepted by our customers as rapidly as we
anticipate, our business and results of operations may be materially and
adversely affected.

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

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

In recent years our competitors have expanded or improved their product
lines, which has adversely affected our results of operations. For instance, one
competitor recently introduced a lightweight land seismic system which we
believe has made our current land system more difficult to sell at acceptable
margins. In addition, one of our competitors has introduced a marine solid
streamer product that competes with our oil-filled product. Our net sales of
marine streamers have been, and will continue to be, adversely affected by
customer preferences for solid products. We are currently exploring strategies
to offer a marine solid streamer. We can not assure you that we will find a
cost-effective way to market a solid streamer product or that we will be able to
compete effectively in the future for sales of marine streamers.

Further consolidation among our significant customers could materially and
adversely affect us. A relatively small number of customers account for the
majority of our net sales in any period. During the year

19
<PAGE>

ended December 31, 2001, three customers (Western Geco, Veritas and PGS)
accounted for approximately 51% of our net sales. In recent years, our customers
have been rapidly consolidating, shrinking the demand for our products. Veritas
DGC and PGS have recently announced that they intend to merge. The loss of any
of our significant customers to further consolidation or otherwise could
materially and adversely affect our results of operations and financial
condition.

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

- pricing pressures from our customers and competitors;

- product mix sold in a period;

- inventory obsolescence;

- unpredictability of warranty costs;

- changes in sales and distribution channels;

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

- absorption of manufacturing costs through volume production.

We must establish our expenditure levels for product development, sales and
marketing and other operating expenses based, in large part, on our forecasted
net sales and gross margin. As a result, if net sales or gross margins fall
below our forecasted expectations, our operating results and financial condition
are likely to be adversely affected because only a relatively small portion of
our expenses vary with our revenues.

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

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

We derive a substantial amount of our net sales from foreign sales which
pose additional risks. Sales to foreign customers accounted for approximately
63% of our consolidated net sales for the year ended December 31, 2001. United
States export restrictions affect the types and specifications of products we
can export. Additionally, to complete certain sales, U.S. laws may require us to
obtain export licenses and there can be no assurance that we will not experience
difficulty in obtaining such licenses. Operations and sales in countries other
than the United States are subject to various risks peculiar to each country.
With respect to any particular country, these risks may include:

- expropriation and nationalization;

- political and economic instability;

20
<PAGE>

- armed conflict and civil disturbance;

- currency fluctuations, devaluations and conversion restrictions;

- confiscatory taxation or other adverse tax policies;

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

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

The majority of our foreign sales are denominated in U.S. dollars. While
this practice protects the value of our assets as reported on our consolidated
financial statements, 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 or penalties or both.

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

We are highly dependent on certain key personnel. Our future success
depends upon the continued contributions of personnel, particularly management
personnel, many of whom would be difficult to replace. Our success will also
depend on our ability to attract and retain skilled employees. Changes in
personnel, particularly technical personnel, could adversely affect operating
results and continued changes in management personnel could have a disruptive
effect on employees which could, in turn, adversely affect operating results.

Our strategy of pursuing acquisitions and alliances has risks that can
materially and adversely affect our business, results of operations and
financial condition. One of our business strategies is to acquire operations
and assets that are complementary to our existing business, or to enter
strategic alliances that will extend our existing business. Acquisitions and
alliances involve financial, operational and legal risks, including:

- increased levels of goodwill subject to potential impairment;

- increased interest expense or increased dilution from issuance of equity;

- disruption of existing and acquired business from our integration
efforts; and

- loss of uniformity in standards, controls, procedures and policies.

In addition, other potential buyers could compete with us for acquisitions
and strategic alliances. Competition could cause us to pay a higher price for an
acquisition than we otherwise might have to pay or reduce the available
strategic alternatives. We might be unsuccessful in identifying attractive
acquisition candidates, completing and financing additional acquisitions on
favorable terms or integrating the acquired businesses or assets into our
operations.

Our operations are subject to numerous government regulations which could
adversely limit our operating flexibility. Our operations are subject to laws,
regulations, government policies and product certification requirements
worldwide. Changes in such laws, regulations, policies or requirements could
affect the demand for our products or result in the need to modify products,
which may involve substantial costs or delays in sales and could have an adverse
effect on our future operating results. Certain countries are subject to
restrictions, sanctions and embargoes imposed by the United States government.
These restrictions, sanctions and embargoes prohibit or limit us from
participating in certain business activities in those countries.

Disruption in vendor supplies will adversely effect 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

21
<PAGE>

possibility of a shortage or a lack of availability of key components and
increases in component costs and reduced control over delivery schedules; any of
these could adversely affect our future results of operations.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item begin at page F-1 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

See Item 14(b) of this Form 10-K.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is included in our definitive proxy
statement for our 2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is included in our definitive proxy
statement for our 2002 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by Item 12 is included in our definitive proxy
statement for our 2002 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is included in our definitive proxy
statement for our 2002 Annual Meeting of Stockholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) List of Documents Filed.

(1) Financial Statements:

The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on page F-1 hereof.

22
<PAGE>

(2) Financial Statement Schedules:

The following financial statement schedule is included as part of
this Annual Report on Form 10-K:

Schedule II -- Valuation and Qualifying Accounts

All other schedules are omitted because they are inapplicable or
the requested information is shown in the financial statements or noted
therein.

(3) Exhibits:

23
<PAGE>
<Table>
<C> <C> <S>
10.9 -- Registration Rights Agreement by and between the Company and
SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.10 -- First Amendment to Rights Agreement by and between the
Company and Harris Trust and Savings Bank as Rights Agent,
dated April 21, 1999, filed as Exhibit 10.3 to the Company's
Form 8-K dated April 21, 1999, and incorporated herein by
reference.
10.11 -- Registration Rights Agreement by and among the Company and
The Laitram Corporation, dated November 16, 1998, filed as
Exhibit 99.2 to the Company's Form 8-K dated November 16,
1998, and incorporated herein by reference.
**10.12 -- Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (Registration No. 333-80297), filed with the Securities
and Exchange Commission on June 9, 1999, and incorporated
herein by reference.
* **10.13 -- Form of Change in Control Agreement.
* **10.14 -- Input/Output, Inc. Non-qualified Deferred Compensation Plan.
**10.15 -- Amendment No. 1 to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan, dated
September 13, 1999, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1999, and incorporated herein by reference.
**10.16 -- Employment Agreement by and between the Company and Timothy
J. Probert dated effective as of March 1, 2000 filed as
Exhibit 10.44 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 2000, and incorporated
herein by reference.
**10.17 -- Input/Output, Inc. 2000 Restricted Stock Plan, effective as
of March 13, 2000 filed as Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
2000, and incorporated herein by reference.
**10.18 -- Input/Output, Inc. 2000 Long-Term Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (No. 333-49382) dated November 6, 2000 and incorpo-
rated by reference herein.
* **10.19 -- Separation Agreement and General Release between
Input/Output, Inc. and Rex Reavis dated August 10, 2001.
* **10.20 -- Consulting Agreement between Input/Output, Inc. and Rex
Reavis dated August 10, 2001.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of PricewaterhouseCoopers LLP.
*23.2 -- Consent of KPMG LLP.
*24.1 -- The Power of Attorney is set forth on the signature page
hereof.
</Table>

- ---------------

* Filed herewith.

** Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

On September 21, 2001, we filed a Current Report on Form 8-K reporting
under Item 4. Changes in Registrant's Certifying Accountants the engagement
of PricewaterhouseCoopers LLP as our independent accountant, effective
September 14, 2001 and the dismissal of our former independent accountant,
KPMG LLP effective September 14, 2001.

On March 8, 2002, we filed a Current Report on Form 8-K reporting
under Item 5. Other Events certain amendments to our Bylaws.

Reference is made to subparagraph (a) (3) of this Item 14 which is
incorporated herein by reference.

(d) Not applicable.

24
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Stafford, State of Texas, on April 1, 2002.

INPUT/OUTPUT, INC.

By /s/ MARTIN DECAMP
------------------------------------
Vice President -- Accounting

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Probert and C. Robert Bunch and each
of them, as his or her true and lawful attorneys-in-fact and agents with full
power of substitution and re-substitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all documents
relating to the Annual Report on Form 10-K, for the year ended December 31,
2001, including any and all amendments and supplements thereto, and to file the
same with all exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or their or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
NAME CAPACITIES DATE
---- ---------- ----
<S> <C> <C>

/s/ JAMES M. LAPEYRE, JR. Director and Chairman of the Board April 1, 2002
- ------------------------------------------------
James M. Lapeyre, Jr.

/s/ TIMOTHY J. PROBERT Director, President and Chief April 1, 2002
- ------------------------------------------------ Executive Officer (principal
Timothy J. Probert executive officer)

/s/ C. ROBERT BUNCH Vice President and Chief April 1, 2002
- ------------------------------------------------ Administrative Officer (principal
C. Robert Bunch financial officer)

/s/ MARTIN B. DECAMP Vice President -- Accounting April 1, 2002
- ------------------------------------------------ (principal accounting officer)
Martin B. DeCamp

/s/ ERNEST E. COOK Director April 1, 2002
- ------------------------------------------------
Ernest E. Cook

/s/ THEODORE H. ELLIOTT, JR. Director April 1, 2002
- ------------------------------------------------
Theodore H. Elliott, Jr.
</Table>

25
<PAGE>

<Table>
<Caption>
NAME CAPACITIES DATE
---- ---------- ----

/s/ DAVID C. BALDWIN Director April 1, 2002
- ------------------------------------------------
David C. Baldwin

/s/ WILLIAM F. WALLACE Director April 1, 2002
- ------------------------------------------------
William F. Wallace

/s/ ROBERT P. PEEBLER Director April 1, 2002
- ------------------------------------------------
Robert P. Peebler

/s/ SAM K. SMITH Director April 1, 2002
- ------------------------------------------------
Sam K. Smith

/s/ FRANKLIN MYERS Director April 1, 2002
- ------------------------------------------------
Franklin Myers
</Table>

26
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
PAGE
----
<S> <C>
Input/Output, Inc. and Subsidiaries:
Reports of Independent Accountants........................ F-2
Consolidated Balance Sheets
December 31, 2001 and December 31, 2000 and May 31,
2000.................................................. F-4
Consolidated Statements of Operations
Year ended December 31, 2001, Seven months ended
December 31, 2000 and Years ended May 31, 2000 and
1999.................................................. F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Earnings (Loss)
Year ended December 31, 2001, Seven months ended
December 31, 2000 and Years ended May 31, 2000 and
1999.................................................. F-6
Consolidated Statements of Cash Flows
Year ended December 31, 2001, Seven months ended
December 31, 2000 and Years ended May 31, 2000 and
1999.................................................. F-8
Notes to Consolidated Financial Statements................ F-9
Schedule II -- Valuation and Qualifying Accounts.......... S-1
</Table>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Input/Output, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Input/Output, Inc. and its subsidiaries (the "Company") at December
31, 2001, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements and
financial statement schedule of the Company as of December 31, 2000 and May 31,
2000 and for the seven months ended December 31, 2000 and for the years ended
May 31, 2000 and 1999 were audited by other independent accountants whose report
dated February 1, 2001 expressed an unqualified opinion on those statements.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 28, 2002

F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Input/Output, Inc.:

We have audited the consolidated balance sheets of Input/Output, Inc. and
subsidiaries as of December 31, 2000, and May 31, 2000, and the related
consolidated statements of operations, stockholders' equity and comprehensive
earnings (loss) and cash flows for the seven-month period ended December 31,
2000, and each of the years in the two-year period ended May 31, 2000. We have
also audited the financial statement schedule for the seven-month period ended
December 31, 2000, and each of the years in the two-year period ended May 31,
2000 as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Input/Output, Inc. and subsidiaries as of December 31, 2000, and May 31, 2000,
and the results of their operations and their cash flows for the seven-month
period ended December 31, 2000 and each of the years in the two-year period
ended May 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

KPMG LLP

Houston, Texas
February 1, 2001

F-3
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31,
--------------------- MAY 31,
2001 2000 2000
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents................................. $101,681 $ 92,376 $ 99,210
Restricted cash........................................... 221 1,115 1,006
Accounts receivable, net.................................. 46,434 30,920 24,944
Current portion notes receivable, net..................... 1,078 7,889 12,224
Income taxes receivable................................... -- -- 705
Inventories............................................... 68,283 67,646 69,185
Deferred income tax asset................................. 15,083 12,081 13,459
Prepaid expenses.......................................... 3,115 2,217 1,274
-------- -------- --------
Total current assets............................... 235,895 214,244 222,007
Notes receivable............................................ 5,800 6,150 6,013
Deferred income tax asset................................... 40,745 42,771 41,393
Property, plant and equipment, net.......................... 47,538 51,267 58,419
Goodwill, net............................................... 45,584 47,098 49,256
Other assets, net........................................... 7,609 4,103 4,681
-------- -------- --------
Total assets....................................... $383,171 $365,633 $381,769
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt...................... $ 2,312 $ 1,207 $ 1,154
Accounts payable.......................................... 10,169 8,283 8,011
Accrued expenses.......................................... 18,814 23,388 29,430
-------- -------- --------
Total current liabilities.......................... 31,295 32,878 38,595
Long-term debt, net of current maturities................... 20,088 7,077 7,886
Other long-term liabilities................................. 751 275 273
Stockholders' equity:
Cumulative convertible preferred stock, $.01 par value;
authorized 5,000,000 shares; issued and outstanding
55,000 shares at December 31, 2001 and December 31, 2000
and May 31, 2000 (liquidation value of $55 million at
December 31, 2001)...................................... 1 1 1
Common stock, $.01 par value; authorized 100,000,000
shares; outstanding 50,865,729 shares at December 31,
2001, 50,936,420 shares at December 31, 2000 and
50,744,180 shares at May 31, 2000....................... 516 512 510
Additional paid-in capital................................ 360,147 352,294 348,743
Retained deficit.......................................... (15,713) (19,422) (6,065)
Accumulated other comprehensive loss...................... (7,499) (5,353) (5,427)
Treasury stock, at cost, 743,298 shares at December 31,
2001, 243,500 shares at December 31, 2000 and 232,500
shares at May 31, 2000.................................. (5,769) (1,737) (1,651)
Unamortized restricted stock compensation................. (646) (892) (1,096)
-------- -------- --------
Total stockholders' equity......................... 331,037 325,403 335,015
-------- -------- --------
Total liabilities and stockholders' equity......... $383,171 $365,633 $381,769
======== ======== ========
</Table>

See accompanying notes to consolidated financial statements.
F-4
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------------------
2001 2000 2000 1999
------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................ $ 212,050 $ 78,317 $ 121,454 $ 197,415
Cost of sales............................ 135,798 58,554 106,642 205,215
----------- ----------- ----------- -----------
Gross profit (loss)............ 76,252 19,763 14,812 (7,800)
----------- ----------- ----------- -----------
Operating expenses:
Research and development............... 29,442 16,051 28,625 42,782
Marketing and sales.................... 14,274 5,934 10,284 14,193
General and administrative............. 19,695 8,127 21,885 80,932
Amortization and impairment of
intangibles......................... 4,936 2,757 39,488 16,247
----------- ----------- ----------- -----------
Total operating expenses....... 68,347 32,869 100,282 154,154
----------- ----------- ----------- -----------
Earnings (loss) from operations.......... 7,905 (13,106) (85,470) (161,954)
Interest expense......................... (695) (627) (826) (897)
Interest income.......................... 4,685 4,583 4,930 7,981
Other income (expense)................... 574 176 1,306 (370)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes...... 12,469 (8,974) (80,060) (155,240)
Income tax (benefit) expense............. 3,128 1,332 (6,097) (49,677)
----------- ----------- ----------- -----------
Net earnings (loss)...................... 9,341 (10,306) (73,963) (105,563)
Preferred dividend....................... 5,632 3,051 4,557 --
----------- ----------- ----------- -----------
Net earnings (loss) applicable to common
shares................................. $ 3,709 $ (13,357) $ (78,520) $ (105,563)
=========== =========== =========== ===========
Basic earnings (loss) per common share... $ 0.07 $ (0.26) $ (1.55) $ (2.17)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding............................ 51,166,026 50,840,256 50,716,378 48,540,143
Diluted earnings (loss) per common
share.................................. $ 0.07 $ (0.26) $ (1.55) $ (2.17)
=========== =========== =========== ===========
Weighted average number of diluted common
shares outstanding..................... 52,308,578 50,840,256 50,716,378 48,540,143
=========== =========== =========== ===========
</Table>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS
(LOSS)
YEAR ENDED DECEMBER 31, 2001, SEVEN MONTHS ENDED DECEMBER 31, 2000 AND YEARS
ENDED MAY 31, 2000 AND 1999
<Table>
<Caption>
CUMULATIVE
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED OTHER
--------------- ------------------- PAID-IN EARNINGS COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) LOSS
------ ------ ---------- ------ ---------- --------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1998............ -- $-- 44,584,634 $446 $240,746 $ 178,018 $(2,196)
Comprehensive loss:
Net loss......................... -- -- -- -- -- (105,563) --
Other comprehensive loss:
Translation adjustment........... -- -- -- -- -- -- (1,046)
Equity reduction for Outside
Directors Retirement Plan...... -- -- -- -- -- -- (307)
Total comprehensive loss.........
Amortization of restricted stock
compensation................... -- -- -- -- -- -- --
Issuance of restricted stock
awards......................... -- -- 42,500 -- 329 -- --
Issuance of stock in conjunction
with business acquisition...... -- -- 5,794,000 58 45,715 -- --
Preferred stock offering......... 40,000 -- -- -- 39,452 -- --
Exercise of stock options........ -- -- 64,944 1 157 -- --
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 177,280 2 1,059 -- --
Stock compensation expense....... -- -- -- -- 387 -- --
------ --- ---------- ---- -------- --------- -------
Balance at May 31, 1999............ 40,000 -- 50,663,358 507 327,845 72,455 (3,549)
Comprehensive loss:
Net loss......................... -- -- -- -- -- (73,963) --
Other comprehensive earnings
(loss):
Translation adjustment........... -- -- -- -- -- -- (1,920)
Equity adjustment for Outside
Directors Retirement Plan...... -- -- -- -- -- -- 42
Total comprehensive loss.........
Amortization of restricted stock
compensation................... -- -- -- -- -- -- --
Issuance of restricted stock
award.......................... -- -- 133,000 1 1,028 -- --
Cancelation of restricted stock
awards......................... -- -- (25,000) -- (193) -- --
Purchase treasury stock.......... -- -- (250,000) -- -- -- --
Reissue treasury stock........... -- -- 17,500 -- (43) -- --
Preferred stock offering......... 15,000 1 -- -- 14,794 -- --
Preferred dividend............... -- -- -- -- 4,011 (4,557) --
Exercise of stock options........ -- -- 8,473 -- 136 -- --
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 196,849 2 972 -- --
Stock compensation expense....... -- -- -- -- 193 -- --
------ --- ---------- ---- -------- --------- -------
Balance at May 31, 2000............ 55,000 1 50,744,180 510 348,743 (6,065) (5,427)

UNAMORTIZED TOTAL
TREASURY RESTRICTED STOCK STOCKHOLDERS'
STOCK COMPENSATION EQUITY
-------- ---------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Balance at May 31, 1998............ $ -- $(1,314) $ 415,700
Comprehensive loss:
Net loss......................... -- -- (105,563)
Other comprehensive loss:
Translation adjustment........... -- -- (1,046)
Equity reduction for Outside
Directors Retirement Plan...... -- -- (307)
---------
Total comprehensive loss......... (106,916)
Amortization of restricted stock
compensation................... -- 1,359 1,359
Issuance of restricted stock
awards......................... -- (329) --
Issuance of stock in conjunction
with business acquisition...... -- -- 45,773
Preferred stock offering......... -- -- 39,452
Exercise of stock options........ -- -- 158
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 1,061
Stock compensation expense....... -- -- 387
------- ------- ---------
Balance at May 31, 1999............ -- (284) 396,974
Comprehensive loss:
Net loss......................... -- -- (73,963)
Other comprehensive earnings
(loss):
Translation adjustment........... -- -- (1,920)
Equity adjustment for Outside
Directors Retirement Plan...... -- -- 42
---------
Total comprehensive loss......... (75,841)
Amortization of restricted stock
compensation................... -- 24 24
Issuance of restricted stock
award.......................... -- (1,029) --
Cancelation of restricted stock
awards......................... -- 193 --
Purchase treasury stock.......... (1,794) -- (1,794)
Reissue treasury stock........... 143 -- 100
Preferred stock offering......... -- -- 14,795
Preferred dividend............... -- -- (546)
Exercise of stock options........ -- -- 136
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 974
Stock compensation expense....... -- -- 193
------- ------- ---------
Balance at May 31, 2000............ (1,651) (1,096) 335,015
</Table>

F-6
<PAGE>
<Table>
<Caption>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS (LOSS) -- (CONTINUED)
CUMULATIVE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
--------------- ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ---------- ------ ---------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Comprehensive earnings (loss):
Net loss......................... -- -- -- -- -- (10,306)
Other comprehensive earnings:
Translation adjustment........... -- -- -- -- -- --
Total comprehensive (loss).......
Amortization of restricted stock
compensation................... -- -- -- -- -- --
Purchase treasury stock.......... -- -- (11,000) -- -- --
Preferred dividend............... -- -- -- -- 2,730 (3,051)
Exercise of stock options........ -- -- 97,500 1 395 --
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 105,740 1 426 --
------ --- ---------- ---- -------- ---------
Balance at December 31, 2000....... 55,000 1 50,936,420 512 352,294 (19,422)
Comprehensive earnings:
Net earnings..................... -- -- -- -- -- 9,341
Other comprehensive loss:
Translation adjustment........... -- -- -- -- -- --
Total comprehensive earnings.....
Amortization of restricted stock
compensation................... -- -- -- -- -- --
Purchase treasury stock.......... -- -- (499,798) -- -- --
Preferred dividend............... -- -- -- -- 5,082 (5,632)
Exercise of stock options........ -- -- 326,921 4 2,003 --
Issuance of stock for the
Employee Stock Purchase Plan... -- -- 102,186 -- 768 --
------ --- ---------- ---- -------- ---------
Balance at December 31, 2001....... 55,000 $ 1 50,865,729 $516 $360,147 $ (15,713)
====== === ========== ==== ======== =========
</Table>
<Table>
<Caption>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS (LOSS) -- (CONTINUED)

ACCUMULATED
OTHER UNAMORTIZED TOTAL
COMPREHENSIVE TREASURY RESTRICTED STOCK STOCKHOLDERS'
LOSS STOCK COMPENSATION EQUITY
------------- -------- ---------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Comprehensive earnings (loss):
Net loss......................... -- -- -- (10,306)
Other comprehensive earnings:
Translation adjustment........... 74 -- -- 74
---------
Total comprehensive (loss)....... (10,232)
Amortization of restricted stock
compensation................... -- -- 204 204
Purchase treasury stock.......... -- (86) -- (86)
Preferred dividend............... -- -- -- (321)
Exercise of stock options........ -- -- -- 396
Issuance of stock for the
Employee Stock Purchase Plan... -- -- -- 427
------- ------- ------- ---------
Balance at December 31, 2000....... (5,353) (1,737) (892) 325,403
Comprehensive earnings:
Net earnings..................... -- -- -- 9,341
Other comprehensive loss:
Translation adjustment........... (2,146) -- -- (2,146)
---------
Total comprehensive earnings..... 7,195
Amortization of restricted stock
compensation................... -- -- 246 246
Purchase treasury stock.......... -- (4,032) -- (4,032)
Preferred dividend............... -- -- -- (550)
Exercise of stock options........ -- -- -- 2,007
Issuance of stock for the
Employee Stock Purchase Plan... -- -- -- 768
------- ------- ------- ---------
Balance at December 31, 2001....... $(7,499) $(5,769) $ (646) $ 331,037
======= ======= ======= =========
</Table>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
SEVEN
MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, --------------------
2001 2000 2000 1999
------------ ------------ -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)......................... $ 9,341 $(10,306) $(73,963) $(105,563)
Depreciation and amortization............... 17,535 11,448 22,835 20,776
Impairment of intangibles and other
assets................................... -- -- 31,596 8,495
Amortization of restricted stock and other
stock compensation....................... 246 204 317 1,746
Deferred income tax......................... (976) -- (8,545) (43,691)
Bad debt expense (collections) and loan
losses................................... (269) (1,437) (17,106) 43,683
Loss on disposal or impairment of property,
plant and equipment...................... 372 1,129 1,219 6,573
Accounts and notes receivable............... (5,639) (341) 22,790 46,731
Inventories................................. 1,143 1,539 29,457 38,149
Accounts payable and accrued expenses....... (1,900) (6,487) (5,530) (13,684)
Income taxes payable/receivable............. (1,868) 1,420 14,295 (23,139)
Other assets and liabilities................ (444) (900) 1,006 (4,912)
-------- -------- -------- ---------
Net cash provided by (used in)
operating activities.............. 17,541 (3,731) 18,371 (24,836)
-------- -------- -------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment... (9,202) (2,837) (3,077) (9,326)
Business acquisition........................ (7,608) -- -- (6,303)
Cash of acquired business................... 2,032 -- -- --
-------- -------- -------- ---------
Net cash used in investing
activities........................ (14,778) (2,837) (3,077) (15,629)
-------- -------- -------- ---------
Cash flows from financing activities:
Payments on long-term debt.................. (9,409) (756) (974) (983)
Payments of preferred dividends............. (550) (321) (454) --
Purchase of treasury stock.................. (4,032) (86) (1,794) --
Proceeds from issuance of debt.............. 18,837 -- -- --
Proceeds from exercise of stock options..... 2,007 396 136 158
Proceeds from issuance of common stock...... 768 427 974 1,061
Net proceeds from preferred stock
offering................................. -- -- 14,795 39,452
-------- -------- -------- ---------
Net cash provided by (used in)
financing activities.............. 7,621 (340) 12,683 39,688
-------- -------- -------- ---------
Effect of change in foreign currency exchange
rates on cash and cash equivalents.......... (1,079) 74 (76) (189)
-------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 9,305 (6,834) 27,901 (966)
-------- -------- -------- ---------
Cash and cash equivalents at beginning of
period...................................... 92,376 99,210 71,309 72,275
-------- -------- -------- ---------
Cash and cash equivalents at end of period.... $101,681 $ 92,376 $ 99,210 $ 71,309
======== ======== ======== =========
</Table>

See accompanying notes to consolidated financial statements.
F-8
<PAGE>

INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Description and Principles of Consolidation. Input/Output, Inc.
and its wholly-owned subsidiaries design, manufacture and market seismic data
acquisition products for the oil and gas exploration and production industry
worldwide. The consolidated financial statements include the accounts of
Input/Output, Inc. and its wholly-owned subsidiaries (collectively referred to
as the "Company"). Significant intercompany balances and transactions have been
eliminated.

Fiscal Year Change. In September 2000, the Company's Board of Directors
approved the Company's changing of its fiscal year-end to December 31 of each
year. The consolidated statements of operations, stockholders' equity and
comprehensive earnings (loss) and cash flows for the period from June 1, 2000 to
December 31, 2000 represent a transition period of seven months. The Company
filed a Transition Report on Form 10-K for the transition period ended December
31, 2000 and commenced reporting on a calendar year basis with the filing of the
Form 10-Q for the quarter ended March 31, 2001. The following is a comparative
summary of the condensed and consolidated operating results for the years ended
December 31, 2001 and 2000 and the seven month periods ended December 31, 2000
and December 31, 1999 (in thousands, except per share amounts).

<Table>
<Caption>
SEVEN MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------ ----------------------
2001 2000 2000 1999
--------- ------------ -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................... $212,050 $137,384 $ 78,317 $ 62,244
Cost of sales........................... 135,798 117,493 58,554 47,703
-------- -------- -------- --------
Gross profit............................ 76,252 19,891 19,763 14,541
Operating expenses
Research and development.............. 29,442 28,084 16,051 16,590
Marketing and sales................... 14,274 10,504 5,934 5,713
General and administrative............ 19,695 17,632 8,127 12,396
Amortization and impairment of
intangibles........................ 4,936 37,758 2,757 4,471
-------- -------- -------- --------
Earnings (loss) from operations......... 7,905 (74,087) (13,106) (24,629)
Interest expense........................ (695) (973) (627) (480)
Interest and other income............... 5,259 8,223 4,759 2,767
Income taxes expense (benefit).......... 3,128 5,372 1,332 (6,702)
Preferred dividend...................... 5,632 5,000 3,051 2,608
-------- -------- -------- --------
Net earnings (loss) applicable to common
shares................................ $ 3,709 $(77,209) $(13,357) $(18,248)
======== ======== ======== ========
Net earnings (loss) per common share
Basic................................. $ 0.07 $ (1.52) $ (0.26) $ (0.31)
======== ======== ======== ========
Diluted............................... $ 0.07 $ (1.52) $ (0.26) $ (0.31)
======== ======== ======== ========
</Table>

Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates are made at discrete points in time based on relevant market
information. These estimates may be subjective in nature and involve
uncertainties and matters of judgment and therefore cannot be determined with
exact precision. Areas involving significant

F-9
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimates include, but are not limited to, accounts and notes receivable,
inventory, deferred taxes, and accrued warranty costs. Actual results could
differ from those estimates.

Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents. At December 31, 2001, there was approximately $0.2 million of
restricted cash used to secure standby and commercial letters of credit.

Accounts and Notes Receivable. Accounts and notes receivable are recorded
at cost, less the related allowance for doubtful accounts and loan loss. The
Company considers current information and events regarding the customers'
ability to repay obligations, and considers an account or note to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms. When an account or note is considered
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows or the fair value of collateral. Impairment losses
(recoveries) are included in the allowance for doubtful accounts and for loan
loss through an increase (decrease) in bad debt expense. Notes receivable are
generally collateralized by the products sold, bear interest at contractual
rates up to 13% per year and are due at various dates through 2004. Cash
receipts on impaired notes are applied to reduce the principal amount of such
notes until the principal has been recovered and are recognized as interest
income thereafter.

Inventories. Inventories are stated at the lower of cost (primarily
first-in, first-out) or market.

Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation expense is provided straight-line over the following
estimated useful lives:

<Table>
<Caption>
YEARS
-----
<S> <C>
Machinery and equipment..................................... 3-8
Buildings................................................... 25
Leased equipment and other.................................. 3-10
</Table>

Expenditures for renewals and betterments are capitalized; repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and any gain or loss is reflected in operations.

Goodwill and Other Intangible Assets. Goodwill results from business
acquisitions and represents the excess of acquisition costs over the fair value
of the net assets of businesses acquired. Through December 31, 2001 goodwill and
other intangibles were amortized on a straight-line basis over 5 to 20 years.
Goodwill, intangibles and other long-lived assets are reviewed for impairment
whenever an event or change in circumstances indicates that the carrying amount
of the assets may not be recoverable. The impairment review includes comparison
of future cash flows expected to be generated by the Company's operations with
the carrying value of goodwill and other long-lived assets. If the carrying
value of such assets exceeds the expected undiscounted future cash flows, an
impairment loss is recognized to the extent the carrying amount of the assets
exceeds their fair values which is calculated using the discounted cash flows.

Research and Development. Research and development costs are expensed as
incurred.

Revenue Recognition and Product Warranty. Revenue is primarily derived
from the sale of data acquisition systems and related equipment. Revenue is
recognized when products are shipped and risk of ownership has passed to the
customer. The Company warrants that all manufactured equipment will be free from
defects in workmanship, material 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.

Income Taxes. Income taxes are accounted for under the liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial

F-10
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry-forwards. Deferred
income tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company records a valuation allowance
to reduce its deferred income tax assets to the amount that is believed to be
realizable under the "more-likely-than-not" recognition criteria. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Comprehensive Earnings (Loss). Comprehensive earnings (loss), consisting
of net earnings (loss), foreign currency translation adjustment and minimum
pension liabilities, is presented in the consolidated statements of
stockholders' equity and comprehensive earnings (loss). The balance in
accumulated other comprehensive loss consists primarily of foreign currency
translation adjustments.

Earnings (Loss) Per Common Share. Basic earnings (loss) per common share
is computed by dividing net earnings (loss) applicable to common stock by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per common share is determined on the assumption that
outstanding dilutive stock options have been exercised and the aggregate
proceeds as defined were used to reacquire common stock using the average price
of such common stock for the period. The following table summarizes the
calculation of weighted average number of common shares and weighted average
number of diluted common shares outstanding for purposes of the computation of
basic earnings (loss) per common share and diluted earnings (loss) per common
share (in thousands, except share and per share amounts):

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------------------
2001 2000 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to
common shares.................. $ 3,709 $ (13,357) $ (78,520) $ (105,563)
Weighted average number of common
shares outstanding............. 51,166,026 50,840,256 50,716,378 48,540,143
Effect of dilutive stock
options........................ 1,142,552 -- -- --
----------- ----------- ----------- -----------
Weighted average number of
diluted common shares
outstanding.................... 52,308,578 50,840,256 50,716,378 48,540,143
=========== =========== =========== ===========
Basic earnings (loss) per common
share.......................... $ 0.07 $ (0.26) $ (1.55) $ (2.17)
=========== =========== =========== ===========
Diluted earnings (loss) per
common share................... $ 0.07 $ (0.26) $ (1.55) $ (2.17)
=========== =========== =========== ===========
</Table>

At December 31, 2001, December 31, 2000, May 31, 2000 and May 31, 1999,
3,718,248, 4,778,478, 5,238,352 and 4,550,463 respectively, of common shares
subject to stock options were considered anti-dilutive and not included in the
calculation of diluted earnings (loss) per common share. In addition, the
outstanding convertible preferred stock is considered anti-dilutive for all
periods presented and is not included in the calculation of diluted earnings
(loss) per common share (Note 8).

Foreign Currency Gains and Losses. The foreign-owned assets and
liabilities of the Company have been translated to U.S. dollars using the
exchange rate in effect at the balance sheet date. Results of foreign operations
have been translated using the average exchange rate during the periods of
operation. Resulting translation adjustments have been recorded as a component
of "Accumulated Other Comprehensive Earnings (Loss)" in the Consolidated
Statements of Stockholders' Equity and Comprehensive Earnings (Loss). Foreign
currency transaction gains and losses are included in the Consolidated
Statements of Operations as they occur.
F-11
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Credit Risk. 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.

Demand for products from customers in developing countries is difficult to
predict and can fluctuate significantly from year to year. 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 future operating results and financial position. In addition, sales to
customers in developing countries on extended terms can present heightened
credit risks.

Stock-Based Compensation. SFAS No. 123, "Accounting for Stock-Based
Compensation" allows a company to adopt a fair value based method of accounting
for its stock-based compensation plans, or to continue to follow the intrinsic
value method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25 "Accounting for Stock Issued to Employees". The Company has
elected to continue to follow APB Opinion No. 25. If the Company had adopted
SFAS No. 123, net earnings (loss), basic earnings (loss) per share and diluted
earnings (loss) per share for the periods presented would have been reduced
(increased) (Note 8).

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation: an Interpretation of APB Opinion No. 25". Among other issues,
Interpretation No. 44 clarifies the application of Accounting Principles Board
Opinion ("APB") No. 25 regarding (a) the definition of employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock options in a business combination. The
provisions of Interpretation No. 44 were applied on a prospective basis
effective July 1, 2000, and have not had a material impact on the consolidated
financial position or results of operations.

Recent Accounting Pronouncements. SFAS No. 141 entitled "Business
Combinations" was issued in June 2001 and became effective July 1, 2001. SFAS
No. 141 requires that all business combinations be accounted for using the
purchase method of accounting, which requires that acquisitions be recorded at
fair value as of the date of acquisition. The pooling-of-interests method of
accounting allowed under prior standards, which reflected business combinations
using historical financial information, is now prohibited.

In June 2001, the FASB issued SFAS No. 142 entitled "Goodwill and Other
Intangible Assets" which became effective on January 1, 2002. Existing goodwill
($45.6 million at December 31, 2001) will no longer be amortized, but will be
tested for impairment using a fair value approach. SFAS No. 142 requires
goodwill to be tested for impairment at a level referred to as a reporting unit,
generally one level lower than reportable segments. SFAS No. 142 requires the
Company to perform the first goodwill impairment test on all reporting units
within six months of adoption. The first step is to compare the fair value with
the book value of a reporting unit. If the fair value of the reporting unit is
less than its book value, the second step will be to calculate the impairment
loss, if any. Any impairment loss from the initial adoption of SFAS No. 142 will
be recognized as a change in accounting principle. After the initial adoption,
the Company will test goodwill for impairment on an annual basis and between
annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
The Company is reviewing SFAS No. 142 to determine the effect, if any, of the
initial goodwill impairment testing. During the year ended December 31, 2001,
the seven months ended December 31, 2000, and the years ended May 31, 2000 and
May 31, 1999, the Company recorded goodwill amortization and impairments of $3.9
million, $2.2 million, $37.1 million and $9.0 million, respectively.

F-12
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Due to the nature of the
Company's business, this new accounting pronouncement is not expected to have a
significant impact on our reported results of operations and financial
condition.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of a Disposal of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS No. 144
became effective on January 1, 2002. The provisions of this Statement are to be
applied prospectively. The Company has not determined the effect, if any,
adoption of SFAS No. 144 will have on the financial position and results of
operations.

Reclassification. Certain amounts previously reported in the consolidated
financial statements have been reclassified to conform to the current year
presentation.

(2) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information is as follows (in
thousands):

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, --------------------
2001 2000 2000 1999
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
Cash paid (received) during the period
for:
Interest.............................. $(4,385) $(4,143) $ (5,562) $(5,999)
Income taxes.......................... 5,551 642 (13,396) 16,966
Unamortized restricted stock
compensation.......................... -- -- (1,029) (329)
Repossession of equipment due to
customers' default on trade notes
receivable:
Decrease in trade notes receivable.... -- -- (8,464) --
Increase in property, plant and
equipment.......................... -- -- 4,893 --
Increase in inventories............... -- -- 3,571 --
Issuance of note receivable in
connection with sale of other assets:
Long-term trade notes receivable...... -- -- -- 5,387
Other assets.......................... -- -- -- (5,387)
Issuance of common stock in connection
with business acquisitions............ -- -- -- 49,386
Deferred financing costs................ 1,688 -- -- --
</Table>

F-13
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment is as follows (in thousands):

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ --------
<S> <C> <C> <C>
Land.............................................. $ 2,769 $ 2,769 $ 2,782
Buildings......................................... 27,604 26,565 26,413
Machinery and equipment........................... 62,348 60,178 65,450
Leased equipment.................................. 14,185 14,206 12,219
Other............................................. 7,966 6,100 5,615
-------- -------- --------
114,872 109,818 112,479
Less accumulated depreciation..................... 67,334 58,551 54,060
-------- -------- --------
Property, plant and equipment, net................ $ 47,538 $ 51,267 $ 58,419
======== ======== ========
</Table>

Approximately $15.0 million of land and buildings, net are recorded
pursuant to a twelve year non-cancelable lease agreement as described below in
Note 5.

(4) ACCRUED EXPENSES

A summary of accrued expenses is as follows (in thousands):

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ -------
<S> <C> <C> <C>
Compensation, including compensation-related taxes,
commissions and severance........................ $ 8,462 $ 5,326 $ 6,321
Warranty........................................... 4,669 6,302 6,470
Accrued legal settlement........................... -- -- 5,000
Income tax payable................................. 1,323 2,884 4,226
Accrued property tax............................... 1,916 1,872 802
Other.............................................. 2,444 7,004 6,611
------- ------- -------
Accrued expenses................................... $18,814 $23,388 $29,430
======= ======= =======
</Table>

(5) LONG-TERM DEBT AND LEASE OBLIGATIONS

In August 1996, the Company obtained a $12.5 million, ten-year term loan
collateralized by certain land and buildings. The term loan bore interest at a
fixed rate of 7.875% per year and was repayable in equal monthly installments of
principal and interest of $151,439. On August 20, 2001, the Company sold the
same land and buildings for $21 million. As part of the transaction, the Company
repaid the ten-year term loan. Simultaneous to the sale and loan repayment, 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. As a result of the lease terms, the commitment is
recorded as a twelve year $21 million lease obligation with an implicit interest
rate of 9.1%. The Company paid $1.7 million in commissions and professional fees
which have been recorded as deferred financing costs and are being amortized
over the twelve year term of the obligation.

On January 3, 2001, in connection with the acquisition of Pelton Company,
Inc. ("Pelton") (Note 9), the Company entered into a $3 million two-year
unsecured promissory note payable to the former shareholder

F-14
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of Pelton, bearing interest at 8.5% per year. Principal is payable in quarterly
payments of $0.4 million plus interest, with final payment due in February 2003.
The unpaid balance at December 31, 2001 was $1.9 million.

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

<Table>
<Caption>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C>
2002........................................................ $ 2,312
2003........................................................ 1,264
2004........................................................ 973
2005........................................................ 1,184
2006........................................................ 1,470
2007 and thereafter......................................... 15,197
-------
Total....................................................... $22,400
=======
</Table>

(6) INVENTORIES

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

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ -------
<S> <C> <C> <C>
Raw materials...................................... $46,729 $39,988 $43,110
Work-in-process.................................... 4,191 6,774 6,559
Finished goods..................................... 17,363 20,884 19,516
------- ------- -------
$68,283 $67,646 $69,185
======= ======= =======
</Table>

At December 31, 2001, some portion of the Company's inventory is in excess
of near-term requirements based on the recent level of sales. Management has
developed a program to reduce this inventory to more desirable levels over the
near term and believes no loss will be incurred on its disposition in excess of
current reserve estimates. Should the inventory reduction program not be
successful, it is reasonably possible the estimated reserve could change and
that the change could be material to the financial statements.

(7) ACCOUNTS AND NOTES RECEIVABLE

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

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ -------
<S> <C> <C> <C>
Accounts receivable, principally trade............. $48,186 $32,491 $26,510
Less allowance for doubtful accounts............... (1,752) (1,571) (1,566)
------- ------- -------
Accounts receivable, net........................... $46,434 $30,920 $24,944
======= ======= =======
</Table>

F-15
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The recorded investment in notes receivable, excluding accrued interest,
was $17.4 million at December 31, 2001. A summary of notes receivable, accrued
interest and allowance for loan-loss is as follows (in thousands):

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ --------
<S> <C> <C> <C>
Notes receivable and accrued interest............. $ 17,613 $ 24,986 $ 31,955
Less allowance for loan loss...................... (10,735) (10,947) (13,718)
-------- -------- --------
Notes receivable, net............................. 6,878 14,039 18,237
Less current portion notes receivable, net........ 1,078 7,889 12,224
-------- -------- --------
Long-term notes receivable........................ $ 5,800 $ 6,150 $ 6,013
======== ======== ========
</Table>

The activity in the allowance for note receivable loan loss is as follows
(in thousands):

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, --------------------
2001 2000 2000 1999
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period........... $10,947 $13,718 $ 28,778 $ 3,954
Additions charged to bad debt expense.... 1,597 1,305 7,057 25,903
Recoveries reducing bad debt expense..... (1,609) (2,796) (23,558) --
Write-downs charged against the
allowance.............................. (200) (1,280) (10,799) (1,079)
Reclassification of account receivable... -- -- 12,240 --
------- ------- -------- -------
Balance at end of period................. $10,735 $10,947 $ 13,718 $28,778
======= ======= ======== =======
</Table>

Recoveries for the year ended December 31, 2001 and for the seven months
ended December 31, 2000 include $1.6 million and $2.8 million, respectively, of
various recoveries of previously non-performing notes receivable. Recoveries for
the year ended May 31, 2000 include $10.2 million attributable to a more
favorable than anticipated resolution of a customer's bankruptcy settlement,
$8.5 million of recoveries in the form of repossessed equipment and inventories
and $4.9 million of various recoveries of previously non-performing notes
receivable.

(8) STOCKHOLDERS' EQUITY

Series B and Series C Preferred Stock. In May 1999, SCF-IV, L.P., ("SCF"),
purchased, in a privately negotiated transaction, 40,000 shares of Series B
Cumulative, Convertible Preferred Stock, par value $0.01 per share (the "Series
B Preferred Stock"). The purchase price paid for the Series B Preferred Stock
was $1,000 per share, resulting in net proceeds of approximately $39.5 million.

In August 1999, SCF exercised its option to purchase 15,000 shares of
Series C Cumulative, Convertible Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock"). The option to purchase Series C Preferred Stock was
granted to SCF by the Company in connection with SCF's purchase of 40,000 shares
of Series B Preferred Stock. The purchase price paid for the Series C Preferred
Stock was $1,000 per share, resulting in net proceeds of approximately $14.8
million.

The net cash proceeds of Series B and Series C Preferred Stock were used to
fund research and development projects, to provide additional working capital
and for general corporate purposes. The issuance of the Series B and Series C
Preferred Stock and the underlying shares of common stock were exempt from the
registration requirements of Section 5 of the Securities Act of 1933 in
accordance with Section 4(2) of that Act. Series B and C Preferred Stock have
substantially the same terms and conditions, except the fixed conversion price
for the Series C Preferred Stock is $8.50 per share, compared to $8.00 per share
for the

F-16
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Series B Preferred Stock. The holders of Series B and C Preferred Stock are
entitled to receive cumulative cash dividends of $10.00 per share per year (1%
of the liquidation preference) for each share of Series B and C Preferred Stock
outstanding. Each share of Series B and C Preferred Stock is entitled to a
liquidation preference of $1,000 per share, plus all accrued and unpaid
dividends.

The Series B and C Preferred Stock are convertible, at the holder's option
(the "Initial Conversion Date"), after the first to occur of any of the
following: (i) May 7, 2002, (ii) the approval by the Board of Directors of an
agreement relating to a Business Combination (as defined), (iii) the approval or
recommendation by the Board of Directors for a tender offer for common stock, or
(iv) the redemption, repurchase or reacquisition by the Company of rights issued
pursuant to its Stockholder Rights Plan or any waiver of the application of
Stockholder Rights Plan to any beneficial owner other than SCF or its affiliates
(except as approved by SCF's representative on the Board of Directors). On May
7, 2004 (the "Mandatory Conversion Date"), each outstanding share of Series B
and C Preferred Stock respectively shall, without any action on the part of the
holder, be converted automatically into a number of fully paid and nonassessable
shares of common stock.

After the Initial Conversion Date and prior to the Mandatory Conversion
Date, the holders of Series B and C Preferred Stock will be entitled to convert
their shares into a number of fully paid and nonassessable shares of common
stock per share equal to the greater of the following (such amount being
referred to as the "Conversion Ratio Amount"): (a) the quotient of $1,000 (plus
any accrued and unpaid dividends through the record date for determining
stockholders entitled to vote) divided by a fixed conversion price of $8.00 and
$8.50 for Series B and C respectively (and adjusted from time to time in
accordance with certain anti-dilution provisions) or (b) the quotient of $1,000
increased at a rate of eight percent per annum from August 17, 1999, compounded
quarterly, less the amount of cash dividends actually paid through the
applicable conversion date, divided by the average market price for our common
stock during the ten trading day period prior to the date of conversion.

In the event of a conversion of Series B and C Preferred Stock pursuant to
which the Conversion Ratio Amount is determined using clause (b) above, then the
Company may redeem for cash up to 50% (or such greater percentage as the holders
shall agree) of the shares of Series B and C Preferred Stock submitted for
conversion. The maximum number of shares which the Company may issue upon
conversion is 10,099,979 with any shares in excess of this amount to be
mandatorily redeemed by the Company in cash.

A charge to retained earnings at a stated rate of 8% per year, compounded
quarterly is recognized (of which 7% is accounted for as a non-cash event
recorded to additional paid-in capital so as to reflect potential dilution at
time of preferred stock conversion and 1% is paid as a quarterly cash dividend).
This is shown as a preferred stock dividend and reduces net earnings applicable
to common stock accordingly. The Company is permitted to pay dividends on common
stock as long as the Series B and C Preferred Stock cumulative cash dividends of
$10 per preferred share per year are current. During the year ended December 31,
2001 net earnings applicable to common shares included a charge of $5.6 million
for dividends provided on the Series B Preferred Stock and Series C Preferred
Stock of which $.6 million represents cash dividends paid by the Company (and
for which the company is current) and $5.0 million represents potential dilution
due to conversion.

Treasury Stock. During the year ended May 31, 2000, the Company purchased
100,000 shares of common stock from a former officer for $0.8 million and the
Company purchased in open market transactions 150,000 shares of common stock for
an aggregate purchase price of $1.0 million. 11,000 shares of common stock were
repurchased by the Company in open market transactions during the seven months
ended December 31, 2000. In October 2001 the Company's Board of Directors
authorized the repurchase of up to 1,000,000 shares of common stock in the open
market and privately negotiated transactions at such prices and at such times as
management deems appropriate. As of December 31, 2001, the Company had
repurchased 461,900 shares of common stock under this repurchase program for a
total purchase price of $3.6 million and
F-17
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at an average price of $7.78 per share. Under a prior repurchase program, the
Company had repurchased 37,898 shares of common stock during 2001, for a
purchase price of $0.4 million. At December 31, 2001, the Company owned 743,298
shares of treasury stock.

Stock Option Plans. The Company has adopted an employee stock option plan
for eligible employees which provides for the granting of options to purchase a
maximum of 9,700,000 shares of common stock. The Company has also adopted a
directors stock option plan which provides for the granting of options to
purchase a maximum of 700,000 shares of common stock by non-employee directors.
At December 31, 2001, 1,447,108 shares remained available for issuance pursuant
to these plans.

Transactions under the stock option plans are summarized as follows:

<Table>
<Caption>
OPTION PRICE AVAILABLE FOR
PER SHARE OUTSTANDING VESTED GRANT
--------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
May 31, 1998...................... 2.03 - 30.38 4,168,246 1,051,743 723,204
Increase in shares authorized... -- -- -- 1,800,000
Granted......................... 6.38 - 24.50 2,449,732 -- (2,449,732)
Vested.......................... -- -- 513,563 --
Exercised....................... 2.03 - 16.88 (39,700) (39,700) --
Canceled/forfeited.............. 9.38 - 30.38 (2,027,815) -- 2,027,815
--------------- ---------- --------- ----------
May 31, 1999...................... 2.03 - 30.00 4,550,463 1,525,606 2,101,287
Granted......................... 5.25 - 10.00 1,975,790 -- (1,975,790)
Vested.......................... -- -- 750,707 --
Exercised....................... 2.03 - 8.19 (8,200) (8,200) --
Canceled/forfeited.............. 3.50 - 30.00 (1,279,701) (47,165) 1,279,701
--------------- ---------- --------- ----------
May 31, 2000...................... 2.03 - 30.00 5,238,352 2,220,948 1,405,198
Increase in shares authorized... -- -- -- 1,200,000
Granted......................... 7.69 - 9.44 592,840 -- (592,840)
Vested.......................... -- -- 677,400 --
Exercised....................... 2.03 - 6.38 (71,500) (71,500) --
Canceled/forfeited.............. 5.06 - 29.82 (981,214) (504,289) 981,214
--------------- ---------- --------- ----------
December 31, 2000................. $ 2.03 - $30.00 4,778,478 2,322,559 2,993,572
Granted......................... 8.45 - 12.45 929,000 -- (929,000)
Vested.......................... -- -- 860,632 --
Exercised....................... 2.03 - 11.00 (326,921) (326,921) --
Canceled/forfeited.............. 2.03 - 29.69 (519,757) (404,508) (617,464)
--------------- ---------- --------- ----------
December 31, 2001................. $ 2.03 - $30.00 4,860,800 2,451,762 1,447,108
=============== ========== ========= ==========
</Table>

F-18
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options outstanding at December 31, 2001 are summarized as follows:

<Table>
<Caption>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE AVERAGE EXERCISE PRICE
OPTION PRICE OF OUTSTANDING REMAINING OF VESTED
PER SHARE OUTSTANDING OPTIONS CONTRACT LIFE VESTED OPTIONS
- --------------- ----------- -------------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 2.03 - $ 3.91........... 16,725 $ 3.60 0.8 16,725 $ 3.60
3.92 - 7.85........... 2,168,007 6.06 7.7 799,275 6.16
7.86 - 11.77........... 1,303,000 10.40 8.0 420,625 9.36
11.78 - 15.70........... 191,600 12.67 5.1 156,475 12.71
15.71 - 19.63........... 417,768 17.92 4.9 393,725 17.84
19.64 - 23.56........... 534,100 21.38 5.0 440,087 21.31
23.57 - 27.48........... 19,400 24.61 6.3 14,650 24.60
27.49 - 30.00........... 210,200 29.49 4.5 210,200 29.49
- --------------- --------- ------ --- --------- ------
$ 2.03 - $30.00........... 4,860,800 $11.26 7.0 2,451,762 $13.82
=============== ========= ====== === ========= ======
</Table>

The Company has elected to continue to use the intrinsic value method to
account for stock-based compensation plans; however, if the Company had adopted
the fair value method, net earnings (loss) applicable to common stock, basic
earnings (loss) per share and diluted earnings (loss) per share for the year
ended December 31, 2001, seven months ended December 31, 2000 and years ended
May 31, 2000 and 1999 would have been reduced (increased) as follows (in
thousands, except per share amounts):

<Table>
<Caption>
YEARS ENDED MAY 31,
YEAR ENDED SEVEN MONTHS ENDED --------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000 2000 1999
------------------- ------------------- -------------------- ---------------------
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings (loss)
applicable to common
stock.................... $3,709 $ (289) $(13,357) $(20,365) $(78,520) $ (74,926) $(105,563) $(112,186)
Basic earnings (loss) per
common share............. $ 0.07 $(0.01) $ (0.26) $ (0.41) $ (1.55) $ (1.48) $ (2.17) $ (2.31)
Diluted earnings (loss) per
common share............. $ 0.07 $(0.01) $ (0.26) $ (0.41) $ (1.55) $ (1.48) $ (2.17) $ (2.31)
</Table>

The weighted average fair value of options granted during the year ended
December 31, 2001, seven months ended December 31, 2000 and years ended May 31,
2000 and 1999 was $4.38, $4.02, $3.06 and $4.24 respectively. The fair value of
each option was determined using the Black-Scholes option 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 and expected stock price volatility of 41% during the year ended December
31, 2001, 49% during the seven months ended December 31, 2000, 49% and 51%
during the years ended May 31, 2000 and 1999.

Restricted Stock Plans. In 1990, the Company adopted the Input/Output,
Inc. 1990 Restricted Stock Plan which provides for the award of up to 1,200,000
shares of common stock to key officers and employees with ownership vesting over
a period of four years. In May 1999, a key employee with 53,000 unvested
restricted shares resigned and as part of the employee's separation agreement,
the Company removed all restrictions and vested all 53,000 shares. All
amortization of restricted stock related to such vested shares was recognized in
the year ended May 31, 1999. At December 31, 2001, there were no unvested
restricted shares outstanding, and under terms of the plan, no further
restricted stock can be granted.

In January 1998, the Company adopted the Input/Output, Inc. 1998 Restricted
Stock Plan which provides for the award of up to 100,000 shares of common stock
to key officers and employees. Ownership of the common stock will vest over a
period as determined by the Company in its sole discretion. Shares awarded

F-19
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

may not be sold, assigned, transferred, pledged or otherwise encumbered by the
grantee during the vesting period. Except for these restrictions, the grantee of
an award of shares has all the rights of a common stockholder, including the
right to receive dividends and the right to vote such shares. At December 31,
2001, there were 27,500 shares outstanding, 17,500 shares of which are vested,
and 10,000 shares of which are scheduled to vest over a period through March 1,
2005. At December 31, 2001 there are 72,500 shares available for grant under
this plan.

In March 2000 the Company adopted the Input/Output, Inc. 2000 Restricted
Stock Plan which provides for the award of up to 200,000 shares of common stock
to key employees. Ownership of the common stock will vest over a period as
determined by the Company in its sole discretion. Shares awarded may not be
sold, assigned, transferred, pledged or otherwise encumbered by the grantee
during the vesting period. Except for these restrictions, the grantee of an
award of shares has all the rights of a common stockholder, including the right
to receive dividends and the right to vote such shares. At December 31, 2001,
the Company had 112,850 unvested shares outstanding, 0 shares of which are
vested, and 112,850 shares of which are scheduled to vest over a period through
June 7, 2006. At December 31, 2001 there are 87,150 shares available for grant
under this plan.

The market value of shares of common stock granted under the restricted
stock plans were recorded as unamortized restricted stock compensation and
reported as a separate component of stockholders' equity. The restricted stock
compensation is amortized over the vesting period.

Employee Stock Purchase Plan. In April 1997 the Company adopted the
Employee Stock Purchase Plan which allows all eligible employees to authorize
payroll deductions at a rate of 1% to 15% of base compensation for the purchase
of our common stock. The purchase price of the common stock will be the lesser
of 85% of the closing price on the first day of the applicable offering period
(or most recently preceding trading day) or 85% of the closing price on the last
day of the offering period (or most recently preceding trading day). Each
offering period is six months and commences on January 1 and July 1 of each
year. There were 102,186, 105,740, 196,849 and 177,280 shares purchased by
employees during the year ended December 31, 2001, the seven months ended
December 31, 2000 and years ended May 31, 2000 and 1999.

(9) ACQUISITIONS

On January 3, 2001, the Company acquired all of the outstanding capital
stock of Pelton for approximately $6 million in cash and a $3 million two-year
unsecured promissory note. Pelton is based in Ponca City, Oklahoma and designs,
manufactures and sells seismic vibrator control systems, vibrator positioning
systems and explosive energy control systems.

The acquisition was accounted for by the purchase method, with the purchase
price allocated to the fair value of assets purchased and liabilities assumed.
The allocation of the purchase price as of December 31, 2001, including related
direct costs, for the acquisition of Pelton is as follows (in thousands):

<Table>
<S> <C>
Fair values of assets and liabilities
Net current assets........................................ $ 5,266
Property, plant and equipment............................. 373
Intangible assets......................................... 4,969
-------
Total allocated purchase price.................... 10,608
Less non-cash consideration -- note payable................. 3,000
Less cash of acquired business.............................. 2,032
-------
Cash paid for acquisition, net of cash acquired............. $ 5,576
=======
</Table>

F-20
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The consolidated results of operations of the Company include the results
of Pelton from the date of acquisition. Pro-forma results prior to the
acquisition date were not material to the Company's consolidated results of
operations.

(10) SEGMENT AND GEOGRAPHIC INFORMATION

The Company evaluates and reviews results based on two segments, Land and
Marine, to allow for increased visibility and accountability of costs and more
focused customer service and product development. The Company measures segment
operating results based on earnings (loss) from operations. Prior to May 31,
1999, certain information with respect to the Land and Marine Divisions was not
practically attainable. A summary of segment information is as follows (in
thousands):

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------------
2001 2000 2000 1999
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Net sales:
Land................................. $162,256 $ 60,590 $ 73,201 $ 96,276
Marine............................... 49,794 17,727 48,253 101,139
-------- -------- -------- --------
$212,050 $ 78,317 $121,454 $197,415
======== ======== ======== ========
Gross profit (loss):
Land................................. $ 55,603 $ 15,930 $ 6,397 $ (4,308)
Marine............................... 20,649 3,833 8,415 (3,492)
-------- -------- -------- --------
$ 76,252 $ 19,763 $ 14,812 $ (7,800)
======== ======== ======== ========
Earnings (loss) from operations
Land................................. $ 15,631 $ 1,056 $(28,254)
Marine............................... 5,662 (4,877) (34,466)
Corporate............................ (13,388) (9,285) (22,750)
-------- -------- --------
$ 7,905 $(13,106) $(85,470)
======== ======== ========
Depreciation and amortization
Land................................. $ 8,194 $ 4,210 $ 10,106
Marine............................... 3,537 2,504 7,117
Corporate............................ $ 5,804 4,774 5,612
-------- -------- --------
$ 17,535 $ 11,488 $ 22,835
======== ======== ========
</Table>

F-21
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ --------
<S> <C> <C> <C> <C>
Total assets:
Land................................. $139,978 $116,554 $106,431
Marine............................... 62,422 69,897 77,411
Corporate............................ 180,771 179,182 197,927
-------- -------- --------
$383,171 $365,633 $381,769
======== ======== ========
Total assets by geographic area:
North America........................ $340,375 $333,603 $354,645
Europe............................... 42,796 32,030 27,124
-------- -------- --------
$383,171 $365,633 $381,769
======== ======== ========
</Table>

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

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

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------------
2001 2000 2000 1999
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
United States of America............... $ 79,115 $29,974 $ 36,946 $117,083
Middle East............................ 46,189 15,835 22,156 1,835
Europe................................. 27,034 11,193 16,169 40,196
Asia................................... 25,530 6,047 19,754 6,980
Former Soviet Union.................... 23,544 6,892 16,388 10,192
Other.................................. 10,638 8,376 10,041 21,129
-------- ------- -------- --------
$212,050 $78,317 $121,454 $197,415
======== ======= ======== ========
</Table>

Net sales are attributed to individual countries on the basis of the
ultimate destination of the equipment, if known; if the ultimate destination is
not known, it is based on the geographical location of initial shipment. Net
sales to individual customers representing 10% or more of net sales were as
follows:

<Table>
<Caption>
SEVEN MONTHS YEARS ENDED
YEAR ENDED ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -----------
CUSTOMER 2001 2000 2000 1999
- -------- ------------ ------------ ---- ----
<S> <C> <C> <C> <C>
A.............................................. 37% 37% 29% 38%
B.............................................. 8% 4% 4% 3%
C.............................................. 6% 23% 12% 6%
D.............................................. 2% 2% 11% 2%
E.............................................. 0% 0% 0% 11%
</Table>

F-22
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) INCOME TAXES

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, --------------------
2001 2000 2000 1999
------------ ------------ -------- ---------
<S> <C> <C> <C> <C>
Components of income taxes follows (in
thousands):
Federal............................... $(1,116) $ -- $ -- $ (9,279)
Foreign............................... 4,917 877 1,583 1,769
State and local....................... 303 455 865 1,524
Deferred.............................. (976) -- (8,545) (43,691)
------- ------ ------- --------
Total income tax (benefit) expense.... $ 3,128 $1,332 $(6,097) $(49,677)
======= ====== ======= ========
</Table>

A reconciliation of the expected income tax (benefit) expense on earnings
(loss) before income taxes using the statutory Federal income tax rate of 35%
for the year ended December 31, 2001, seven months ended December 31, 2000 and
years ended May 31, 2000 and 1999, to the income taxes reported herein is as
follows (in thousands):

<Table>
<Caption>
SEVEN MONTHS
YEAR ENDED ENDED YEARS ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------------
2001 2000 2000 1999
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Expected income tax (benefit) expense
at 35%............................... $4,365 $(3,141) $(28,022) $(54,334)
Foreign taxes, net..................... 1,729 467 685 989
State and local taxes.................. 197 296 556 991
Deferred tax asset valuation allowance
and provision for other
liabilities.......................... (3,991) 3,134 19,632 2,421
Nondeductible amortization............. 979 610 919 1,254
Other.................................. (151) (34) 133 (998)
------ ------- -------- --------
Total income tax (benefit)
expense.................... $3,128 $ 1,332 $ (6,097) $(49,677)
====== ======= ======== ========
</Table>

F-23
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of the cumulative temporary differences resulting in the
net deferred income tax asset (liability) is as follows (in thousands):

<Table>
<Caption>
DECEMBER 31, DECEMBER 31, MAY 31,
2001 2000 2000
------------ ------------ --------
<S> <C> <C> <C>
Current deferred:
Deferred income tax assets:
Accrued expenses............................. $ 3,185 $ 2,056 $ 2,115
Allowance accounts........................... 11,370 9,497 10,798
Inventory.................................... 528 528 546
-------- -------- --------
Total current deferred income tax
asset................................. $ 15,083 $ 12,081 $ 13,459
======== ======== ========
Noncurrent deferred:
Deferred income tax assets:
Basis in identified intangibles.............. 8,838 12,565 11,941
Net operating loss carryforward.............. 41,970 51,226 47,862
Basis in property, plant and equipment....... 419 -- --
Basis in research and development............ 4,279 -- --
Foreign tax credit carryforward.............. -- 4,222 3,812
Alternative minimum tax credit............... 1,336 1,336 1,336
Other........................................ 931 1,274 1,274
-------- -------- --------
Total deferred income tax asset......... 57,773 70,623 66,225
Valuation allowance..................... (12,864) (16,855) (16,855)
-------- -------- --------
Net noncurrent deferred income tax
asset................................. 44,909 53,768 49,370
-------- -------- --------
Deferred income tax liabilities:
Basis in property, plant and equipment....... -- (2,665) (2,779)
Other liabilities............................ (4,164) (8,332) (5,198)
-------- -------- --------
Total deferred income tax liability..... (4,164) (10,997) (7,977)
-------- -------- --------
Net noncurrent deferred income tax
asset................................. $ 40,745 $ 42,771 $ 41,393
======== ======== ========
</Table>

In assessing the realizability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those deferred income tax assets become
deductible. The Company considers the scheduled reversal of deferred income tax
liabilities and projected future taxable income in making this assessment. In
order to fully realize the deferred income tax assets, the Company will need to
generate future taxable income of approximately $120 million over the next 19
years. Although the Company experienced significant losses in fiscal years 2000
and 1999, taxable income for the years 1996 through 1998 aggregated
approximately $128 million. Regardless, the ultimate realization of the net
deferred tax assets, prior to the expiration of the net operating loss
carry-forward in the next 17-19 years, will require a return to sustained
profitability.

A tax valuation allowance was established due to the uncertainty of
realizing certain net operating loss carry-forwards. The valuation allowance of
$16.9 million was established during the year ended May 31, 2000; and decreased
$4.0 million during the year ended December 31, 2001 to $12.9 million. The
decrease in valuation allowance was due to the write-off of deferred tax assets
relating to foreign tax credits. At December 31, 2001, the Company had
unreserved net operating loss carry-forwards of approximately

F-24
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$83 million for federal income tax purposes, which ultimately expire in 2018
through 2020 if not otherwise utilized. Other liabilities at December 31, 2001
primarily consists of reserves for various tax issues.

(12) OPERATING LEASES

Leasee. The Company leases certain equipment, offices and warehouse space
under non-cancelable operating leases. Rental expense was $1.8 million, $1.1
million, $2.2 million and $1.3 million for the year ended December 31, 2001,
seven months ended December 31, 2000 and years ended May 31, 2000 and 1999,
respectively.

A summary of future rental commitments under non-cancelable operating
leases is as follows (in thousands):

<Table>
<Caption>
YEARS ENDED DECEMBER 31,
- ------------------------
<S> <C>
2002........................................................ $2,706
2003........................................................ 2,412
2004........................................................ 1,907
2005........................................................ 441
2006........................................................ 280
2007 and thereafter......................................... 213
------
$7,959
======
</Table>

Lessor. The Company leases seismic equipment to customers under short-term
operating leases of less than one year. The Company also leases under-utilized
facilities under various lease and sub-lease agreements. A summary of lease
revenues is as follows (in thousands):

<Table>
<Caption>
SEVEN
MONTHS YEARS ENDED
YEAR ENDED ENDED MAY 31,
DECEMBER 31, DECEMBER 31, -------------
2001 2000 2000 1999
------------ ------------ ------ ----
<S> <C> <C> <C> <C>
Equipment rental............................ $3,749 $2,195 $3,184 $673
Facility rental............................. 736 529 205 187
------ ------ ------ ----
Total rentals..................... $4,485 $2,724 $3,389 $860
====== ====== ====== ====
</Table>

(13) BENEFIT PLANS

401(k). The Company has a 401(k) retirement savings plan which covers
substantially all employees. Employees may voluntarily contribute up to 15% of
their compensation, as defined, to the plan. The Company, effective June 1,
2000, adopted a company matching contribution to the 401(k) plan. The Company
matches the employee contribution at a rate of 50% of the first 6% of
compensation contributed to the plan. Company contributions to the plan were
$0.7 million, $0.4 million, $0 and $1.7 million during the year ended December
31, 2001, seven months ended December 31, 2000 and years ended May 31, 2000 and
1999, respectively.

Supplemental executive retirement plan. The Company has a non-qualified,
supplemental executive retirement ("SERP") plan. The SERP Plan provides for
certain compensation to become payable on the participants' death, retirement or
total disability as set forth in the plan. Assets of this plan consist of the
cash surrender value of life insurance policies. The consolidated financial
statements include pension expense (benefit) of $0, $0, $(0.5) million, and $0.1
million for the year ended December 31, 2001 and the seven

F-25
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

months ended December 31, 2000 and years ended May 31, 2000 and 1999,
respectively. All benefits under this plan have previously been frozen.

Directors Plan. The Company has also adopted a non-qualified, unfunded
outside directors retirement plan. The plan provides for certain compensation to
become payable on the participants' death, retirement or total disability as set
forth in the plan. The consolidated financial statements include pension expense
of $0 million, $0.1 million, $0.1 million, and $0.1 million, for the year ended
December 31, 2001, the seven months ended December 31, 2000 and years ended May
31, 2000 and 1999, respectively. All benefits under this plan have previously
been frozen.

(14) SELECTED QUARTERLY INFORMATION -- (UNAUDITED)

A summary of selected quarterly information is as follows (in thousands,
except per share amounts):

<Table>
<Caption>
THREE MONTHS ENDED
-----------------------------------------------
YEAR ENDED DECEMBER 31, 2001 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................................... $42,409 $59,868 $58,647 $51,126
Gross profit................................. 16,710 21,010 18,536 19,996
Earnings (loss) from operations.............. (175) 3,949 2,252 1,879
Interest expense............................. (207) (383) (55) (50)
Interest and other income.................... 1,598 788 1,546 1,327
Income tax expense (benefit)................. 1,026 1,370 (352) 1,084
Net earnings (loss) applicable to common
shares..................................... $(1,200) $ 1,589 $ 2,679 $ 641
======= ======= ======= =======
Basic earnings (loss) per share.............. $ (0.02) $ 0.03 $ 0.05 $ 0.01
======= ======= ======= =======
Diluted earnings (loss) per share............ $ (0.02) $ 0.03 $ 0.05 $ 0.01
======= ======= ======= =======
</Table>

<Table>
<Caption>
THREE MONTHS THREE MONTHS
ENDED ENDED
TRANSITION PERIOD 2000 AUGUST 31 NOVEMBER 30
- ---------------------- ------------ ------------
<S> <C> <C>
Net sales.................................................. $27,141 $40,880
Gross profit............................................... 6,361 12,105
Loss from operations....................................... (6,802) (2,781)
Interest expense........................................... (261) (259)
Interest and other income.................................. 1,471 2,240
Income tax expense......................................... 667 1,507
Net loss................................................... $(7,474) $(3,682)
======= =======
Basic loss per share....................................... $ (0.15) $ (0.07)
======= =======
Diluted loss per share..................................... $ (0.15) $ (0.07)
======= =======
</Table>

F-26
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
THREE MONTHS ENDED
-------------------------------------------------
YEAR ENDED MAY 31, 2000 AUGUST 31 NOVEMBER 30 FEBRUARY 29* MAY 31*
- ----------------------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net sales............................... $ 29,979 $24,438 $33,424 $ 33,613
Gross profit (loss)..................... 5,985 5,273 (389) 3,943
Loss from operations.................... (12,938) (9,792) (9,814) (52,926)
Interest expense........................ (212) (202) (197) (215)
Interest and other income............... 1,034 1,220 1,761 2,221
Income tax expense (benefit)............ (3,877) (2,389) 168 1
Net loss................................ $ (9,320) $(7,528) $(9,574) $(52,098)
======== ======= ======= ========
Basic loss per share.................... $ (0.18) $ (0.15) $ (0.19) $ (1.03)
======== ======= ======= ========
Diluted loss per share.................. $ (0.18) $ (0.15) $ (0.19) $ (1.03)
======== ======= ======= ========
</Table>

<Table>
<Caption>
THREE MONTHS ENDED
--------------------------------------------------
YEAR ENDED MAY 31, 1999 AUGUST 31* NOVEMBER 30 FEBRUARY 28* MAY 31*
- ----------------------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.............................. $66,995 $73,918 $ 37,755 $ 18,747
Gross profit (loss).................... 21,963 27,982 (45,894) (11,851)
Earnings (loss) from operations........ 745 3,642 (95,368) (70,973)
Interest expense....................... (242) (217) (229) (209)
Interest and other income.............. 2,843 2,122 1,824 822
Income tax expense (benefit)........... 1,071 1,775 (32,553) (19,970)
Net earnings (loss).................... $ 2,275 $ 3,772 $(61,220) $(50,390)
======= ======= ======== ========
Basic earnings (loss) per share........ $ 0.05 $ 0.08 $ (1.21) $ (1.00)
======= ======= ======== ========
Diluted earnings (loss ) per share..... $ 0.05 $ 0.08 $ (1.21) $ (1.00)
======= ======= ======== ========
</Table>

- ---------------

* See Note 15 concerning charges occurring during the years ended May 31, 2000
and 1999.

(15) SIGNIFICANT CHARGES AND RECOVERIES

Pre-tax charges of $85.7 million were recorded in the third quarter of year
ended May 31, 1999 and included an impairment of long-lived assets totaling $2.8
million (included in general and administrative expenses); an impairment of
intangible assets totaling $1.4 million; an inventory write-down of $47.3
million due to adverse industry conditions and planned product revisions
(included in cost of sales); charges for the early termination of a facility
lease and restructuring costs totaling $2.6 million (included in general and
administrative expenses); an accounts and notes receivable allowance of $17.6
million related to a customer's vessel seizure followed by filing for creditor
protection and management's assessment of business risk relating to three North
American customer trade notes receivable as a result of the depressed market
environment (included in general and administrative expenses); and a charge for
warranty reserves and other product related contingencies of $14.0 million
(included in cost of sales).

Pre-tax charges of $53.3 million were recorded in the fourth quarter of the
year ended May 31, 1999, and included an accounts and trade notes receivable
allowance of $22.3 million, primarily related to business risk resulting from
the depressed market environment, and from political and currency risks in
certain developing countries (included in general and administrative expenses);
an inventory write-down of $9.7 million primarily due to further reduction in
customer demand for products rendered excess or obsolete as a result of
prevailing industry conditions and as a result of planned product revisions
(included in cost of sales); a charge of

F-27
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$6.0 million relating to certain warranty reserves and other product-related
contingencies (included in cost of sales); an impairment of long-lived assets
totaling $4.0 million related to the downturn in business activity and resizing
efforts (included in general and administrative expenses); an impairment of
intangibles totaling $6.3 million related to the deterioration of certain
product lines (included in amortization and impairment of intangibles); a charge
of $3.3 million related to employee severances and a charge of $0.6 million for
other expenses (included in general and administrative expenses) and a charge of
$1.1 million primarily related to prototype development costs (included in
research and development expenses).

Pre-tax charges of $4.7 million were recorded in the first quarter of the
year ended May 31, 2000 and included $3.3 million related to employee severance
arrangements and the closing of a facility (included in general and
administrative expenses) and charges of $1.4 million for product-related
warranties (included in cost of sales). These charges resulted from continued
weak customer demand for seismic equipment.

Pre-tax charges and recoveries of $0.3 million, net, were recorded in the
third quarter of the year ended May 31, 2000 and included $8.7 million of
inventory charges (included in cost of sales) related to a decision to
commercialize VectorSeis digital sensor products having higher technical
standards than the products previously produced. The Company had previously
determined to commercialize these earlier VectorSeis products which subsequently
were proven not to be commercially feasible based on data gathered from trial
surveys, the anticipated longer-term market recovery for new seismic
instrumentation and given current and expected market conditions. Other charges
were $2.4 million of bad debt expense (included in general and administrative
expense); $1.3 million of charges related to the employee reduction in workforce
worldwide (included in general and administrative expense); and $0.7 million of
charges related to legal settlements (included in cost of sales -- $0.3 million,
and in general and administrative expense -- $0.4 million). These charges were
offset in part by $12.8 million of recoveries attributable to a more favorable
than anticipated resolution of a customer's bankruptcy settlement, consisting of
a $10.2 million reduction in allowance for loan loss (recorded as a reduction to
general and administrative expense) and a $2.6 million reversal of warranty
reserves based on the bankruptcy settlement (recorded as a reduction to cost of
sales).

Pre-tax charges of $45.8 million were recorded in the fourth quarter of the
year ended May 31, 2000 and included $4.2 million of inventory and warranty
charges (included in cost of sales) primarily related to write-down of certain
marine streamer and related products, reflecting the deterioration of the marine
towed array seismic sector. Additionally, $10.0 million was charged to general
and administrative expenses consisting of a $5.0 million charge for settlement
of litigation, a $3.6 million loan loss expense, $0.7 million related to the
sale of certain idle manufacturing capacity in Europe, and $0.7 million of
charges related to employee severance and continued cost reduction efforts
worldwide. Finally, $31.6 million was charged to amortization and impairment of
intangibles, reflecting the impairment of certain goodwill recorded in
conjunction with the acquisition of manufacturing assets of Western Geophysical
in 1995 and the acquisition of CompuSeis, Inc. in 1998. The impairment of the
Western Geophysical goodwill principally reflects the diminished outlook for the
marine towed array seismic sector in general, evidenced by customers' decisions
to reduce the size of their marine fleets, and changes in customers' preferences
and technology for certain products within that sector. The impairment of the
CompuSeis goodwill reflects the result of certain technological changes relating
to land seismic systems.

F-28
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

No significant charges were reported during the year ended December 31,
2001 and the seven months ended December 31, 2000 and cash related accruals have
been substantially paid as of December 31, 2001. The table below summarizes the
significant pre-tax charges during the periods presented (in thousands):

<Table>
<Caption>
LONG-LIVED WARRANTY PERSONNEL/
INVENTORY RECEIVABLE ASSET PRODUCT FACILITY
RELATED RELATED RELATED RELATED AND OTHER
CHARGES CHARGES CHARGES CHARGES CHARGES TOTAL
--------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Charges for year ended May 31,
1999 by business segment:
Marine....................... $30,986 $ 18,298 $ 729 $17,025 $ 775 $ 67,813
Land......................... 25,978 21,034 12,539 2,975 2,787 65,313
Corporate.................... 1,136 568 1,232 -- 2,938 5,874
------- -------- ------- ------- ------- --------
$58,100 $ 39,900 $14,500 $20,000 $ 6,500 $139,000
======= ======== ======= ======= ======= ========
Charges for year ended May 31,
1999 by category:
Cost of sales................ $57,000 $ -- $ -- $20,000 $ -- $ 77,000
General and administrative... -- 39,900 6,800 -- 6,500 53,200
Research and development..... 1,100 -- -- -- -- 1,100
Amortization and impairment
of intangibles............ -- -- 7,700 -- -- 7,700
------- -------- ------- ------- ------- --------
$58,100 $ 39,900 $14,500 $20,000 $ 6,500 $139,000
======= ======== ======= ======= ======= ========
Charges for year ended May 31,
2000 by business segment:
Marine....................... $ 3,607 $ 2,400 $25,200 $ 1,993 $ 1,700 $ 34,900
Land......................... 8,700 3,600 7,100 -- 1,400 20,800
Corporate.................... -- -- -- -- 7,900 7,900
------- -------- ------- ------- ------- --------
$12,307 $ 6,000 $32,300 $ 1,993 $11,000 $ 63,600
======= ======== ======= ======= ======= ========
Adjustments to prior year
during year ended May 31,
2000......................... $ -- $(10,200) $ -- $(2,600) $ -- $(12,800)
Charges for year ended May 31,
2000 by category:
Cost of sales................ 12,307 -- -- 1,993 300 14,600
General and administrative... -- 6,000 700 -- 10,700 17,400
Amortization and impairment
of intangibles............ -- -- 31,600 -- -- 31,600
------- -------- ------- ------- ------- --------
$12,307 $ (4,200) $32,300 $ (607) $11,000 $ 50,800
======= ======== ======= ======= ======= ========
</Table>

(16) LEGAL MATTERS

In the ordinary course of business, the Company has been named in various
lawsuits. While the final resolution of these matters could have an impact on
the 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 the financial position, results of operations or
liquidity of the Company.

F-29
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) RELATED PARTIES

In connection with the acquisition of DigiCourse in November 1998, the
Company entered into a service agreement under which Laitram agreed to provide
accounting, software, manufacturing and maintenance services. The service
agreement expired September 30, 2001 and Laitram now charges the company on an
invoice basis. The Company's chairman of the board is the chairman and a
principal stockholder of Laitram. The Company paid Laitram an aggregate $1.4
million, $0.8 million, $1.5 million and $2.7 million under the services
agreement for the year ended December 31, 2001, seven months ended December 31,
2000 and years ended May 31, 2000 and 1999, respectively.

A former director and former company officer assisted in the collection
efforts of certain accounts and notes receivable. In return, he was paid a
commission on actual amounts collected. Commissions earned amounted to $0, $0.1
million, $0.5 million and $0 for the year ended December 31, 2001, seven months
ended December 31, 2000 and years ended May 31, 2000 and 1999, respectively.

The Company has guaranteed $0.2 million of bank indebtedness for one
officer related to the open market purchases of the Company's common stock. The
share purchases were made in conjunction with shares issued in May 2000 under
the Input/Output, Inc. 2000 Restricted Stock Plan. The outstanding loan balance
at December 31, 2001 was $0.2 million.

F-30
<PAGE>

SCHEDULE II

INPUT/OUTPUT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED MAY 31, 1999 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ----------------------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts................... $3,137 $17,780 $ 1 $20,916
Reserves for excess and obsolete inventory........ 4,949 58,848 47,550 16,247
Warranty.......................................... 4,245 19,280 9,650 13,875
</Table>

<Table>
<Caption>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED MAY 31, 2000 OF YEAR EXPENSES DEDUCTIONS OTHER END OF YEAR
- ----------------------- ---------- ---------- ---------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts...... $20,916 $(1,107)(1) $ 6,003 $(12,240)(3) $ 1,566
Reserves for excess and obsolete
inventory.......................... 16,247 16,360 17,616 -- 14,991
Warranty............................. 13,875 (1,731)(2) 5,674 -- 6,470
</Table>

<Table>
<Caption>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
SEVEN MONTHS ENDED DECEMBER 31, 2000 OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts.................... $ 1,566 $ 54 $ 49 $ 1,571
Reserves for excess and obsolete inventory......... 14,991 1,599 2,549 14,041
Warranty........................................... 6,470 2,267 2,435 6,302
</Table>

<Table>
<Caption>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED DECEMBER 31, 2001 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ---------------------------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts................... $ 1,571 $ 269 $ 88 $ 1,752
Reserves for excess and obsolete inventory........ 14,041 3,618 3,308 14,351
Warranty.......................................... 6,302 2,132 3,765 4,669
</Table>

- ---------------

(1) Includes recoveries of $2.1 million.

(2) Includes reversal of $2.6 million based on bankruptcy settlement of a
customer.

(3) Represents transfer to loan loss allowance as a result of conversion of
trade receivable to a note receivable.

S-1
<PAGE>

INDEX TO EXHIBITS

<Table>
<C> <C> <S>
3.1 -- Amended and Restated Certificate of Incorporation filed as
Exhibit 3.1 to the Company's Transition Report on Form 10-K
for the seven months ended December 31, 2000, and
incorporated herein by reference.
3.2 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996, filed
as Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated
herein by reference.
3.3 -- Amended and Restated Bylaws filed as Exhibit 4.3 to the
Company's Current Report or Form 8-K filed with the
Securities and Exchange Commission on March 8, 2002, and
incorporated herein by reference.
4.1 -- Form of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of Input/Output, Inc., filed as
Exhibit 2 to the Company's Registration Statement on Form
8-A dated January 27, 1997, (attached as Exhibit 1 to the
Rights Agreement referenced in Exhibit 10.6) and
incorporated herein by reference.
4.2 -- Form of Certificate of Designation, Preferences and Rights
of Series B Preferred Stock of Input/ Output, Inc., filed as
Exhibit 4.1 to the Company's Form 8-K dated April 21, 1999,
and incorporated herein by reference.
4.3 -- Form of Certificate of Designation, Preferences and Rights
of Series C Preferred Stock of Input/ Output, Inc., filed as
Exhibit 4.2 to the Company's Form 10-K for the fiscal year
ended May 31, 1999, and incorporated herein by reference.
10.1 -- Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc., filed
as exhibit 10.2 to the Company's 10-K for fiscal year ended
May 31, 1999, and incorporated herein by reference.
**10.2 -- Amended and Restated 1990 Stock Option Plan, filed as
Exhibit 4.2 to the Company's Registration Statement on Form
S-8 (Registration No. 333-80299), filed with the Securities
and Exchange Commission on June 9, 1999, and incorporated
herein by reference.
10.3 -- Lease Agreement dated as of August 20, 2001, between NL
Ventures III Stafford L.P. and Input/Output, Inc. filed as
Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001 and incorporated
herein by reference.
**10.4 -- Amended Directors Retirement Plan, filed as Exhibit 10.7 to
the Company's Annual Report on form 10-K for the fiscal year
ended May 31, 1997, and incorporated herein by reference.
**10.5 -- Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-80299), filed with the Securities and Exchange
Commission on June 9, 1999, and incorporated herein by
reference.
10.6 -- Rights Agreement, dated as of January 17, 1997, by and
between Input/Output, Inc. and Harris Trust and Savings
Bank, as Rights Agent, including exhibits thereto, filed as
Exhibit 4 to the Company's Form 8-A dated January 27, 1997,
and incorporated herein by reference.
**10.7 -- Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on Form
S-8 (Registration No. 333-24125) filed with the Securities
and Exchange Commission on March 18, 1997, and incorporated
herein by reference.
10.8 -- Purchase Agreement by and between the Company and SCF-IV,
L.P. dated April 21, 1999, filed as Exhibit 10.1 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.9 -- Registration Rights Agreement by and between the Company and
SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.10 -- First Amendment to Rights Agreement by and between the
Company and Harris Trust and Savings Bank as Rights Agent,
dated April 21, 1999, filed as Exhibit 10.3 to the Company's
Form 8-K dated April 21, 1999, and incorporated herein by
reference.
10.11 -- Registration Rights Agreement by and among the Company and
The Laitram Corporation, dated November 16, 1998, filed as
Exhibit 99.2 to the Company's Form 8-K dated November 16,
1998, and incorporated herein by reference.
</Table>
<PAGE>
<Table>
<C> <C> <S>
**10.12 -- Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (Registration No. 333-80297), filed with the Securities
and Exchange Commission on June 9, 1999, and incorporated
herein by reference.
* **10.13 -- Form of Change in Control Agreement.
* **10.14 -- Input/Output, Inc. Non-qualified Deferred Compensation Plan.
**10.15 -- Amendment No. 1 to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan, dated
September 13, 1999, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1999, and incorporated herein by reference.
**10.16 -- Employment Agreement by and between the Company and Timothy
J. Probert dated effective as of March 1, 2000 filed as
Exhibit 10.44 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 2000, and incorporated
herein by reference.
**10.17 -- Input/Output, Inc. 2000 Restricted Stock Plan, effective as
of March 13, 2000 filed as Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
2000, and incorporated herein by reference.
**10.18 -- Input/Output, Inc. 2000 Long-Term Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (No. 333-49382) dated November 6, 2000 and incorpo-
rated by reference herein.
* **10.19 -- Separation Agreement and General Release between
Input/Output, Inc. and Rex Reavis dated August 10, 2001.
* **10.20 -- Consulting Agreement between Input/Output, Inc. and Rex
Reavis dated August 10, 2001.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of PricewaterhouseCoopers LLP.
*23.2 -- Consent of KPMG LLP.
*24.1 -- The Power of Attorney is set forth on the signature page
hereof.
</Table>

- ---------------

* Filed herewith.

** Management contract or compensatory plan or arrangement.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>3
<FILENAME>h94917ex10-13.txt
<DESCRIPTION>FORM OF CHANGE IN CONTROL AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.13

August ___, 1998

Mr. __________________
Program Manager
Input/Output, Inc.
11104 W. Airport Boulevard, Suite 200
Stafford, Texas 77477

RE: SEVERANCE AND CHANGE OF CONTROL AGREEMENT

Dear Mr. ________:

Input/Output, Inc., a Delaware corporation (the "Company"), has determined that
it will make available to you and certain of the Company's other managers and
directors special severance payments and benefits in the event that your
employment terminates under certain conditions. The Company is pleased to offer
these severance arrangements to you on the terms set forth in this Severance and
Change of Control Agreement (the "Agreement").

1. DEFINITIONS: As used in this Agreement, the following terms are defined as
set forth in this paragraph:

(a) "Base Salary": means an amount equal to the greater of your
annual base salary (excluding any bonus or incentive payments)
on (i) the effective date of a Change of Control or (ii) the
date your employment terminates.

(b) "Board" means the Company's Board of Directors.

(c) "Change of Control" shall mean the occurrence of any of the
following events: (i) the consummation of any merger or
consolidation pursuant to which shares of common stock of the
Company, $.01 par value ("Common Stock"), would be converted
into cash, securities or other property, or any sale, lease,
exchange or other disposition (excluding disposition by way of
mortgage, pledge or hypothecation), in one transaction or a
series of related transactions, of all or substantially all of
the assets of the Company (a "Business Combination"), in each
case unless, following such Business Combination, the holders
of the outstanding Common Stock immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 51% of the outstanding common stock or equivalent
equity interests of the corporation or entity resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
outstanding Common Stock, (ii) the stockholders of the Company
approve any plan or proposal for the complete liquidation or
dissolution of the Company, (iii) any "person" (as such term
is defined in Section 3(a)(9) or Section 13(d)(3) under the
Securities Exchange Act of 1934 (the "1934 Act") or any
"group" (as such term is used in Rule 13d-5 promulgated under
the 1934 Act), other than the Company, any successor of the

<PAGE>

Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee),
becomes a beneficial owner for purposes of Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of
securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote
in the election of directors, or (iv) during any period of two
consecutive years, individuals who, at the beginning of such
period constituted the entire Board, cease for any reason
(other than death) to constitute a majority of the directors,
unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a
vote of at least a majority of the directors then still in
office who were directors at the beginning of the period. In
the event of a Change of Control, the surviving, continuing,
successor or purchasing corporation or parent corporation
thereof, as the case may be, shall assume the Company's rights
and obligations under this Agreement.

(d) "Change in Duties" means:

(i) a significant reduction in the nature or scope of
your authority or the duties that you perform;

(ii) a reduction in your annual base salary;

(iii) a significant diminution in your employee benefits,
perquisites or incentive bonus opportunity (other
than changes made as part of a program or plan
modification that applies to you and your peers);

(iv) a change of more than 30 miles in the location of
your principal place of employment (not including
business travel or temporary assignments); or

(v) a determination by the Board that you are unable to
exercise your authority or perform your duties as a
result of a Change of Control.

(e) "Company" means Input/Output, Inc., a Delaware corporation,
and any of its Successors.

(f) "Covered Period" means the 18-month period following the
effective date of a Change of Control (i.e., corresponding to
the same day of the eighteenth month following the effective
date of the Change of Control). Therefore, if the effective
date of the Change of Control is November 5, 1998, the Covered
Period will extend through and terminate on May 5, 2000.

(g) "For Cause"; you are terminated for cause if you are
terminated for any of the following reasons:

(i) theft, dishonesty or falsification of any employment
or Company records;

(ii) improper disclosure of the Company's confidential or
proprietary information;

2
<PAGE>

(iii) any action by you which has a material detrimental
effect on the Company's reputation or business;

(iv) your failure or inability to perform any reasonable
assigned duties after written notice of, and a
reasonable opportunity to cure, such failure or
inability; or

(v) your conviction of any criminal act which impairs
your ability to perform your duties for the Company.

(h) "Severance" means an amount equal to the sum of your Base
Salary plus your Target Incentive Bonus.

(i) "Successor" means the Company and any successor or assign
(whether directly or indirectly, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company.

(j) "Target Incentive Bonus" means the amount of your then
applicable "Target bonus" as determined under the Company's
1999 Management Incentive program (or any successor plan then
in effect); if your Target Bonus has not yet been determined
with respect to a Company fiscal year, the Target Bonus shall
be your Target Bonus amount for the immediately preceding
fiscal year.

2. AT WILL EMPLOYMENT: Except as otherwise set forth in any employment agreement
between you and the Company, the Company and you hereby agree that your
employment with the Company is for no specified term and may be terminated by
you or the Company at any time, with or without cause. Upon the termination of
your employment, neither you nor the Company shall have any further obligation
or liability to the other, except as set forth in this Agreement or in any such
employment agreement or any other written agreement between you and the Company.

3. ACCELERATION UPON NON-ASSUMPTION IN A CHANGE OF CONTROL.

(a) Non-Assumption of Options and Restricted Stock. If there is a
Change of Control of the Company in which the outstanding
stock options granted and restricted stock issued by the
Company prior to such Change of Control (and the Company's
obligations in connection therewith) are not fully assumed by
the Successor, or replaced by fully equivalent substitute
options or restricted stock, then (1) all such options and
restricted stock shall have their vesting fully accelerated to
be 100% vested as of the effective date of the Change of
Control and (2) the Company shall provide reasonable prior
written notice to you of (a) the date such unexercised options
will terminate and (b) the period during which you may
exercise the fully vested options.

(b) Assumption of Options and Restricted Stock. If there is a
Change of Control of the Company in which the outstanding
stock options granted and restricted stock issued by the
Company prior to such Change of Control (and the Company's
obligations in connection therewith) are fully assumed by the
Successor, or replaced by fully equivalent substitute options
or restricted stock, then notwithstanding the terms and
provisions of any stock option plan or agreement, restricted
stock plan or agreement or any other plan

3
<PAGE>

or agreement adopted or dated prior to the date hereof, no
acceleration of vesting of any outstanding stock options
granted or restricted stock issued by the Company shall occur,
except to the extent permitted pursuant to Section 5(a)(iii)
herein.

The parties hereto agree that to the extent any of the
preceding provisions of this paragraph 3 conflicts with the
terms of any stock option plan or agreement, restricted stock
plan or agreement or other plan or agreement adopted or dated
prior to the date hereof of the Company or to which you are a
party or a participant, the terms and provisions of this
paragraph 3 shall take precedence over and supersede the terms
of such plan or agreement; in addition, the parties hereto
agree that the conflicting terms and provisions of any such
agreement are hereby amended to conform to the provisions of
this paragraph 3.

4. TERMINATION WITHOUT SEVERANCE BENEFITS: If at any time (i) you voluntarily
resign or retire from your employment with the Company, (ii) your employment
terminates as a result of your death or disability, or (iii) your employment is
terminated by the Company For Cause, you shall receive no compensation or
benefits from the Company under this Agreement. You agree that if you resign or
retire from your employment with the Company for any reason, you shall provide
the Company with not less than one month's written notice of your termination
(or such longer time period as may be specified in any employment agreement or
any other agreement between you and the Company). The Company may, in its sole
discretion, elect to waive all or any part of such notice period and accept your
resignation or retirement at an earlier date.

5. TERMINATION WITH SEVERANCE BENEFITS: In the event your employment is
terminated by the Company for the reasons set forth below, you shall receive the
following severance benefits.

(a) Termination Within Covered Period: If your employment is
terminated by the Company within a Covered Period for any
reason other than those described in paragraph 4, you will
receive the following benefits:

(i) the Severance, which amount shall be paid in one lump
sum installment, less applicable withholding, on or
before the thirtieth (30th) day following the date of
your termination;

(ii) to the extent permitted by law and the Company's
insurance carriers, continued medical, dental, vision
and group life insurance coverage for you and your
dependents (to the extent that those dependents were
covered by such insurance immediately prior to your
termination) under the Company's applicable insurance
plans until the earlier of one year after the date of
your termination or the date on which you first
became eligible to obtain comparable insurance
coverage from a subsequent employer (the "Coverage
Period"). Such continued coverage shall be subject to
your payment of any portion of the premiums for that
coverage that is normally paid by the Company's
employees. In the event that the Company or its
Successor is unable to provide you with this
continued insurance coverage, it shall reimburse you
for the difference between the COBRA premiums that
you incur to obtain continued medical, dental and/or
vision insurance coverage during the Coverage Period
and the amount of any

4
<PAGE>

premiums that would be paid by you if you were
eligible for such continued insurance coverage
through the Company or its Successor; and

(iii) Notwithstanding any provision to the contrary
contained in any stock option plan or agreement or
restricted stock plan or agreement between the
Company and you, to the extent such stock options and
restricted stock have not already become fully vested
pursuant to paragraph 3(a), all outstanding stock
options granted and restricted stock issued by the
Company to you or for your benefit prior to the
Change of Control shall, without further action by
either party, immediately have their vesting
accelerated as to one year of additional vesting as
of the date of such termination of employment.

(b) Resignation Within Covered Period: If you are subject to a
Change in Duties during a Covered Period and you then resign
from your employment with the Company during that Covered
Period, you shall receive the severance benefits described in
subparagraphs 5(a)(i), (ii) and (iii) above.

6. SEVERANCE REDUCTION:

Notwithstanding paragraph 5 above, in the event that any payment or
distribution made, or benefit provided under this Agreement, together with any
other payment or distribution made, or benefit provided under this Agreement, by
the Company to or for the benefit of you, would constitute an "excess parachute
payment" as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the Company may reduce or eliminate any payments or
benefits provided herein so that the aggregate present value of all payments in
the nature of compensation to you which are contingent on a change of control is
One Dollar ($1.00) less than the amount which you could receive without being
considered to have received any excess parachute payment. The determination of
the amount of any reduction required or permitted by this paragraph 6 shall be
made by an independent accounting firm selected by the Company and acceptable to
you, and that determination shall be conclusive and binding on you and the
Company.

7. EXCLUSIVE CONTRACTUAL RIGHTS: The Company and you agree that, in addition to
any benefits to which you may be entitled under any pension, profit, or welfare
benefit plan maintained for the general benefit of the Company's officers and
employees, the severance payments and benefits described in this Agreement shall
be your sole and exclusive contractual rights in the event that the Company
terminates your employment, and the terms of this Agreement shall take
precedence over and supersede any previous contractual rights granted to you by
the Company regarding the subject matter of this Agreement.

8. CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENT: In the event that
your employment with the Company terminates for any reason, you agree that you
shall continue to be bound by and comply with the terms and conditions of any
confidentiality, non-competition or assignment of inventions agreements between
you and the Company.

9. TERM: This Agreement shall become effective on the date it is signed by you
below. The term of this Agreement shall end on August __, 2001; however,
commencing on August __, 2001 and on each annual anniversary of that date (that
date and each annual anniversary date thereafter are hereinafter

5
<PAGE>

referred to individually as a "Renewal Date"), the term of this Agreement shall
be automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date you or the Company give
written notice that the term of the Agreement shall not be so extended. In
addition, and notwithstanding the foregoing, after a Change of Control of the
Company during the term of this Agreement, this Agreement shall remain in effect
until all of the obligations of the Company and you under this Agreement are
satisfied.

10. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Agreement, your employment relationship with the Company, or
the termination of that relationship, the Company and you hereby agree that all
such disputes or claims shall be submitted to binding arbitration under the
Federal Arbitration Act in Houston, Texas. Any arbitration shall be conducted
under the auspices of, and the rules of, the American Arbitration Association,
or such other procedures as you and the Company may agree to at the time, before
a tribunal of three arbitrators, one of which shall be selected by you and the
Company and the third shall be selected by the two arbitrators previously
elected. Any award issued as a result of such arbitration shall be final and
binding on you and the Company, and shall be enforceable by any court having
jurisdiction over the party against whom enforcement is sought. You and the
Company will each be deemed to have voluntarily and knowingly entered into an
agreement to arbitration pursuant to under this paragraph by entering into this
Agreement.

11. ATTORNEYS' FEES: The prevailing party shall be entitled to recover from the
losing party its attorneys' fees and costs incurred in any action brought to
enforce any right arising out of this Agreement.

12. INTERPRETATION AND SEVERABILITY: This Agreement shall be interpreted in
accordance with and governed by the laws of the State of Texas. The invalidity
or unenforceability of any provisions(s) of this Agreement shall not affect the
validity or enforceability of any other provision(s) of this Agreement, which
shall remain in full force and effect.

13. SUCCESSORS: This Agreement shall be binding upon any legal Successor to the
Company in the same manner and to the same extent that it is binding upon the
Company.

14. ENTIRE AGREEMENT; NON-EXCLUSIVITY OF RIGHTS: This Agreement constitutes the
entire agreement between you and the Company regarding the subject matter
herein; provided, however, nothing contained herein shall prevent or limit your
continuing or future participation in any benefit, bonus, incentive or other
plans, practices, policies or programs provided by the Company and for which you
may qualify, nor shall anything herein limit or otherwise affect such rights as
you may have under any restricted stock plan or agreement, stock option plan or
agreement, employment agreement or other written agreements with the Company,
unless and to the extent such rights are expressly modified or affected by the
terms hereof. Except as otherwise expressly provided hereunder, amounts which
are vested benefits or which you are otherwise entitled to receive under any
plan, practice, policy or program of the Company at or subsequent to the date of
termination of your employment with the Company shall continue to be payable in
accordance with such plan, practice, policy or program.

15. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by you and an authorized member of the
Board.

(signature page follows)

6
<PAGE>

Thank you for your ongoing service to Input/Output, Inc. Please sign and date
this letter on the spaces provided below to acknowledge your acceptance of this
Agreement.

Sincerely,

INPUT/OUTPUT, INC.

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

I AGREE TO AND ACCEPT THE TERMS AND CONDITIONS OF THIS SEVERANCE AND CHANGE OF
CONTROL AGREEMENT.

Date:
- ---------------------------------- ----------------------

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>4
<FILENAME>h94917ex10-14.txt
<DESCRIPTION>NON-QUALIFIED DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.14

INPUT/OUTPUT, INC.
NON-QUALIFIED
DEFERRED COMPENSATION PLAN

OUTLINE OF PLAN PROVISIONS

I. PURPOSE

I/O's deferred compensation plan is designed to provide eligible
executives with a mechanism to generate pre-tax savings and provide for
employee deferral and employer matching contributions lost due to IRS
and ERISA limitations.

II. ELIGIBILITY

Senior Officers and Managers as defined in the Incentive Eligibility
Levels I - IV.

III. EMPLOYEE DEFERRAL AMOUNTS

o 0 - 50% of Base Salary and up to 100% of Bonus (in 1%
increments).

o Eligible employees will make a deferral election for this
plan. This election is separate to the deferral election under
the 401(k) plan. The 401(k) plan deductions should have
priority over the deferred compensation plan and be deducted
first.

o Employee 401(k) deferral amounts above those permitted in the
401(k) plan will automatically be contributed to this
non-qualified deferred compensation plan.

o An irrevocable deferral must be made prior to the beginning of
the plan year.

2
<PAGE>

INPUT/OUTPUT, INC.
NON-QUALIFIED
DEFERRED COMPENSATION PLAN

IV. EMPLOYER MATCH AND CONTRIBUTIONS

o Employer match - 50% of the first 6% of total compensation
(including employee deferrals) without restriction (i.e.
covered compensation, deferral limits, discrimination
testing). Employer match above those permitted in the 401k
plan will automatically be contributed to the non-qualified
deferred compensation plan.

o Vesting -- Employer match will vest 20% per year of I/O
service. Employer match will become immediately vested in
event of a change of control (as defined) or termination due
to normal retirement (as defined), death, or disability.
Employee deferrals are 100% vested.

V. DISTRIBUTION ELECTIONS/OPTIONS

o Distribution Election -- Participants must make a Distribution
Election at the same time the deferral election is made.
Participants may elect a lump sum or annual installments over
three to five years following termination of employment. A new
distribution election may be made annually and will apply only
to deferrals made in that plan year.

o In-Service Distribution -- Participants may elect an
"in-service" distribution. The deferral period must be at
least one year and may distributed only in lump sum.

o Extension of Deferral Period -- Participants may extend the
deferral period and change their distribution election, so
long as the request is made at least one year prior to the
original distribution date. This is a one-time option.

3
<PAGE>

INPUT/OUTPUT, INC.
NON-QUALIFIED
DEFERRED COMPENSATION PLAN

o Hardship Withdrawals -- Participants may request hardship
withdrawals from their vested employee deferral account
balances. Hardship withdrawals must be related to major,
unanticipated, financial emergencies.

o Early Withdrawal from Plan -- Once vested, participants may
request an early withdrawal from the plan and receive the
vested balance of all employee deferrals, less a 10% penalty.
Participants must remain out of the plan for one year before
making a new deferral election. Employer match contributions
may not be withdrawn from the plan prior to termination of
employment.

o All distributions will be made in cash. All applicable income
and payroll taxes will be withheld from distributions.

VI. INVESTMENT OPTIONS

Participants may allocate their employee deferrals and employer
matching contributions among deemed investment options that include the
same options as provided in the 401k plan.

VII. SECURITIZATION/FUNDING

o I/O will establish a Rabbi Trust to receive employee deferrals
and company matching contributions.

o Individual account balances will be maintained for each
participant.

o The plan is intended to be an unfunded plan for purposes of
Title I of ERISA. In the event of insolvency of the company,
participants must rely solely on the general credit of the
company.

4
<PAGE>

INPUT/OUTPUT, INC.
NON-QUALIFIED
DEFERRED COMPENSATION PLAN

VIII. PLAN ADMINISTRATION

o The plan will be administered by the same record-keeper used
for the 401k plan; currently Fidelity Investments.

o Participants will receive a quarterly statement of their
deferred compensation accounts.

IX. INTERNATIONAL (NON-US) PARTICIPANTS

Only employees on the US payroll are eligible to participate in the
plan

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>5
<FILENAME>h94917ex10-19.txt
<DESCRIPTION>SEPARATION AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.19

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (the "Agreement") is
between INPUT/OUTPUT, INC., a Delaware corporation ("Company"), and Rex Reavis,
a resident of Harris County, Texas ("Employee"), and is being presented to
Employee on this 10th day of August, 2001.

WHEREAS, Company and Employee desire to resolve any and all potential
disputes, claims or causes of action arising out of Employee's employment with
and separation from Company and its subsidiaries;

Therefore, in consideration of the mutual promises and covenants
contained herein, and effective the beginning of the eighth (8th) day after
Employee's execution of this Agreement (the "Effective Date"), and so long as
Employee does not revoke same during the prior seven (7) day period (the
"Revocation Period"), the parties voluntarily agree as follows:

1. Employee's separation from Company and its subsidiaries effective
August 31, 2001 will be considered a voluntary resignation.

2. a. Company will within 30 days of the Effective Date, pay to
employee a severance payment of $95,376.00 to be paid in one lump sum. Employee
acknowledges and agrees that the payments are in full and complete satisfaction
of any and all liabilities or obligations the Company has or may have to
Employee and that the payments represent something of value beyond anything to
which he is entitled.

b. In the event the Company awards bonuses to its eligible
management participants for the 2001 fiscal year pursuant to the Annual
Incentive Plan, Employee will be eligible to participate in the plan on a
pro-rata basis (8/12's) and receive a bonus payment.

c. The payments in paragraph 2a & b shall be subject to any
and all applicable withholding and other employment taxes.

3. Company will continue through August 31, 2002, subject to the
provisions below, to provide to Employee, on the same basis as it provides to
its existing employees, health, dental and vision insurance coverage. Such
insurance coverage shall terminate upon the occurrence of the earlier of: (i)
August 31, 2002, or (ii) Employee's commencement of employment with and
eligibility for health and dental insurance coverage by another employer which
provides substantially similar coverage to Employee under its health insurance
plan. In the event that Employee is unable to obtain substantially similar
coverage by August 31, 2002, then he shall be allowed to participate in the
Company's COBRA plan pursuant to the requirements under the COBRA plan. Employee
agrees, immediately upon his acceptance of employment, with another employer, to
advise Company in writing of his acceptance of and the anticipated commencement
date of such employment and eligibility for coverage. Any material breach by
Employee of this Agreement will result in the termination of such insurance
coverage effective the end of the month in which such breach occurs. Company
will immediately notify Employee in writing of its intention to terminate such
insurance coverage in the event it reasonably believes there exists such a
material breach by Employee.

Reavis Separation -1-
August 10, 2001

<PAGE>

4. For purposes of stock option vesting and Employee Stock Purchase
Plan (ESPP), Employee will be considered still employed with the Company as a
Consultant through August 31, 2002. Stock Options will continue to vest up to
August 31, 2002. Employee will have six months from August 31, 2002 to exercise
any options that have vested. Employee will not be eligible to participate in
the ESPP beyond December 31, 2001, the close of the current period.

5. In exchange for the consideration described in paragraphs 2 through
4 above, and as a material inducement to Company to enter into this Agreement,
except for the provisions of paragraph 8 below, Employee forever and
unconditionally releases and discharges Company and any of its parent,
subsidiary or affiliate companies or divisions and each of their owners,
shareholders, directors, officers, employees, assigns, representatives or agents
("Releasees") from any and all claims, complaints or causes of action of any
kind, including but not limited to those relating to or arising out of
Employee's employment with Company and its subsidiaries and membership on or
separation from the Boards of Directors of any subsidiaries of Company, and such
release encompasses, but is not limited to, claims under local, state or federal
law, alleged contract or tort claims or claims or causes of action arising under
any federal, state or local statutes, including, but not limited to, Title VII,
the Civil Rights Act of 1991, Section 1981, the Civil Rights Act of 1871, the
Texas Commission on Human Rights Act and the Age Discrimination in Employment
Act.

6. Employee further agrees that he will not file any complaint,
petition, or lawsuit or charge against Company or any of the Releasees with any
local, state or federal court, except to enforce this Agreement. If Employee or
anyone acting on his behalf files any such complaint, or if any such court
assumes jurisdiction of any complaint against Employee or any of the Releasees
regarding or involving Employee, he will request such court to withdraw from the
matter and dismiss said action and if initiated or pursued by his or with his
approval, will reimburse Company and/or the Releasees for all costs and
attorneys' fees incurred as a result of such lawsuit.

7. Company forever and unconditionally releases and discharges
Employee, his heirs and assigns from any and all claims, complaints or causes of
action they might have relating to or arising out of Employee's employment with
Company, save and except any claims which might result from any gross misconduct
by Employee. Gross misconduct as used herein shall mean conduct such as, but not
limited to, misappropriation of property or dishonesty relating to Company's
business.

8. The Company shall indemnify Employee in any instance in which
Employee is or was a party or is or was threatened to be made a party to any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he (i) was an officer, employee or
agent of the Company or any of its direct or indirect wholly-owned subsidiaries,
or (ii) while an officer, employee or agent of the Company or any of its direct
or wholly-owned subsidiaries served at the request of the Company or any of its
direct or indirect wholly-owned subsidiaries, as an officer, employee, agent or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including counsel fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, to the full
extent permitted by applicable laws, provided that the Company shall not be
obligated to indemnify Employee against any such action, suit or proceeding
which is brought by Employee against the Company or any of its direct or
indirect wholly-owned subsidiaries or the directors of the Company or any of its
direct or indirect wholly-owned subsidiaries, other than an action brought by
Employee to enforce his rights to indemnification hereunder, unless a majority
of the board of directors of the Company shall have previously approved the
bringing of such action, suit or proceeding.

Reavis Separation -2-
August 10, 2001

<PAGE>

9. This Agreement shall not in any way be construed as an admission by
Company or the Releasees of any acts of illegal discrimination or violation of
any statute, law or right whatsoever against Employee or any other person, but
instead is entered into to ensure that the separation of employment is amicable.

10. Employee agrees to return all company property which he received
during his tenure of employment and which is within his possession, custody and
control no later than the close of business on August 31, 2001. The term
"company property" as referred to in this paragraph 10 shall include but is not
limited to cellular phones, all keys, credit cards, security cards, personal
computers, any and all files, and all mechanical or office equipment. Upon
approval of Company, Employee shall have the right to purchase his laptop
computer. Employee acknowledges and agrees that failure to return the company
property as identified in this paragraph 10 shall constitute a material breach
of this Agreement which shall entitle the Company to withhold all benefits and
other consideration specified herein until Employee complies with this paragraph
10.

11. All parties agree that they will keep the terms, amount and fact of
this Agreement completely confidential, and that they will not make any public
disparaging statements about the other, including any directors or employees of
the Releasees.

12. Employee acknowledges that the Company's employees are valuable to
the Company's business and that information regarding the Company's employees,
including without limitation information as to their background, training and
compensation, is Confidential Information. Employee agrees that for a period not
to exceed twenty-four (24) months from the Effective Date of this Agreement, he
will not knowingly directly or indirectly solicit or otherwise induce or
encourage any person in the employment of the Company or any consultant to the
Company to terminate such employment or consulting arrangement or to accept
employment or enter into any consulting agreement with anyone other than the
Company.

13. Further, Employee reaffirms the promises that he made to the
Company in the Employee Patent and Confidential Information Agreement that he
signed on July 1, 1998. Employee particularly acknowledges the binding effect of
the nondisclosure and confidentiality provisions of such agreement, with regard
to all confidential information which he received between July 1, 1998 and the
Effective Date of this Agreement, and that such provisions continue to apply at
all times after the Effective Date of this Agreement.

14. Employee acknowledges, understands and agrees that Company will
suffer immediate and irreparable harm if he fails to comply with any of his
obligations under paragraphs 11, 12 and 13 of this Agreement, and that monetary
damages will be inadequate to compensate Company for such breach. Accordingly,
Employee agrees that Company shall, in addition to any other remedies available
to them at law or in equity, be entitled to temporary, preliminary, and
permanent injunctive relief to enforce the terms of paragraphs 11, 12 and 13
without the necessity of proving inadequacy of legal remedies or irreparable
harm.

15. As a further material inducement to enter into this Agreement, any
party who breaches this Agreement must reimburse the non-breaching party for any
and all loss, cost, damage or expense, including without limitation, attorneys'
fees, arising out of any breach of this Agreement. In addition, any

Reavis Separation -3-
August 10, 2001

<PAGE>

breach of this Agreement will entitle the non-breaching party to seek injunctive
relief and to recover any actual damages incurred as a result of said breach.

16. Employee represents and acknowledges that in executing this
Agreement he does not rely and has not relied upon any prior representation made
by Company or its agents, representatives or attorneys with regard to the
subject matter of this Agreement.

17. This Agreement shall be binding upon Employee and upon his heirs,
administrators, representatives, executors, successors and assigns.

18. This Agreement shall in all respects be interpreted, enforced and
governed under the laws of the State of Texas and shall in all cases be
construed as a whole (according to its fair meaning, and not strictly for or
against any of the parties). Venue for any cause of action necessitated by
either party's material breach of the obligations hereunder shall be in Harris
County, Texas.

19. Should any provision of this Agreement be declared or be determined
illegal and invalid, the validity of the remaining parts will not be affected.

20. This Agreement, contains the entire agreement and supersedes any
and all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof and the employment of
Employee by the Company, and, except as otherwise expressly set forth herein,
any such prior agreements or understandings are hereby terminated. This
Agreement may not be changed orally, but only by an amendment in writing signed
by both parties.

21. The parties agree that Employee may revoke this Agreement within
seven (7) days from execution of this Agreement. Failure of Employee to revoke
this Agreement during said seven (7) day Revocation Period shall mean it becomes
binding on all parties at 12:01 a.m. of the eighth day after Employee executes
same. Should Employee opt to revoke this Agreement during the said seven (7) day
Revocation Period, none of the obligations of Company set forth in this
Agreement shall become binding and shall be null and void. Employee shall give
his notice of revocation to Company, in writing before 12:01 a.m. on the eighth
day after Employee executes this Agreement. Written notice of revocation shall
be delivered to Company at:

Input/Output, Inc.
12300 Charles Selecman Drive
Stafford, TX 77477
Attn: Director of Human Resources

22. By Employee's signature below, he represents and confirms that he:
(a) has read this Agreement carefully and completely, (b) has been given a
period of at least twenty-one (21) days to consider and review this Agreement,
(c) has been informed of his right to consult with legal counsel and has had
ample opportunity to do so, (d) understands all provisions contained in this
Agreement, and (e) enters into the Agreement freely and voluntarily.

23. This Agreement may be executed in any number of counterparts with
the same effect as if all the parties had signed the same document. All
counterparts shall be construed together and shall constitute one and the same
instrument.

Reavis Separation -4-
August 10, 2001

<PAGE>

PLEASE READ CAREFULLY. THIS RELEASE AGREEMENT INCLUDES THE RELEASE OF
ALL KNOWN AND UNKNOWN CLAIMS.

* * * *

EXECUTED on this _____ day of August, 2001 to be effective, if not revoked, on
August 31, 2001.

COMPANY:

INPUT/OUTPUT, INC.

By: /s/ TIM PROBERT

Name: Tim Probert

Title: President & Chief Executive Officer

EMPLOYEE:

/s/ REX REAVIS
------------------------------------------
Rex Reavis

Reavis Separation -5-
August 10, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>6
<FILENAME>h94917ex10-20.txt
<DESCRIPTION>CONSULTING AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.20

CONSULTING AGREEMENT

This Consulting Agreement (the "Agreement") is entered into effective
this 1st day of September, 2001 ("Effective Date"), by and between INPUT/OUTPUT,
INC., a Delaware corporation ("Company") and Rex Reavis ("Consultant").

RECITALS

Consultant has previously served as an executive of the Company; and,

The parties, having terminated the employment relationship between
Consultant and Company pursuant to the terms of that certain Separation
Agreement and General Release which became effective on August 31, 2001 (the
"Separation Agreement"), now wish to engage Consultant to serve as a consultant
to Company commencing as of the Effective Date hereof upon and subject to the
terms and conditions set forth in this Agreement.

AGREEMENT

NOW THEREFORE, for and in consideration of the mutual benefits to be
derived and the representations, conditions and promises that follow, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound, Company and Consultant agree as
follows:

1. Definitions. The following terms shall have the meanings ascribed to
them below, the following definitions to be equally applicable to both the
singular and plural form of the terms:

1.1. "Affiliate" shall mean when used with reference to a
specified Person (defined below): (i) any Person that directly or
indirectly through one or more intermediaries controls or is controlled
by or is under common control with the specified Person; and (ii) any
Person that is an officer of, partner in, or serves in a similar
capacity to, the specified Person or of which the specified Person
serves in a similar capacity; and (iii) any Person owning or
controlling ten percent (10%) or more of the outstanding voting
securities of such other entity; and (iv) any member of the immediate
family of the specified Person or any legal representative or trustee
for the benefit of such member.

1.2. "Person" shall mean an individual, partnership,
corporation, trust or other entity.

1.3. "Term" shall mean the term of this Agreement, commencing
on September 1, 2001 and continuing for the lesser of one (1) year; or,
unless earlier terminated pursuant to Section 6 hereof.

2. Engagement. Notwithstanding any provision contained herein to the
contrary, this Agreement is subject to the execution, delivery and effectiveness
of the Separation Agreement and its terms and conditions. Company shall appoint
and engage the Consultant as consultant and advisor as of the Effective Date
hereof with respect to the matters specified in, subject to the terms and
conditions of, and for the compensation provided in, this Agreement. The
Consultant accepts this appointment and

Reavis Consulting Agreement -1-
August 10, 2001

<PAGE>

engagement effective as of such date as a consultant and advisor to Company,
subject to the terms and conditions of this Agreement.

3. Duties of Consultant. After September 1, 2001, the Company may call
upon Employee to consult with the Company. Consulting will be arranged at times
reasonably convenient to both parties and will be conducted by phone or email
when reasonably practical. The Consultant agrees that he will serve the Company
to the best of his ability, projecting a positive and professional image on
behalf of Company and its Affiliates.

4. Non-Disclosure. Consultant acknowledges, understands and agrees that
he will be furnished confidential information concerning the business of Company
and its subsidiaries, including information relating to its customers and to the
design, construction and operation of Company's products and services
("Confidential Information"). Consultant further acknowledges that all
Confidential Information, whether developed by Consultant, Company, their
Affiliates or other Persons while carrying out the terms and provisions of this
Agreement (or previously developed by Consultant, Company, their Affiliates or
other Persons, either during the term of Consultant's employment with Company or
its Affiliates, or prior thereto), shall be the exclusive and confidential
property of Company or its Affiliates, as the case may be, and shall be
regarded, treated and protected as such. Consultant shall not use, in any way,
or disclose any of the Confidential Information, directly or indirectly, or
permit any other person, firm or entity to avail himself or itself of the
benefit or use of the Confidential Information, or any aspect thereof, either
during the term of his employment with Company hereunder or otherwise, or at any
time thereafter, except as may be necessary to perform his obligations with
respect to his consulting services hereunder.

4.1. All files, records, documents, information, data and
similar items and documentation relating to the business of Company and
its subsidiaries and that of Company's and its subsidiaries' customers,
whether prepared by Consultant or otherwise coming into his possession,
shall remain the exclusive property of Company and its subsidiaries, as
the case may be, and Consultant agrees to return all such files,
records, documents, information, data and similar items and
documentation to Company immediately upon the termination of this
Agreement for any reason.

4.2. The parties hereto stipulate that as between them, the
Confidential Information is important, material and confidential, and
gravely affects the effective and successful conduct of the business of
Company and its subsidiaries and their goodwill, and that Company would
suffer irreparable injury if this information were divulged to any
Person in competition with Company or any of its subsidiaries.
Consultant agrees to disclose, fully and promptly, and only to Company,
all ideas, methods, plans, improvements or patentable inventions of any
kind, which are (i) made or discovered, in whole or in part, by
Consultant during the performance of Consultant's job duties, (ii) the
result of any aid, support or assistance by Company or its
subsidiaries, or (iii) created during his work time with Company or its
subsidiaries.

4.3. The obligations of Consultant set forth in this Section 4
are continuous and shall survive the termination, for any reason
whatsoever, of this Agreement.

4.4. When used or referred to in this Agreement, Confidential
Information shall not include information which is in the public domain
or information generally known in the oil and gas exploration and
production services industry or the seismic detection, data
acquisition, or information processing or interpretation equipment
industries.

Reavis Consulting Agreement -2-
August 10, 2001

<PAGE>

5. Covenant Not to Compete. Unless Consultant obtains the Company's
prior written consent, Consultant hereby agrees that Consultant will not, during
the Term, directly or indirectly, for himself or on behalf of or in conjunction
with any other Person: (i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor or as a sales representative, in
any seismic detection, data acquisition, or information processing or
interpretation equipment business; (ii) call upon any Person which is, at that
time, or which has been, within one (1) year prior to that time, a customer of
Company (including the direct or indirect subsidiaries thereof) for the purpose
of soliciting or selling products or services in direct competition with the
Company or any subsidiary of the Company; or (iii) call upon any prospective
acquisition candidate, on Consultant's own behalf or behalf of any competitor,
which candidate was, to Consultant's actual knowledge after due inquiry, either
called upon by the Company (including the direct or indirect subsidiaries
thereof) or for which the Company made an acquisition analysis, for the purpose
of acquiring such entity. Notwithstanding the foregoing, this Section 5 shall
not be deemed to prohibit Consultant from acquiring as an investment not more
than two percent (2%) of the capital stock of a competing business, whose stock
is traded on a national securities exchange or over-the-counter.

5.1. Because of the difficulty of measuring economic loss to
the Company as a result of a breach of this Section 5, and because of
the immediate and irreparable damage that could be caused to the
Company for which it would have no other adequate remedy, Consultant
agrees that this Section 5 may be enforced by the Company in the event
of breach by him, by injunctions and restraining orders.

5.2 The covenants in this Section 5 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall be reformed in accordance therewith.

5.3 All of the covenants in this Section 5 shall be construed
as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Consultant against
the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of such
covenants.

5.4 It is agreed by the parties that the foregoing covenants
in this Section 5 impose a reasonable restraint on Consultant in light
of the activities and business of the Company (including the Company's
direct and indirect subsidiaries) and the past and current duties of
Consultant. It is further agreed by the parties hereto that, in the
event that Consultant shall enter into a business or pursue other
activities not in violation of this Section 5, Consultant shall not be
chargeable with a violation of this Section 5 if the Person conducting
such business or activities shall thereafter enter into a business or
course of activities that is competitive with the Company, provided
that Consultant does not actively participate in any way in the
business or course of activities that competes with the Company. It is
further agreed by the parties hereto that, in the event Consultant
shall enter into a business or pursue other activities not in
competition with the Company (including the Company's direct and
indirect subsidiaries), and such new business or activities are not in
violation of this Section 5 or of Consultant's obligations under this
Section 5, Consultant

Reavis Consulting Agreement -3-
August 10, 2001

<PAGE>

shall not be chargeable with a violation of this Section 5 if the
Company (including the Company's direct and indirect subsidiaries)
shall thereafter enter the same, similar or a competitive business or
course of activities.

6. Covenant Not to Solicit. Consultant acknowledges that the Company's
employees are valuable to the Company's business and that information regarding
the Company's employees, including without limitation information as to their
background, training and compensation, is Confidential Information. Consultant
agrees that for a period of twenty-four (24) months from the Effective Date of
this Agreement (whether or not this Agreement is terminated sooner than the 12
month period), he will not directly or indirectly solicit or otherwise induce or
encourage any person in the employment of the Company or any consultant to the
Company to terminate such employment or consulting arrangement or to accept
employment or enter into any consulting agreement with anyone other than the
Company.

7. Early Termination. Notwithstanding any other provision of this
Agreement, at any time during the Term, Consultant's engagement hereunder shall
terminate upon his death or Disability, or by Company upon Consultant's material
breach or material violation of any of his agreements contained herein or in the
Separation Agreement. As used herein, "Disability" shall mean a physical or
mental impairment that renders Consultant unable to perform the essential
functions of his position with or without reasonable accommodation.

8. Injunctive Relief. Because of the unique nature of the Confidential
Information, Consultant acknowledges, understands and agrees that Company will
suffer immediate and irreparable harm if Consultant fails to comply with any of
his obligations under Sections 4, 5 and 6 of this Agreement, and that monetary
damages will be inadequate to compensate Company for such breach. Accordingly,
Consultant agrees that Company shall, in addition to any other remedies
available to them at law or in equity, be entitled to temporary, preliminary,
and permanent injunctive relief to enforce the terms of Sections 4, 5 and
6 without the necessity of proving inadequacy of legal remedies or irreparable
harm.

9. Compensation. Subject to the terms and conditions hereof, in
consideration of the consulting services to be rendered by Consultant to Company
hereunder, and in consideration of the covenants of Consultant set forth in
Sections 4, 5 and 6 herein,

9.1. Company and Consultant agree that compensation for
services during the term shall be at $8333.33 per month.

10. Independent Contractor. While serving as Consultant, the Consultant
shall at all times be an independent contractor rather than a co-venturer,
agent, employee or representative of Company or its Affiliates. It is understood
and agreed that Contractor shall pay all taxes, licenses, and fees levied or
assessed on Contractor in connection with or incident to the performance of this
Agreement by any governmental agency, including, without limitation,
unemployment compensation insurance, old age benefits, social security, or any
other taxes upon wages of Contractor, its agents, employees, and
representatives. Contractor agrees to require the same agreements of its
subcontractors and to be liable for any breach of any such agreements by any of
its subcontractors. Contractor agrees to reimburse Company on demand for all
such taxes or governmental charges, state or federal, which the Company may be
required or deem it necessary to pay on account of employees of the Contractor
or its subcontractors. Contractor agrees to furnish the Company with the
information required to enable it to make the necessary reports and pay such
taxes or charges. If statutorily required, the Company is authorized to deduct
all sums

Reavis Consulting Agreement -4-
August 10, 2001

<PAGE>

required to be paid for such taxes and governmental charges from any
amounts that may be or become due to Contractor.

11. Governing Law. This Agreement shall be governed by the internal
laws (without giving effect to principles of conflict of laws) of the State of
Texas and the internal laws (without giving effect to principles of conflict of
laws) of the United States of America.

12. Notice. Any notice provided or permitted to be given under this
Agreement must be in writing, but may be served by deposit in the mail,
addressed to the party to be notified, postage prepaid, and registered or
certified, with a return receipt requested. Notice given by registered mail
shall be deemed delivered and effective on the date of delivery shown on the
return receipt. Notice may be served in any other manner, including telex,
telecopy, telegram, etc., but shall be deemed delivered and effective as of the
time of actual delivery. For purposes of notice the addresses of the parties
shall be as follows:

12.1. If to Company:

Input/Output, Inc.
12300 Charles Selecman Drive
Stafford, TX 77477
Attn: Chief Executive Officer

12.2. If to Consultant:

Rex Reavis
5819 Pheasant Ridge
Houston, Texas 77041

Each party may change its address for notice by giving written notice of such
address to the other party.

13. Entire Agreement. Except as specifically contemplated under Section
2 hereof, this Agreement, which incorporates all prior understandings relating
to its subject matter, contains the entire agreement of the parties with respect
to its subject matter and shall not be modified except by written instrument
executed by each party.

14. Waiver. The failure of a party to insist upon strict performance of
any provision of this Agreement shall not constitute a waiver of, or estoppel
against asserting, the right to require performance in the future. A waiver or
estoppel in any one instance shall not constitute a waiver or estoppel with
respect to a later breach.

15. Severability. If any of the terms and conditions of this Agreement
are held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over this subject
matter, that contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as it if did not contain
the particular provision or provisions held to be invalid, the rights and
obligations of the parties shall be construed and enforced accordingly, and this
Agreement shall remain in full force and effect.

16. Construction. The headings in this Agreement are inserted for
convenience and identification only and are not intended to describe, interpret,
define, or limit the scope, extent, or intent of this

Reavis Consulting Agreement -5-
August 10, 2001

<PAGE>

Agreement or any other provisions hereof. Whenever the context requires, the
gender of all words used in this Agreement shall include the masculine,
feminine, and neuter, and the number of all words shall include the singular and
the plural. In the event of a conflict among this Agreement and any Exhibit,
this Agreement shall control.

17. Counterpart Execution. This Agreement may be executed in any number
of counterparts with the same effect as if all the parties had signed the same
document. All counterparts shall be construed together and shall constitute one
and the same instrument.

18. Successors and Assigns. Except as otherwise provided, this
Agreement shall apply to, and shall be binding upon, the parties hereto, their
respective successors and assigns, and all persons claiming by, through or under
any of these persons. This Agreement is personal to Consultant and cannot be
assigned or delegated by Consultant.

19. Cumulative Rights. The rights and remedies provided by this
Agreement are cumulative, and the use of any right or remedy by any party shall
not preclude or waive its right to use any or all other remedies. These rights
and remedies are given in addition to any other rights a party may have by law,
statute, in equity or otherwise.

20. No Third Party Beneficiary. Except as expressly provided pursuant
to Section 9 hereof concerning payments to Consultant's estate, heirs or
descendants, any agreement to pay an amount or any assumption of liability
herein contained, express or implied, shall be only for the benefit of the
undersigned parties and their permitted successors and assigns, and such
agreements and assumption shall not inure to the benefit of the obligees of any
other party whomsoever, it being the intention of the undersigned that, except
as otherwise expressly contemplated herein, no one shall be deemed to be a third
party beneficiary of this Agreement.

21. Drafting Party. This Agreement expresses the mutual intent of the
parties to this Agreement. Accordingly, regardless of the party preparing any
document, the rule of construction against the drafting party shall have no
application to this Agreement.

22. Reliance. All covenants, agreements, representations and warranties
made in this Agreement shall be conclusively considered to have been relied upon
by the parties in entering into this Agreement.

23. Dispute Resolution. Subject to Company `s right to seek legal or
equitable relief in court as provided in Section 8 of this Agreement, any
dispute, controversy or claim arising out of or in relation to or connection to
this Agreement, including without limitation any dispute as to the construction,
validity, interpretation, enforceability or breach of this Agreement, shall be
exclusively and finally settled by arbitration, and either party may submit such
dispute, controversy or claim, including a claim for indemnification under this
Section 23, to arbitration.

23.1. Arbitrators. The arbitration shall be heard and
determined by one arbitrator, who shall be impartial and who shall be
selected by mutual agreement of the parties; provided, however, that if
the dispute involves more than $ 25,000, then the arbitration shall be
heard and determined by three (3) arbitrators. If three (3) arbitrators
are necessary as provided above, then (i) each side shall appoint an
arbitrator of its choice within thirty (30) days of the submission of a
notice of arbitration and (ii) the party-appointed arbitrators shall in
turn appoint a presiding arbitrator of the tribunal within thirty (30)
days following the appointment of the last party-

Reavis Consulting Agreement -6-
August 10, 2001

<PAGE>

appointed arbitrator. If (x) the parties cannot agree on the sole
arbitrator, (y) one party refuses to appoint its party-appointed
arbitrator within said thirty (30) day period or (z) the
party-appointed arbitrators cannot reach agreement on a presiding
arbitrator of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United States
District Judge for the Southern District of Texas, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. If the Senior United States District
Judge for the Southern District of Texas refuses or fails to act as the
appointing authority within ninety (90) days after being requested to
do so, then the appointing authority shall be the Chief Executive
Officer of the American Arbitration Association, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. All decisions and awards by the
arbitration tribunal shall be made by majority vote.

23.2. Proceedings. Unless otherwise expressly agreed in
writing by the parties to the arbitration proceedings:

i. The arbitration proceedings shall be held in Houston,
Texas, or Stafford, Texas, at a site chosen by mutual
agreement of the parties, or if the parties cannot
reach agreement on a location within thirty (30) days
of the appointment of the last arbitrator, then at a
site chosen by the arbitrators;

ii. The arbitrators shall be and remain at all times
wholly independent and impartial;

iii. The arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of
the American Arbitration Association, as amended from
time to time;

iv. Any procedural issues not determined under the
arbitral rules selected pursuant to item (iii) above
shall be determined by the law of the place of
arbitration, other than those laws which would refer
the matter to another jurisdiction;

v. The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the
manner determined by the arbitrators;

vi. The decision of the arbitrators shall be reduced to
writing; final and binding without the right of
appeal; the sole and exclusive remedy regarding any
claims, counterclaims, issues or accounting presented
to the arbitrators; made and promptly paid in United
States dollars free of any deduction or offset; and
any costs or fees incident to enforcing the award
shall, to the maximum extent permitted by law, be
charged against the party resisting such enforcement;

vii. The award shall include interest from the date of any
breach or violation of this Agreement, as determined
by the arbitral award, and from the date of the award
until paid in full, at 6% per annum; and

viii. Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of
the party owing the judgment or application may be
made to such court for a judicial acceptance of the
award and an order of enforcement, as the case may
be.

Reavis Consulting Agreement -7-
August 10, 2001

<PAGE>

23. Acknowledgment Of Parties. Each party acknowledges that he or she or it has
voluntarily and knowingly entered into an agreement to arbitration under this
Section by executing this Agreement.

EXECUTED effective as of the date written above.

COMPANY:

INPUT/OUTPUT, INC.

By: /s/ TIM PROBERT
------------------------------------------

Name: Tim Probert

Title: President & Chief Executive Officer

CONSULTANT:

/s/ REX REAVIS
---------------------------------------------
Rex Reavis

Reavis Consulting Agreement -8-
August 10, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>7
<FILENAME>h94917ex21-1.txt
<DESCRIPTION>SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE>
EXHIBIT 21.1

INPUT/OUTPUT, INC.
SUBSIDIARIES

Input/Output of Canada, Inc.
I/O International, Inc.
I/O Eastern, Inc.
I/O Holdings, Inc.
IPOP Management, Inc.
Global Charter Corporation
Global Charter S.A.
I/O Sensors, Inc.
Microflow Analytical, Inc.
Tescorp Seismic Products, Inc.
I/O Cable, Inc.
I/O Exploration Products (U.S.A.), Inc.
I/O Exploration Products (U.K.), Inc.
Sensor Nederland B.V.
"Inco" Industrial Components Gravenhage B.V.
I/O of Austin, Inc.
I/O Geoview, Inc.
I/O Green Mountain, Inc.
I/O Marine Systems, Inc.
I/O Marine Systems Limited
I/O International FSC, Inc.
I/O Oklahoma, Inc.
Pelton Company, Inc.
Applied MEMS, Inc.
Input/Output Canada, Ltd.
Geophysical Instruments AS
I/O U.K., Ltd.
I/O General, LLC
I/O Nevada, LLC
I/O Texas, LP
I/O Cayman Islands, Ltd.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>8
<FILENAME>h94917ex23-1.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>
<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-54394, No. 33-46386, No. 33-50620, No. 33-85304,
No. 333-14231, No. 333-24125, No. 333-89297, No. 333-80299, No. 333-36264, No.
333-49382 and No. 333-60950) of Input/Output, Inc. of our report dated March 25,
2002 relating to the financial statements and financial statement schedules,
which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, TX 77002
March 27 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>9
<FILENAME>h94917ex23-2.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>
<PAGE>

EXHIBIT 23.2

Independent Auditors' Consent

The Board of Directors
Input/Output, Inc.:

We consent to the incorporation by reference in the registration statements
(No. 33-54394, No. 33-46386, No. 33-50620, No. 33-85304, No. 333-14231,
No. 333-24125, No. 333-89297, No. 333-80299, No. 333-36264, No. 333-49382
and No. 333-60950) on Form S-8 of Input/Output, Inc., of our report dated
February 1, 2001 relating to the consolidated balance sheets of Input/Output,
Inc. and subsidiaries as of December 31, 2000 and May 31, 2000, and the
related consolidated statements of operations, stockholders' equity and
comprehensive earnings (loss), and cash flows for the seven-month period
ended December 31, 2000 and for each of the years in the two-year period
ended May 31, 2000, and the related financial statement schedule, which
report appear in the December 31, 2001 annual report on Form 10-K of
Input/Output, Inc.

/s/ KPMG LLP

Houston, Texas
March 27, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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