CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	*March 31,*			*December 31,*
	*2021*			*2020*
	(In thousands, except share data)
*ASSETS*
Current assets:
Cash and cash equivalents	$	34,228		$	37,486
Accounts receivable, net		8,457			8,045
Unbilled receivables		4,085			11,262
Inventories, net		11,031			11,267
Prepaid expenses and other current assets		7,387			7,116
Total current assets		65,188			75,176
Deferred income tax asset, net		7,743			0
Property, plant and equipment, net		9,063			9,511
Multi-client data library, net		50,300			50,914
Goodwill		19,773			19,565
Right-of-use assets		33,330			35,501
Other assets		4,250			2,926
Total assets	$	189,647		$	193,593
*LIABILITIES AND STOCKHOLDERS’ DEFICIT*
Current liabilities:
Current maturities of long-term debt	$	29,233		$	143,731
Accounts payable		28,242			33,418
Accrued expenses		17,737			16,363
Accrued multi-client data library royalties		20,677			21,359
Deferred revenue		4,454			3,648
Current maturities of operating lease liabilities		8,408			7,570
Total current liabilities		108,751			226,089
Long-term debt, net of current maturities		112,737			0
Operating lease liabilities, net of current maturities		36,318			38,372
Other long-term liabilities		212			222
Total liabilities		258,018			264,683
Deficit:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 17,344,187 and 14,333,101 shares at March 31, 2021 and December 31, 2020, respectively.		173			143
Additional paid-in capital		968,633			958,584
Accumulated deficit		(1,018,679	)		(1,011,516	)
Accumulated other comprehensive loss		(19,575	)		(19,913	)
Total stockholders’ deficit		(69,448	)		(72,702	)
Noncontrolling interests		1,077			1,612
Total deficit		(68,371	)		(71,090	)
Total liabilities and stockholders' deficit	$	189,647		$	193,593

~~(UNAUDITED)~~

September 30, 2017 December 31, 2016
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 40,225
$ 52,652
Accounts receivable, net 39,374
20,770
Unbilled receivables 25,833
13,415
Inventories 14,264
15,241
Prepaid expenses and other current assets 4,259
9,559
Total current assets 123,955
111,637
Property, plant, equipment and seismic rental equipment, net 55,188
67,488
Multi-client data library, net 96,751
105,935
Goodwill 24,048
22,208
Intangible assets, net 2,026
3,103
Other assets 1,485
2,845
Total assets $ 303,453
$ 313,216
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 38,819
$ 14,581
Accounts payable 24,674
26,889
Accrued expenses 40,874
26,240
Accrued multi-client data library royalties 24,576
23,663
Deferred revenue 10,875
3,709
Total current liabilities 139,818
95,082
Long-term debt, net of current maturities 116,506
144,209
Other long-term liabilities 17,066
20,527
Total liabilities 273,390
259,818
Equity:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 11,896,190 and 11,792,447 shares at September 30, 2017 and December 31, 2016, respectively 119
118
Additional paid-in capital 901,138
899,198
Accumulated deficit (853,527 ) (824,679 )
Accumulated other comprehensive loss (18,999 ) (21,748 )
Total stockholders’ equity 28,731
52,889
Noncontrolling interest 1,332
509
Total equity 30,063
53,398
Total liabilities and equity $ 303,453
$ 313,216

See accompanying Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands, except per share data)
Service revenues	$	7,464		$	47,485
Product revenues		6,572			8,929
Total net revenues		14,036			56,414
Cost of services		9,270			22,275
Cost of products		3,907			4,628
Impairment of multi-client data library		0			1,167
Gross profit		859			28,344
Operating expenses:
Research, development and engineering		2,947			4,008
Marketing and sales		2,759			4,858
General, administrative and other operating expenses		5,387			9,002
Impairment of goodwill		0			4,150
Total operating expenses		11,093			22,018
Income (loss) from operations		(10,234	)		6,326
Interest expense, net		(3,262	)		(3,221	)
Other income (expense), net		(607	)		429
Income (loss) before income taxes		(14,103	)		3,534
Income tax expense (benefit), net		(6,849	)		5,874
Net loss		(7,254	)		(2,340	)
Less: Net loss attributable to noncontrolling interests		91			77
Net loss attributable to ION	$	(7,163	)	$	(2,263	)
Net loss per share:
Basic and Diluted	$	(0.46	)	$	(0.16	)
Weighted average number of common shares outstanding:
Basic and Diluted		15,718			14,230

~~(UNAUDITED)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands, except per share data)
Service revenues $ 52,615
$ 65,914
$ 110,897
$ 104,500
Product revenues 8,480
12,708
28,755
32,939
Total net revenues 61,095
78,622
139,652
137,439
Cost of services 26,392
40,694
73,518
93,706
Cost of products 4,594
6,163
14,306
16,045
Gross profit 30,109
31,765
51,828
27,688
Operating expenses:
Research, development and engineering 4,396
4,231
11,998
14,601
Marketing and sales 5,645
4,680
15,062
13,374
General, administrative and other operating expenses 10,132
10,990
32,316
34,566
Total operating expenses 20,173
19,901
59,376
62,541
Income (loss) from operations 9,936
11,864
(7,548 ) (34,853 )
Interest expense, net (3,959 ) (4,607 ) (12,664 ) (14,043 )
Other income (expense), net 722
(2,027 ) (4,154 ) (3,624 )
Income (loss) before income taxes 6,699
5,230
(24,366 ) (52,520 )
Income tax expense 1,686
3,316
3,670
5,865
Net income (loss) 5,013
1,914
(28,036 ) (58,385 )
Net income attributable to noncontrolling interests (78 ) (215 ) (812 ) (272 )
Net income (loss) attributable to ION $ 4,935
$ 1,699
$ (28,848 ) $ (58,657 )
Net income (loss) per share:
Basic $ 0.42
$ 0.14
$ (2.43 ) $ (5.21 )
Diluted $ 0.41
$ 0.14
$ (2.43 ) $ (5.21 )
Weighted average number of common shares outstanding
Basic 11,890
11,786
11,862
11,269
Diluted 12,071
11,907
11,862
11,269

See accompanying Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands)
Net loss	$	(7,254	)	$	(2,340	)
Other comprehensive loss, net of taxes, as appropriate:
Foreign currency translation adjustments		338			(1,781	)
Comprehensive net loss		(6,916	)		(4,121	)
Comprehensive loss attributable to noncontrolling interests		228			77
Comprehensive net loss attributable to ION	$	(6,688	)	$	(4,044	)

~~(UNAUDITED)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Net income (loss) $ 5,013
$ 1,914
$ (28,036 ) $ (58,385 )
Other comprehensive loss, net of taxes, as appropriate:
Foreign currency translation adjustments 1,033
(1,083 ) 2,749
(5,282 )
Comprehensive net income (loss) 6,046
831
(25,287 ) (63,667 )
Comprehensive (income) attributable to noncontrolling interest (78 ) (215 ) (812 ) (272 )
Comprehensive net income (loss) attributable to ION $ 5,968
$ 616
$ (26,099 ) $ (63,939 )

See accompanying Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands)
Cash flows from operating activities:
Net loss	$	(7,254	)	$	(2,340	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization (other than multi-client library)		959			840
Amortization of multi-client data library		3,285			8,020
Impairment of multi-client data library		0			1,167
Impairment of goodwill		0			4,150
Stock-based compensation expense		286			617
Provision for expected credit losses		396			0
Deferred income taxes		(7,743	)		421
Change in operating assets and liabilities:
Accounts receivable		(798	)		(21,868	)
Unbilled receivables		7,177			2,666
Inventories		217			(772	)
Accounts payable, accrued expenses and accrued royalties		(2,598	)		1,688
Deferred revenue		823			355
Other assets and liabilities		973			(1,910	)
Net cash used in operating activities		(4,277	)		(6,966	)
Cash flows from investing activities:
Investment in multi-client data library		(5,211	)		(9,668	)
Purchase of property, plant and equipment		(576	)		(496	)
Net cash used in investing activities		(5,787	)		(10,164	)
Cash flows from financing activities:
Borrowings under revolving line of credit		0			27,000
Repayments under revolving line of credit		(1,250	)		0
Payments on notes payable and long-term debt		(752	)		(760	)
Costs associated with debt issuance		(806	)		0
Net proceeds from issuance of stocks		9,802			0
Other financing activities		(316	)		(10	)
Net cash provided by financing activities		6,678			26,230
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash		128			470
Net increase (decrease) in cash, cash equivalents and restricted cash		(3,258	)		9,570
Cash, cash equivalents and restricted cash at beginning of period		39,813			33,118
Cash, cash equivalents and restricted cash at end of period	$	36,555		$	42,688

~~(UNAUDITED)~~

Nine Months Ended September 30,
2017 2016
(In thousands)
Cash flows from operating activities:
Net loss $ (28,036 ) $ (58,385 )
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization (other than multi-client data library) 13,199
17,024
Amortization of multi-client data library 34,245
23,161
Stock-based compensation expense 1,694
2,512
Accrual for loss contingency related to legal proceedings 5,000
—
Loss on extinguishment of debt —
2,182
Deferred income taxes (900 ) 1,031
Change in operating assets and liabilities:
Accounts receivable (18,200 ) 9,325
Unbilled receivables (12,398 ) (3,711 )
Inventories 831
2,374
Accounts payable, accrued expenses and accrued royalties 1,011
3,381
Deferred revenue 7,092
(2,103 )
Other assets and liabilities 6,480
6,441
Net cash provided by operating activities 10,018
3,232
Cash flows from investing activities:
Cash invested in multi-client data library (16,576 ) (11,601 )
Purchase of property, plant, equipment and seismic rental assets (1,021 ) (567 )
Net cash used in investing activities (17,597 ) (12,168 )
Cash flows from financing activities:
Borrowings under revolving line of credit —
15,000
Payments on notes payable and long-term debt (4,320 ) (6,726 )
Costs associated with issuance of debt —
(6,638 )
Payment to repurchase bonds —
(15,000 )
Repurchase of common stock —
(964 )
Costs associated with issuance of equity (123 ) —
Other financing activities (134 ) 13
Net cash used in financing activities (4,577 ) (14,315 )
Effect of change in foreign currency exchange rates on cash and cash equivalents (271 ) 854
Net decrease in cash and cash equivalents (12,427 ) (22,397 )
Cash and cash equivalents at beginning of period 52,652
84,933
Cash and cash equivalents at end of period $ 40,225
$ 62,536

See accompanying Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

	*Three Months Ended March 31, 2021*
	*Common Stock*						*Additional*			*Accumulated*			*Accumulated Other*			*Noncontrolling*			*Total*
(In thousands, except shares)	*Shares*			*Amount*			*Paid-In Capital*			*Deficit*			*Comprehensive Loss*			*Interests*			*Deficit*
Balance at January 1, 2021		14,333,101		$	143		$	958,584		$	(1,011,516	)	$	(19,913	)	$	1,612		$	(71,090	)
Net loss		—			0			0			(7,163	)		0			(91	)		(7,254	)
Translation adjustment		—			0			0			0			338			(137	)		201
Dividend payment to noncontrolling interest		—			0			0			0			0			(307	)		(307	)
Stock-based compensation expense		—			0			286			0			0			0			286
Vesting of restricted stock units/awards		24,365			1			(1	)		0			0			0			0
Vested restricted stock cancelled for employee minimum income taxes		(3,280	)		(1	)		(8	)		0			0			0			(9	)
Public equity offering		2,990,001			30			9,772			0			0			0			9,802
Balance at March 31, 2021		17,344,187		$	173		$	968,633		$	(1,018,679	)	$	(19,575	)	$	1,077		$	(68,371	)

	*Three Months Ended March 31, 2020*
	*Common Stock*					*Additional*			*Accumulated*			*Accumulated Other*			*Noncontrolling*			*Total*
(In thousands, except shares)	*Shares*			*Amount*		*Paid-In Capital*			*Deficit*			*Comprehensive Loss*			*Interests*			*Deficit*
Balance at January 1, 2020		14,224,787		$	142	$	956,647		$	(974,291	)	$	(19,318	)	$	2,188		$	(34,632	)
Net loss		—			0		0			(2,263	)		0			(77	)		(2,340	)
Translation adjustment		—			0		0			0			(1,781	)		(457	)		(2,238	)
Stock-based compensation expense		—			0		617			0			0			0			617
Vesting of restricted stock units/awards		16,089			0		0			0			0			0			0
Vested restricted stock cancelled for employee minimum income taxes		(750	)		0		(10	)		0			0			0			(10	)
Balance at March 31, 2020		14,240,126		$	142	$	957,254		$	(976,554	)	$	(21,099	)	$	1,654		$	(38,603	)

See accompanying Footnotes to Condensed Consolidated Financial Statements.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

FOOTNOTES TO ~~UNAUDITED~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~(1)~~

(1)

Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, ~~2016~~2020, has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at ~~September 30, 2017,~~March 31, 2021, and the condensed consolidated statements of operations, ~~and~~condensed consolidated statements of comprehensive ~~income (loss)~~loss, condensed consolidated statements of stockholders' deficit for the three ~~and nine~~ months ended ~~September 30, 2017~~ March 31, 2021 and ~~2016~~2020 and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~ March 31, 2021 and ~~2016,~~2020, are unaudited. In the opinion of management, all adjustments ~~(consisting~~ of a normal recurring ~~accruals) considered~~nature that are necessary for a fair presentation of the results of the interim period have been included. ~~The~~Interim results ~~of operations for the~~ ~~three and nine months ended September 30, 2017~~, are not necessarily indicative of the operating results for a full year or of future operations.

Intercompany transactions and balances have been eliminated.

The ~~Company has~~Company’s condensed consolidated financial statements reflect a non-redeemable noncontrolling ~~interests~~interest in a majority-owned ~~affiliates~~affiliate which ~~are~~is reported as a separate component of equity in “Noncontrolling ~~interests”~~interest” in the condensed consolidated balance sheets. Net (income) loss attributable to noncontrolling interest is stated separately in the condensed consolidated statements of operations. The activity for this noncontrolling interest relates to proprietary processing projects in Brazil.

Certain reclassifications were made to previously reported amounts in the condensed consolidated financial statements and notes thereto; particularly, the presentation of revenue by geographic area to make previously reported amounts consistent with current period presentation.

These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form ~~10-Q~~10-Q and applicable rules of Regulation ~~S-X~~S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with ~~accounting principles generally accepted in the United States~~GAAP have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2016~~2020.

Going Concern and Old Notes Restructuring

On April 20, 2021, the Company completed the Restructuring Transactions (as further discussed below) that extended the maturity of the notes by four years to December 2025 and provided additional liquidity to help meet its anticipated cash needs. As a result of the Restructuring Transactions, $113.5 million in aggregate principal amount outstanding of the Company's 9.125% Senior Secured Second Priority Notes due 2021 (the "Old Notes") has been reclassified from short-term debt to long-term debt in the Condensed Consolidated Balance Sheets. While the Company may continue to explore additional funding through private or public equity transactions, debt financing or other capital sources to meet its ongoing cash needs, management believes the completion of its Restructuring Transactions removes the substantial doubt raised in December 31, 2020 about the Company’s ability to continue as a going concern as of March 31, 2021.

On April 20, 2021, the Company successfully completed its previously announced offer to exchange (the “Exchange Offer”) the Old Notes for newly issued 8.00% Senior Secured Second Priority Notes due 2025 (the “New Notes”) and other consideration in the form of cash and ION common stock, as described in the Company's Prospectus dated March 10, 2021 and its previously announced rights offering (the "Rights Offering") to its holders of the Company's common stock, par value $0.01 per share (the "Common Stock") to purchase for (i) $2.78 principal amount of the New Notes per right, at a purchase price of 100% of the principal amount thereof or (ii) 1.08 shares of common stock per right, at a purchase price of $2.57 per whole share of common stock. The Exchange Offer and the Rights Offering are sometimes referred to herein as the Restructuring Transactions.

In the Exchange Offer, approximately $113.5 million, or approximately 94.1%, of the $120.6 million outstanding Old Notes were accepted and exchanged for (1) $84.7 million aggregate principal amount of its New Notes, (ii) 6.1 million shares of Common Stock, including 1.5 million shares issued as the early participation payment and 4.6 million shares issued as stock consideration in lieu of the New Notes and (iii) $20.7 million paid in cash, including $3.6 million of accrued and unpaid interest that became due on the Old Notes as part of the exchange. The Company has accepted for exchange all such Old Notes validly tendered and not validly withdrawn in the Exchange Offer as of the expiration time on April 12, 2021. Pursuant to the Exchange Offer, the Company will make an offer to participants to repurchase New Notes at par for up to 50% of the proceeds raised in excess of $35.0 million from the Rights Offering valued at $3.4 million.

In the concurrent Rights Offering, an aggregate amount of $41.8 million of rights (including over-subscription) was validly exercised by the holders of the Company's Common Stock, apportioned as $30.1 million in New Notes and $11.8 million in Common Stock allocated in 4.6 million shares. All over-subscription rights were exercised without proration as the $50.0 million limit on proceeds was not exceeded. Backstop parties were paid 5% backstop fees, in kind, resulting in the issuance of an additional $1.5 aggregate principal amount of New Notes and 0.2 million shares of Common Stock.

In total, $116.2 million in aggregate principal amount of New Notes and 10.9 million shares of Common Stock were issued. The Company received approximately $14 million in net proceeds from the transactions after deducting noteholder obligations, estimated transaction fees and accrued and unpaid interest paid on the Old Notes. After the Restructuring Transactions, $7.1 million of Old Notes remain outstanding and a total of 28.8 million shares of Common Stock are outstanding as of April 20, 2021.

The amendment to the Old Notes Indenture (as defined in Footnote 4,"Long-term Debt") is effective as of April 20, 2021. The Old Notes have been modified to, among other things, provide for the release of the second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to the Old Notes. For further details, refer to Footnote 4"Long-term Debt - Old Notes."

Table of Contents

COVID-19 Business Impact and Response

The COVID- 19 pandemic caused the global economy to enter a recessionary period, which may be prolonged and severe. During 2020, the exploration and production (“E&P”) industry faced the dual impact of demand deterioration from COVID- 19 and market oversupply from increased production, which caused oil and natural gas prices to decline significantly for most of 2020. Brent crude prices, which are most relevant to ION’s internationally focused business, have rebounded to pre-pandemic levels, increasing to approximately $66 per barrel during April 2021. This reflects the continued expectation of rising oil demand as both the global economic activity and COVID- 19 vaccination rates increase, combined with ongoing crude oil production limits from members of OPEC and partner countries.

~~(2)Segment Information~~The level and consistency of crude prices play an integral role in the trajectory of customers' offshore capital spending programs. While commodity prices can be volatile, the sharp decline throughout 2020 triggered E&P companies to reduce budgets by approximately 25%. Exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reductions than overall budget cuts. Consequently, there has been a material slowdown in offshore seismic spending since the second quarter of 2020.

While management expects the E&P market to remain challenging in the near-term, there have been a number of positive developments that point to improving market conditions. Analyst projections and client activity continue to suggest increasing E&P spend and demand for seismic data in the second half of the year. Spurred by increasing global demand and on-going production limits, Brent crude oil pricing, which is most relevant to ION’s internationally-focused business, has rebounded to pre-pandemic levels. In addition, there has been positive momentum across a number of leading indicators for ION's business, such as license rounds, tender activity, services engagements and backlog. Therefore, the Company remains cautiously optimistic market conditions will improve through the second half of 2021. The market backdrop serves as a catalyst to drive necessary cost restructuring and digital transformation of the E&P industry.

In January 2021, the Biden Administration ordered an indefinite moratorium on new U.S. oil and gas leasing and drilling permits on federal lands onshore and offshore waters. Management believes this will have a negligible impact on its business given the Company's diversified global footprint and international offshore focus. Should the moratorium result in longer-term change, this could drive large scale E&P company portfolio investment more towards international offshore, which would be well aligned with the Company's offerings.

The Company expects continued portfolio rationalization and high grading as E&P companies seek to find the best return on investment opportunities to meet oil and gas demand in the next decade. Near-term, due to the impact of the COVID- 19 pandemic, project high grading will likely be more acute due to budget reductions. Over the last several years, the Company had strategically shifted its portfolio closer to the reservoir, where revenue tends to be higher and more consistent. New Venture data acquisition offshore and Software and related personnel-based offshore services are expected to continue to be most impacted by COVID- 19 travel restrictions. While offshore operations have been temporarily impacted by travel restrictions, the Company believes the demand for digitalization technologies will remain strong. In some cases, ION technology is expected to be more relevant and valuable in the current environment, such as offerings that facilitate remote working.

ION continues to work closely with its clients to understand their budgets and spending priorities and to scale its business appropriately. The Company partially mitigated the impact of the current macroeconomic environment by fully benefiting from the structural changes and associated cost reductions totaling approximately $40 million through salary cuts, reduced capital expenditures, renegotiation of our current leases and application for various government assistance programs, among others. The management plan reflects the Company’s continued focus on preserving cash and managing liquidity in the current uncertain macroeconomic environment. In the event the Company’s customers experience more extensive capital constraint and budget reductions, further reducing demand for ION's services and products, resulting in deterioration of its revenues below its current forecasted levels, management may be required to update its plan by implementing further cost reductions and delaying capital investments. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further details.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Footnote 1“Summary of Significant Accounting Policies” of the Annual Report on Form 10-K for the year ended December 31, 2020. There have been no changes in such policies or the application of such policies during the three months ended March 31, 2021.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated 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 precision. Areas involving significant estimates include, but are not limited to, collectability of accounts and unbilled receivables, inventory valuation reserves, sales forecasts related to multi-client data library, impairment of property, plant and equipment and goodwill and deferred taxes. Actual results could materially differ from those estimates.

(2)

Segment Information

The Company evaluates and reviews its results of operations based on ~~three business~~two reporting segments: E&P Technology & Services ~~E&P~~and Operations ~~Optimization,~~Optimization. Refer to Item 2. “Management’s Discussion and ~~Ocean Bottom Seismic Services.~~Analysis of Financial Condition and Results of Operations” for information about each business segment’s business, products and services.

The segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Operating Decision Maker in determining how to allocate resources and evaluate performance. The Company measures segment operating results based on income (loss) from operations.

Table of Contents

A summary of segment information follows (in thousands):

	*Three Months Ended March 31,*
	*2021*			*2020*
Net revenues:
E&P Technology & Services:
New Venture	$	1,087		$	1,441
Data Library		2,484			40,131
Total multi-client revenues		3,571			41,572
Imaging and Reservoir Services		3,665			4,942
Total	$	7,236		$	46,514
Operations Optimization:
Optimization Software & Services	$	2,844		$	4,427
Devices		3,956			5,473
Total	$	6,800		$	9,900
Total net revenues	$	14,036		$	56,414
Gross profit (loss):
E&P Technology & Services	$	(1,607	)	$	23,730		(a)
Operations Optimization		2,466			4,614
Total gross profit	$	859		$	28,344
Gross margin:
E&P Technology & Services		(22	)%		51	%
Operations Optimization		36	%		47	%
Total		6	%		50	%
Income (loss) from operations:
E&P Technology & Services	$	(4,853	)	$	17,952		(a)
Operations Optimization		(820	)		(3,259	)	(b)
Support and other		(4,561	)		(8,367	)
Income (loss) from operations		(10,234	)		6,326
Interest expense, net		(3,262	)		(3,221	)
Other income (expense), net		(607	)		429
Income (loss) before income taxes	$	(14,103	)	$	3,534

^(a)	Includes impairment of multi-client data library of $1.2 million for the three months ended March 31, 2020.

^(b)	Includes impairment of goodwill of $4.2 million for the three months ended March 31, 2020.

Intersegment sales are insignificant for all periods presented.

Table of Contents

(3)

Revenue from Contracts with Customers

The Company derives revenue from the (i) sale or license of multi-client and proprietary data, imaging and reservoir services within its E&P Technologies & Services segment; (ii) sale, license and repair of seismic data acquisition systems and other equipment; and (iii) sale or license of seismic command and control software systems and software solutions for operations management within its Operations Optimization segment. All E&P Technology & Services’ revenues and the services component of Optimization Software & Services’ revenues under Operations Optimization segment are classified as service revenues. All other revenues are classified as product revenues.

The Company uses a five-step model to determine proper revenue recognition from customer contracts. Revenue is recognized when (i) a contract is approved by all parties; (ii) the goods or services promised in the contract are identified; (iii) the consideration the Company expects to receive in exchange for the goods or services promised is determined; (iv) the consideration is allocated to the goods and services in the contract; and (v) control of the promised goods or services is transferred to the customer. The Company is not required to disclose information about remaining contractual future performance obligations with an original term of one year or less. The Company does not have any contractual future performance obligations with an original term of over one year.

Revenue by Geographic Area

The following table is a summary of ~~segment information~~net revenues by geographic area (in thousands):

	*Three Months Ended March 31,*
	*2021*		*2020*
Europe	$	4,366	$	7,472
Latin America		3,503		20,062
Asia Pacific		2,201		7,763
Africa		1,772		12,240
North America		1,208		3,888
Middle East		727		954
Other		259		4,035
Total	$	14,036	$	56,414

Product revenues are allocated to geographic locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographic location of initial shipment. Service revenues, which primarily relate to our E&P Technology & Services segment, are allocated based upon the billing location of the customer and the geographic location of the data.

See Footnote 2“Segment Information” for total net revenue by segment for the three months ended March 31, 2021 and 2020.

Unbilled Receivables

Unbilled receivables balances relate to revenues recognized on multi-client surveys, imaging and reservoir services and devices equipment repairs on a proportionate basis, and on licensing of multi-client data for which invoices have not yet been presented to the customer. The following table is a summary of unbilled receivables (in thousands):

	*March 31,*		*December 31,*
	*2021*		*2020*
New Venture	$	1,212	$	9,158
Imaging and Reservoir Services		1,287		680
Devices		1,586		1,424
Total	$	4,085	$	11,262

The changes in unbilled receivables are as follows (in thousands):

Unbilled receivables at December 31, 2020	$	11,262
Recognition of unbilled receivables (a)		13,612
Revenues billed to customers (a)		(20,789	)
Unbilled receivables at March 31, 2021	$	4,085

^(a)Includes all gross revenue recognition and related billing activity of the Company. As a matter of process, all net revenue recognized is initially reflected as an unbilled receivable and subsequently billed to customers, as applicable, including net revenue for all of software and a portion of devices within the Operations Optimization segment, although they are billed at the time of recognition.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net revenues:
E&P Technology & Services:
New Venture $ 43,542
$ 8,393
$ 70,477
$ 16,278
Data Library 5,044
21,510
25,360
32,057
Total multi-client revenues 48,586
29,903
95,837
48,335
Imaging Services 3,468
6,134
13,409
19,338
Total 52,054
36,037
109,246
67,673
E&P Operations Optimization:
Devices 5,260
8,679
17,929
20,664
Optimization Software & Services 3,781
3,922
12,477
12,685
Total 9,041
12,601
30,406
33,349
Ocean Bottom Seismic Services —
29,984
—
36,417
Total $ 61,095
$ 78,622
$ 139,652
$ 137,439
Gross profit (loss):

E&P Technology & Services $ 28,533
$ 12,888
$ 44,464
$ (418 )
E&P Operations Optimization 4,055
6,866
15,100
16,647
Ocean Bottom Seismic Services (2,479 ) 12,011
(7,736 ) 11,459
Total $ 30,109
$ 31,765
$ 51,828
$ 27,688
Gross margin:
E&P Technology & Services 55 % 36 % 41 % (1 )%
E&P Operations Optimization 45 % 54 % 50 % 50 %
Ocean Bottom Seismic Services — % 40 % — % 31 %
Total 49 % 40 % 37 % 20 %
Income (loss) from operations:
E&P Technology & Services $ 22,695
$ 7,259
$ 27,952
$ (16,867 )
E&P Operations Optimization 998
3,682
5,569
7,162
Ocean Bottom Seismic Services (4,432 ) 9,320
(12,300 ) 2,053
Support and other (9,325 ) (8,397 ) (28,769 ) (27,201 )
Income (loss) from operations 9,936
11,864
(7,548 ) (34,853 )
Interest expense, net (3,959 ) (4,607 ) (12,664 ) (14,043 )
Other income (expense), net 722
(2,027 ) (4,154 ) (3,624 )
Income (loss) before income taxes $ 6,699
$ 5,230
$ (24,366 ) $ (52,520 )

Table of Contents

Deferred Revenue

Billing practices are governed by the terms of each contract based upon achievement of milestones or pre-agreed schedules. Billing does not necessarily correlate with revenue recognized on a proportionate basis as work is performed and control is transferred to the customer. Deferred revenue represents cash received in excess of revenue not yet recognized as of the reporting period but that will be recognized in future periods. The following table is a summary of deferred revenues (in thousands):

	*March 31,*		*December 31,*
	*2021*		*2020*
New Venture	$	2,158	$	2,169
Imaging and Reservoir Services		672		665
Devices		622		48
Optimization Software & Services		1,002		766
Total	$	4,454	$	3,648

The changes in deferred revenues were as follows (in thousands):

Deferred revenue at December 31, 2020	$	3,648
Cash collected in excess of revenue recognized		1,230
Recognition of deferred revenue		(424	)
Deferred revenue at March 31, 2021	$	4,454

The Company expects to recognize a majority of deferred revenue within the next twelve months.

Credit Risks

For each of the three months ended March 31, 2021 and 2020, the Company had 2 customers with sales that each exceeded 10% of the Company’s consolidated net revenues. Revenues related to each of these customers are included within the E&P Technology & Services segment.

At March 31, 2021, the Company had 1 customer with balances that accounted for 12% of the Company’s total combined accounts receivable and unbilled receivable balances. At March 31, 2020, the Company had 1 customer with a balance that accounted for 51% of the Company’s total combined accounts receivable and unbilled receivable balances.

The Company routinely evaluates the financial stability and creditworthiness of its customers. The Company has a corporate credit policy that is intended to minimize the risk of financial loss due to a customer’s inability to pay. Credit coverage decisions for customers are based on references, payment histories, financial and other data. The Company utilizes a third party trade credit insurance policy. The Company has historically not extended long-term credit to its customers.

Concentration of Foreign Sales Risk

The majority of the Company’s foreign sales are denominated in U.S. dollars. For the three months ended March 31, 2021 and 2020, international sales comprised 91% and 97%, respectively, of total net revenues. To the extent that world events or economic conditions negatively affect the Company’s future sales to customers in many regions of the world, as well as the collectability of the Company’s existing receivables, the Company’s future results of operations, liquidity and financial condition would be adversely affected.

~~(3)Long-term Debt~~

(4)

Long-term Debt

The following table is a summary of long-term debt ~~obligations, net~~ (in thousands):

	*March 31,*			*December 31,*
	*2021*			*2020*
Senior secured second-priority lien notes (maturing December 15, 2021)	$	120,569		$	120,569
Revolving credit facility (maturing August 16, 2023)		21,250			22,500
Equipment finance leases (see Footnote 11)		435			734
Other debt		451			905
Costs associated with issuances of debt		(735	)		(977	)
Total		141,970			143,731
Current maturities of long-term debt		(29,233	)		(143,731	)
Long-term debt, net of current maturities	$	112,737		$	0

Obligations (in thousands) September 30, 2017 December 31, 2016
Senior secured second-priority lien notes (maturing December 15, 2021)
$ 120,569
$ 120,569
Senior secured third-priority lien notes (maturing May 15, 2018)
28,497
28,497
Revolving line of credit (maturing August 22, 2019)
10,000
10,000
Equipment capital leases 542
3,446
Other debt —
1,415
Costs associated with issuances of debt ⁽¹⁾
(4,283 ) (5,137 )
Total 155,325
158,790
Current portion of long-term debt and lease obligations ⁽²⁾
(38,819 ) (14,581 )
Non-current portion of long-term debt and lease obligations $ 116,506
$ 144,209

Table of Contents

Old Notes

At March 31, 2021, ION Geophysical Corporation’s $120.6 million of Old Notes, prior to the Restructuring Transactions completed in April 2021 as discussed in further details of Footnote 1 "Summary of Significant Accounting Policies – Going Concern and Old Notes Restructuring and discussed below, were senior secured second-priority obligations guaranteed by the Material U.S. Subsidiaries and the Mexican Subsidiary (each as defined above and herein below, with the reference to the Old Notes, the “Guarantors”). As a result of the Restructuring Transactions, $113.5 million in aggregate principal amount outstanding of Old Notes has been reclassified from short-term debt to long-term debt in the Condensed Consolidated Balance Sheets. Also, $7.1 million of Old Notes remain outstanding and are due along with unpaid interest on December 15, 2021.

The April 2016 indenture governing the Old Notes (the "Old Notes Indenture") contained certain covenants that, among other things, limited or prohibited ION Geophysical Corporation’s and of its restricted subsidiaries from taking certain actions or permitting certain conditions to exist during the term of the Old Notes, including among other things, incurring additional indebtedness in excess of permitted indebtedness, creating liens, paying dividends and making other distributions in respect of ION Geophysical Corporation’s capital stock, redeeming ION Geophysical Corporation’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These and other restrictive covenants contained in the Old Notes Indenture are subject to certain exceptions and qualifications. All of ION Geophysical Corporation’s subsidiaries are currently restricted subsidiaries.

At March 31, 2021, the Company was in compliance with all of the covenants under the Old Notes.

On April 20, 2021, the Company, the Guarantors, Wilmington Savings Fund Society, FSB, as trustee, and collateral agent, entered into a supplemental indenture (the “Supplemental Indenture”) to the Old Notes Indenture, dated as of April 28, 2016, among the Company, the Guarantors, Wilmington Savings Fund Society, FSB (as successor to Wilmington Trust, National Association), as trustee, and U.S. Bank National Association, as collateral agent, governing the Old Notes Indenture. The Supplemental Indenture, among other things, provides for the release of the second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to the Old Notes. The Old Notes Indenture, as modified by the Supplemental Indenture, is materially less restrictive and affords significantly reduced protection to holders of such securities as compared to the restrictive covenants, events of default and other provisions previously contained in the Old Notes Indenture.

New Notes

The New Notes are governed by the Indenture (the "New Notes Indenture") dated as of April 20, 2021, among the Company, certain of the Company’s subsidiaries, as guarantors (as defined under Old Notes above), and UMB Bank, National Association, as trustee and collateral agent (the “New Notes Trustee”). The New Notes are senior secured second-priority debt obligations of the Company and will mature on December 15, 2025. The New Notes will bear interest at a rate of 8.00% per annum. Interest on the New Notes will be payable on each June 15 and December 15, commencing on June 15, 2021. The New Notes will initially be guaranteed by each of ION’s material domestic subsidiaries and one subsidiary organized under the laws of Mexico (provided that certain matters with respect to such Mexico subsidiary will be finalized within 60 days of settlement) (“Guarantors”). For further details, refer to Footnote 1"Summary of Significant Accounting Policy - Going Concern and Old Notes Restructuring."

⁽¹⁾

Represents debt issuance costs presented as a direct deduction from the carrying amount of the debt liability associated with the Senior secured second-priority and Senior secured third-priority lien notes. These amounts do not include $0.4 million and $1.2 million of debt issuance costs associated with the Revolving Credit Facility as of September 30, 2017 and December 31, 2016 respectively, which are included within other assets on the balance sheet.


⁽²⁾	~~Includes $28.5 million Senior secured third-priority lien notes reclassified from long-term to current during the second quarter 2017.~~

The New Notes will be senior obligations of ION; will be secured on a second-priority basis, equally and ratably with all obligations of ION under any future Parity Lien Debt (as defined in the New Notes Indenture), by Liens on all of the assets of ION other than the Excluded Assets, subject to the Liens securing ION’s obligations under the Credit Agreement and any other Priority Lien Debt and other Permitted Prior Liens (as defined in the New Notes Indenture); will be effectively junior to any Permitted Prior Liens, to the extent of the value of the assets of ION subject to those Permitted Prior Liens; will be senior in right of payment to any future subordinated Indebtedness of ION, if any; will be unconditionally guaranteed by the Guarantors; and will be structurally subordinated to all existing and future Indebtedness (as defined in the New Notes Indenture), claims of holders of preferred stock and other liabilities of subsidiaries of ION that do not guarantee the New Notes.

Each guarantee of the New Notes will be senior obligations of each Guarantor; will be secured on a second-priority basis, equally and ratably with all obligations of that Guarantor under any other future Parity Lien Debt, by Liens on all of the assets of that Guarantor other than the Excluded Assets, subject to the Liens securing that Guarantor’s guarantee of the Credit Agreement obligations and any other Priority Lien Debt and other Permitted Prior Liens; will be effectively junior, to the extent of the value of the Collateral (as defined in the New Notes Indenture), to that Guarantor’s guarantee of the Credit Agreement and any other Priority Lien Debt, which will be secured on a first-priority basis by the same assets of that Guarantor that secure the New Notes; will be effectively junior to any Permitted Prior Liens, to the extent of the value of the assets of that Guarantor subject to those Permitted Prior Liens; and will be senior in right of payment to any future subordinated Indebtedness of that Guarantor, if any.

The New Notes Indenture contains covenants that, among other things, limit our ability, and the ability of our restricted subsidiaries, to incur additional debt or issue certain preferred stock; make certain investments or pay dividends or distributions on our capital stock, purchase or redeem or retire capital stock, or make other restricted payments; sell assets, including capital stock of our restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries; create liens; create unrestricted subsidiaries; enter into transactions with affiliates; and merge or consolidate with another company. These covenants are subject to a number of important limitations and exceptions that are described in the New Notes Indenture.

Holders of New Notes may convert all or any portion of their New Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date. The conversion rate will initially be 333 shares of Common Stock per $1,000 principal amount of New Notes (equivalent to an initial conversion price of approximately $3.00 per share of Common Stock) and is subject to adjustment as described in the New Notes Indenture. Upon conversion of a New Note, ION will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of its Common Stock or a combination of cash and Common Stock, at ION’s election. If ION satisfies its conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of its Common Stock, the amount of cash and shares of Common Stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 30 trading day observation period. The total number of shares of Common Stock that may be issued upon conversion of the New Notes is 38.7 million shares, which excludes an additional 6.5 million shares that may be issued upon a conversion upon a make-whole change of control.

On or after the day that is the eighteen (18) month anniversary of the issue date of the New Notes (the “Issue Date”), ION may require the conversion of all or part of the New Notes, at its option, if Common Stock, as determined by ION, has a 20-day volume weighted average price of at least 175% of the conversion price then in effect ending on, and including, the trading day immediately preceding the date on which ION provides notice of conversion (an “Optional Conversion”). If ION undergoes an Optional Conversion prior to the third anniversary of the Issue Date, holders of New Notes will be entitled to a “make-whole” premium payment in cash equal to the applicable premium amount.

The New Notes will be redeemable, in whole or in part, at our option at any time prior to December 15,2023, at a cash redemption price equal to 100.0% of the principal amount of New Notes to be redeemed plus a make-whole premium and accrued and unpaid interest. The New Notes will also be redeemable, in whole or in part, at our option at any time on or after December 15,2023, at a cash redemption price equal to 100.0% of the principal amount of New Notes to be redeemed plus accrued and unpaid interest.

If a Change of Control (as described in the New Notes Indenture) occurs, holders of the New Notes may require the Company to repurchase their New Notes at a cash repurchase price equal to 101% of the principal amount of the New Notes to be repurchased, plus accrued and unpaid interest.

Upon certain asset sales, the Company may be required to use the net proceeds therefrom to purchase New Notes at an offer price in cash equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest.

The Company issued one (1) shares of Series A Preferred Stock (the “Series A Preferred Stock”) to the New Notes Trustee to (i) provide certain rights and protections to holders of the New Notes and (ii) allow, under certain circumstances, the holders of New Notes to vote on an “as-converted” basis. The New Notes Trustee shall take direction from holders of 50.1% of the New Notes for any action requiring the consent of the holder of the Series A Preferred Stock or each act on which the holder of the Series A Preferred Stock is entitled to vote.

Table of Contents

Following a default or event of default under the New Notes Indenture, the Series A Preferred Stock will be entitled to vote with the Common Stock of the Company as a single class and having voting power equal to the number of shares of Common Stock issuable upon the conversion of the New Notes. In addition, at all times when the Common Stock is entitled to vote, the Series A Preferred Stock will be entitled to vote with the Common Stock as a single class and having voting powers equal to the number of shares of Common Stock issuable upon the conversion of the New Notes for any transaction (a) modifying, amending, supplementing, or waiving any provision of ION’s organizational documents or (b) entering into any merger, consolidation, sale of all or substantially all of ION’s assets, or other business combination transactions. The holder of the Series A Preferred Stock will have the right to appoint two (2) directors to ION’s board of directors, both of whom must be independent.

The one share of Series A Preferred Stock will (i) rank pari passu in respect of voting rights with respect to Common Stock, (ii) have a liquidation preference equal to $1.00, (iii) not produce preferred dividends or ordinary dividends, (iv) not be transferable, except to a successor New Notes Trustee under the terms of the New Notes Indenture, (v) not be convertible into any other class of equity of ION, and (vi) not be granted registration rights. The Series A Preferred Stock may be redeemed by the Company upon the conversion into Common Stock, in the aggregate, of 75% or more of the New Notes. The redemption price will be $1.00.

On April 20, 2021, the Company and the Guarantors acknowledged and agreed to an intercreditor agreement (the “Intercreditor Agreement”) by and among PNC Bank, National Association ("PNC"), as first lien representative and collateral agent for the first lien secured parties, and UMB Bank, National Association, as second lien representative and collateral agent for the second lien secured parties. The Intercreditor Agreement, among other things, defines the relative priorities of the respective security interests in the collateral securing the New Notes and the obligations under the Company’s senior secured credit facility and certain other matters relating to the administration of security interests, exercise of remedies, certain bankruptcy-related provisions and other intercreditor matters.

The Intercreditor Agreement supersedes and replaces the second lien intercreditor agreement, dated as of April 28, 2016, by and among PNC Bank, National Association, as first lien representative for the first lien secured parties and collateral agent for the first lien secured parties, and Wilmington Savings Fund Society, FSB, as second lien representative and collateral agent for the second lien secured parties and third lien representative for the third lien secured parties and U.S. Bank National Association, as collateral agent for the third lien secured parties.

Revolving Credit Facility

On August ~~2014,~~ 16, 2018, ION and its material U.S. subsidiaries — GX Technology Corporation, ION Exploration Products (U.S.A.), Inc., and I/O Marine Systems Inc. ~~(collectively,~~(the “Material U.S. Subsidiaries”) — along with GX Geoscience Corporation, S. de R.L. de C.V., a limited liability company (Sociedad de Responsibilidad Limitada de Capital Variable) organized under the laws of Mexico, and a subsidiary of the Company (the “Mexican Subsidiary”), (the Material U.S. Subsidiaries and the Mexican Subsidiary are collectively, the “Subsidiary Borrowers”, ~~and~~ together with ION ~~collectively,~~Geophysical Corporation are the “Borrowers”) — the financial institutions party thereto, as lenders, and PNC, as agent for the lenders, entered into athat certain Third Amendment and Joinder to Revolving Credit and Security Agreement ~~with PNC Bank, National Association (“PNC”~~(the “Third Amendment”), amending the Revolving Credit and Security Agreement, dated as ~~agent (the “Original Credit Agreement”), which was~~of August 22, 2014 (as previously amended by the First Amendment to Revolving Credit and Security Agreement, in dated as of August 4, 2015 ~~(the “First Amendment”)~~ and the Second Amendment ~~(as defined below) (the Original~~to Revolving Credit and Security Agreement, dated as of April 28, 2016, the “Credit Agreement”). The Credit Agreement, as amended by the First Amendment, ~~and~~ the Second Amendment and the Third Amendment is herein called the “Credit Facility”). For a complete discussion of the terms, available credit and security of this Credit Facility, prior to the effectiveness of the Second Amendment, see Footnote 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The Credit Facility is available to provide for the Borrowers’ general corporate needs, including working capital requirements, capital expenditures, surety deposits and acquisition financing.

On April 20, 2021, the Company and the Guarantors, as co-borrowers, the financial institutions party thereto, as lenders, and PNC, as agent for the lenders, entered into a fourth amendment (the “Fourth Amendment”) to the Credit Facility. The Credit Facility, as amended by the Fourth Amendment, among other things, permitted the consummation of the Restructuring Transactions, including the issuance of the New Notes and certain cash payments to the Company's noteholders in connection with the Exchange Offer and the Rights Offering, and made certain other changes to the Credit Facility’s definitions and other provisions, including with respect to LIBOR, where the successor LIBOR rate index will be the benchmark replacement determined by PNC.

The maximum interest rate in the Credit Facility is 3% per annum for domestic rate loans and 4% per annum for LIBOR rate loans with a minimum interest rate of 2% for domestic rate loans and 3% for LIBOR rate loans based on a leverage ratio for the preceding four-quarter period. The terms include a minimum excess borrowing availability threshold (excess borrowing availability less than $6.25 million for five consecutive days or $5.0 million on any given day), which (if the Borrowers have minimum excess borrowing availability below any such threshold) triggers the agent’s right to exercise dominion over cash and deposit accounts.

The maximum amount ~~of the revolving line of credit~~available under the Credit Facility is the lesser of ~~$40.0~~$50.0 million or a monthly borrowing base.

~~On April 28, 2016, the Borrowers and PNC entered into a second amendment (the “Second Amendment”) to the Credit Facility. The Second Amendment, among other things:~~

~~increased the applicable margin for loans by 0.50% per annum (from 2.50% per annum to 3.00% per annum for alternate base rate loans and from 3.50% per annum to 4.00% per annum for LIBOR-based loans);~~

increased the minimum excess availability threshold to avoid triggering the agent’s rights to exercise dominion over cash and deposit accounts and increases certain of the thresholds upon which such dominion ceases;

increased the minimum liquidity threshold to avoid triggering the Company’s obligation to calculate and comply with the existing fixed charge coverage ratio and increased certain of the thresholds upon which such required calculation and compliance cease;

establish a reserve that will reduce the amount available to be borrowed by the aggregate amount owing under all Third Lien Notes that remain outstanding (if any) on or after February 14, 2018 (i.e., 90 days prior to the stated maturity of the Third Lien Notes);

~~increased the maximum amount of certain permitted junior indebtedness to $200.0 million (from $175.0 million);~~

incorporated technical and conforming changes to reflect that the Second Lien Notes and the remaining Third Lien Notes (and any permitted refinancing thereof or subsequently incurred replacement indebtedness meeting certain requirements) constitute permitted indebtedness;

~~clarified the circumstances and mechanics under which the Company may prepay, repurchase or redeem the Second Lien Notes, the remaining Third Lien Notes and certain other junior indebtedness;~~

~~modified the cross-default provisions to incorporated defaults under the Second Lien Notes, the remaining Third Lien Notes and certain other junior indebtedness; and~~

eliminated the potential early commitment termination date and early maturity date that would otherwise have occurred ninety (90) days prior to the maturity date of the Third Lien Notes if any of the Third Lien Notes then remained outstanding.

The borrowing base under the Credit Facility will increase or decrease monthly using a formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage of the net orderly liquidation value of the Borrowers’ multi-client data library ~~(not~~(not to exceed ~~$15.0~~$28.5 million for the multi-client data library ~~data~~ component). AsThe borrowing base calculation includes the eligible billed receivables of ~~September 30, 2017,~~ the ~~borrowing base~~Mexican Subsidiary up to a maximum of $5.0 million. At March 31, 2021, there was $21.3 million outstanding indebtedness under the Credit Facility and the undrawn remaining borrowing base capacity was ~~$22.1 million, and there was $10.0~~$5.3 million. During April 2021, the Company repaid $1.5 million of the outstanding indebtedness under the Credit ~~Facility. Even though~~Facility to bring the ~~Company experienced a significant increase in its accounts and unbilled receivables, those increases were part of the Company’s foreign operations which are not included in the~~excess borrowing ~~base calculation. The Credit Facility is scheduled to mature on August 22, 2019.~~

availability above $6.25 million.

The obligations of Borrowers under the Credit Facility are secured by a ~~first-priority~~first-priority security interest in 100% of the stock of the Subsidiary Borrowers and 65% of the equity interest in ION International Holdings L.P., and by substantially all other assets of the Borrowers.

However, the first-priority security interest in the other assets of the Mexican Subsidiary is capped to a maximum exposure of $5.0 million.

The Credit Facility contains covenants that, among other things, limit or prohibit the Borrowers, subject to certain exceptions and qualifications, from incurring additional indebtedness in excess of permitted indebtedness (including ~~capital~~finance lease obligations), repurchasing equity, paying dividends or distributions, granting or incurring additional liens on the Borrowers’ properties, pledging shares of the Borrowers’ subsidiaries, entering into certain merger transactions, entering into transactions with the Company’s affiliates, making certain sales or other dispositions of the Borrowers’ assets, making certain investments, acquiring other businesses and entering into sale-leaseback transactions with respect to the Borrowers’ property.

The Credit Facility contains customary event of default provisions (including a “change of control” event affecting ION Geophysical Corporation), the occurrence of which could lead to an acceleration of the Company's obligations under the Credit Facility.

The Credit Facility requires that ~~ION and~~ the ~~Subsidiary~~ Borrowers maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 as of the end of each fiscal quarter during the existence of a covenant testing trigger event. The fixed charge coverage ratio is defined as the ratio of (i) ION’s ~~EBITDA,~~earnings before interest, taxes, depreciation and amortization (“EBITDA”), minus unfunded capital expenditures made during the relevant period, minus distributions (including tax distributions) and dividends made during the relevant period, minus cash taxes paid during the relevant period, to (ii) certain debt payments made during the relevant period. A covenant testing trigger event occurs upon (a) the occurrence and continuance of an event of default under the Credit Facility or (b) ~~the failure to maintain~~by a ~~measure of liquidity greater~~two-step process based on (i) a minimum excess borrowing availability threshold (excess borrowing availability less than ~~(i) $7.5~~$6.25 million for five consecutive business days or ~~(ii) $6.5~~$5.0 million on any given business ~~day. Liquidity, as defined~~day), and (ii) the Borrowers’ unencumbered cash maintained in a PNC deposit account is less than the Credit Facility, is the Company’s excess availability to borrow ($12.1 million at September 30, 2017) plus the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic subsidiaries. Borrowers’ then outstanding obligations.

At September 30, 2017, ION, the Subsidiary Borrowers and their domestic subsidiaries had unrestricted cash totaling $17.2 million and non-domestic subsidiaries had unrestricted cash totaling $23.0 million.

~~At September 30, 2017,~~March 31, 2021, the Company was in compliance with all of the covenants under the Credit Facility.

Table of Contents

(5)

Government Relief Funding

Paycheck Protection Program

On April 11, 2020, the Company entered into a Note Agreement (“Note”) with PNC amounting to $6.9 million pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) Paycheck Protection Program (“PPP”). Amounts outstanding under this Note will bear interest at 1% per annum as of the date of disbursement. Interest will be calculated based on the actual number of days that principal is outstanding over a year of 365 days. The ~~Credit Facility contains customary event~~Note matures in two years after the receipt of ~~default~~the loan proceeds.

During fourth quarter 2020, the Company applied to PNC for forgiveness of the amount due on this Note in an amount based on the sum of the following costs incurred by the Company’s US operations during the 24-week period beginning on the date of first disbursement (for payroll costs, it is beginning on the date of the first pay period following disbursement; for non-payroll costs, it is beginning on the date of first disbursement.) of this Note: (a) payroll costs; (b) any payment on a covered rent obligation; and (c) any covered utility payment. The amount of forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the PPP, including the provisions ~~(including a “change~~ of ~~control” event affecting ION),~~Section 1106 of the ~~occurrence of which could lead~~CARES Act. The forgiveness amount will be subject to the Small Business Administration’s review. Any outstanding principal amount under this Note that is not forgiven under the PPP shall convert to an ~~acceleration~~amortizing term loan.

The Company recognized the Note following the government grant accounting by analogy to International Accounting Standards (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance” (“IAS 20”). In accordance with IAS 20, a deferred income liability is recognized for the ~~Company’s obligations under the Credit Facility~~principal amount estimated to be forgiven and is amortized to other income on a systematic and rational basis. Any outstanding principal amount not expected to be forgiven is recognized as ~~amended.~~

~~Senior Secured Notes~~

~~In May 2013,~~other debt. As the Company ~~sold~~ ~~$175.0 million~~ ~~aggregate principal amount of~~ ~~8.125%~~ Senior Secured Second-Priority Notes due 2018 (the “Third Lien Notes”) in a private offering pursuant to an Indenture dated as of May 13, 2013 (the “Third Lien Notes Indenture”). On April 28, 2016,expects that the Company successfully completed an exchange offer (the “Exchange Offer”) and consent solicitation (the “Consent Solicitation”) related to the Third Lien Notes. For a complete discussion of the terms of the Exchange Offer and Consent Solicitation, see Footnote 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Prior to the completion of the Exchange Offer and Consent Solicitation the Third Lien Notes were senior secured second-priority obligations of the Company. After giving effect to the Exchange Offer and Consent Solicitation, the remaining aggregate principal amount of approximately $28.5 million of outstanding Third Lien Notes became senior secured third-priority obligations of the Company subordinated to the liens securing all senior and second priority indebtedness of the Company, including under the Credit Facility and Second-Priority Lien Notes (defined below).

~~Pursuant to the Exchange Offer and Consent Solicitation, the Company (i) issued approximately $120.6 million in aggregate principal~~full amount of the ~~Company’s new 9.125% Senior Secured Second Priority Notes due 2021 (the “Second Lien Notes,”~~Note will be forgiven, the entire $6.9 million was recognized as a deferred income liability during 2020 and ~~collectively with~~fully amortized to other income in the ~~Third Lien Notes,~~condensed consolidated income statements for the ~~“Notes”) and 1,205,477 shares of~~six months ended June 30, 2020, as the related expenses it was intended to offset were incurred from April 2020 to June 2020. If, despite the Company’s common stock in exchange for approximately $120.6 million in aggregate principal amount of Third Lien Notes, and (ii) purchased approximately $25.9 million in aggregate principal amount of Third Lien Notes in exchange for aggregate cash consideration totaling approximately $15.0 million, plus accrued and unpaid interest ongood-faith belief that given its circumstances the ~~Third Lien Notes from the applicable last interest payment date to, but not including, April 28, 2016.~~

After giving effect to the Exchange Offer and Consent Solicitation, the aggregate principal amount of the Third Lien Notes remaining outstanding was approximately $28.5 million and the aggregate principal amount of Second Lien Notes outstanding was approximately $120.6 million.

The Third Lien Notes are guaranteed by the Company’s material U.S. subsidiaries, GX Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (the “Guarantors”), and mature on May 15, 2018. Interest on the Third Lien Notes accrues at the rate of 8.125% per annum and will be payable semiannually in arrears on May 15 and November 15 of each year during their term.

Prior to the completion of the Exchange Offer and Consent Solicitation, the Third Lien Notes Indenture contained certain covenants that, among other things, limited or prohibited the Company’s ability and the ability of its restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the Third Lien Notes, including among other things, incurring additional indebtedness, creating liens, paying dividends and making other distributions in respect of the Company’s capital stock, redeeming the Company’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These and other restrictive covenants contained in the Third Lien Notes Indenture are subject to certain exceptions and qualifications. After giving effect to the Exchange Offer and Consent Solicitation, the Third Lien Notes Indenture was amended to, among other things, provideCompany satisfied all eligible requirements for the release of the second priority security interest in the collateral securing the remaining Third Lien Notes and the grant of a third priority security interest in the collateral, subordinate to liens securing all senior and second priority indebtedness ofNote, the Company ~~including the Credit Facility and the Second Lien Notes, and eliminate substantially all of the restrictive covenants and certain events of default pertaining~~is later determined to ~~the remaining Third Lien Notes.~~

~~As of September 30, 2017, the Company was~~have not been in compliance with these requirements or it is otherwise determined that it was ineligible to receive the ~~covenants with respect~~Note, the Company may be required to repay the Note in its entirety and/or be subject to additional penalties.

Employee Retention Credit

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to the ~~Third Lien Notes.~~

~~The Second Lien Notes are senior secured second-priority obligations guaranteed by~~employee retention tax credits previously made available under the ~~Guarantors. The Second Lien Notes mature on~~ CARES Act, including modifying and extending the Employee Retention Credit ("ERC") through December ~~15,~~31, 2021. ~~Interest on~~As a result of the ~~Second Lien Notes accrues at~~new legislation, eligible employers can now claim a refundable tax credit against the ~~rate~~employer share of ~~9.125% per annum~~Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020 through December 31, 2021. This resulted in an ERC of $1.6 million for the three months ended March 31, 2021 and ~~is payable semiannually in arrears on June 15 and December 15 of each year during their term, except that the interest payment otherwise payable on June 15, 2021 will~~expected to be ~~payable on December 15, 2021.~~

The indenture dated April 28, 2016, governing the Second Lien Notes (the “Second Lien Notes Indenture”) contains certain covenants that, among other things, limits or prohibits the Company’s ability and the ability of its restricted subsidiaries to take certain actions or permit certain conditions to existrefunded during the term of the Second Lien Notes, including among other things, incurring additional indebtedness, creating liens, paying dividends and making other distributions in respect of the Company’s capital stock, redeeming the Company’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These and other restrictive covenants contained in the Second Lien Notes Indenture are subject to certain exceptions and qualifications. All of the Company’s subsidiaries are currently restricted subsidiaries.

~~As of September 30, 2017,~~second quarter 2021. Further, the Company ~~was in compliance~~expects that it will qualify for the ERC during the second quarter 2021 with the ~~covenants with respect~~refund expected to ~~the Second Lien Notes.~~

On or after December 15, 2019, the Company may on one or more occasions redeem all or a part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Second Lien Notes redeemedbe received during ~~the twelve-month period beginning on December 15th of the years indicated below:~~third quarter 2021.

Date Percentage
2019 105.500%
2020 103.500%
2021 and thereafter 100.000%

~~(4)Net Income (Loss) per Share~~

(6)

Net Loss per Common Share

Basic net ~~income (loss)~~loss per ~~common~~ share is computed by dividing net ~~income (loss) applicable~~loss attributable to ~~common shares~~ION by the weighted average number of common shares outstanding during the period. ~~Diluted~~In computing diluted net income ~~(loss)~~ per ~~common~~share, basic net income per share is ~~determined~~adjusted based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares ~~issued or reserved for future issuance under~~issuable pursuant to outstanding stock options at ~~September 30, 2017~~ March 31, 2021 and ~~2016 was 782,739~~2020 of 481,786 and ~~877,569,~~669,209, respectively, ~~and the~~were excluded as their inclusion would have an anti-dilutive effect. The total number of shares ofissuable pursuant to restricted stock ~~and shares reserved for restricted stock units~~unit awards outstanding at ~~September 30, 2017~~ March 31, 2021 and ~~2016 was 163,184~~2020 of 689,931 and ~~293,340, respectively. The effects of the dilutive stock awards~~903,204, respectively, were excluded as their inclusion would have an anti-dilutive ~~for the nine months ended September 30, 2017 and 2016, as reflected in the table below.~~

~~The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):~~

effect.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) attributable to ION $ 4,935
$ 1,699
$ (28,848 ) $ (58,657 )
Weighted average number of common shares outstanding 11,890
11,786
11,862
11,269
Effect of dilutive stock awards 181
121
—
—
Weighted average number of diluted common shares outstanding 12,071
11,907
11,862
11,269

Basic net income (loss) per share $ 0.42
$ 0.14
$ (2.43 ) $ (5.21 )
Diluted net income (loss) per share $ 0.41
$ 0.14
$ (2.43 ) $ (5.21 )

~~(5)Income Taxes~~

(7)

Income Taxes

The Company maintains a valuation allowance for substantially all of its deferred tax assets. ~~The~~A valuation allowance is ~~calculated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 740~~ ~~“Income Taxes,”~~ ~~which requires that a valuation allowance be~~ established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In As of March 31, 2021, the ~~event~~significant doubt about the ~~Company’s expectations~~Company's going concern has been alleviated which the Company believes is sufficient evidence to warrant reversal of ~~future operating results change, the~~$7.7 million of valuation allowance ~~may need to be adjusted downward. As of September 30, 2017, the Company has no unreserved U.S.~~on its net deferred tax ~~assets.~~

assets of certain foreign subsidiaries. The Company will continue to record a valuation allowance for the substantial majority of its deferred tax assets until there is sufficient evidence to warrant reversal.

The tax provision for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 has been calculated using the Company’s overall estimated annual effective tax rate based on the actual tax expense incurred for the period. Given the current uncertainty in expected income generated in various foreign jurisdictions, where tax rates can vary greatly, the Company’s actual tax rate is the best estimate of year-to-date tax expense.projected 2021 full year results. The Company’s effective tax rates for the three months ended ~~September 30, 2017~~ March 31, 2021 and 2016 were 25.2% and 63.4%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2017 and 2016 were (15.1)% and (11.2)% respectively. The Company’s effective tax rates for the three and nine months ended September 30, 20172020 were negatively impacted by the change in valuation allowance related to U.S. operating losses for which the Company cannot currently recognize a tax benefit. The Company’s effective tax rates for the three months ended March 31, 2021 was positively impacted by the reversal of valuation allowance related to certain foreign subsidiaries as further described below. Due to the impact of the valuation allowances on tax expense, the Company’s effective tax rates are not meaningful for all periods presented. The Company’s income tax benefit for the three months ended March 31, 2021 of $6.8 million primarily relates to the reversal of valuation allowance of $7.7 million on its net deferred tax assets of certain foreign subsidiaries resulting from the removal of the substantial doubt that the Company will continue as a going concern. The Company’s income tax expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 of ~~$3.7~~$5.9 million primarily relates to results from the Company’s non-U.S. ~~businesses.~~

businesses, including $2.2 million of valuation allowance. The valuation allowance was established as a result of a change in the expectation of future revenues after entering into the settlement agreement with WesternGeco described in Footnote 9 “Litigations” to the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

In response to the global pandemic related to COVID-19, the President of the United States signed into law the CARES Act on March 27, 2020. The CARES Act provides numerous relief provisions for corporate taxpayers, including modifications of the utilization limitations on net operating losses, favorable expansions of the deduction for business interest expense under Internal Revenue Code Section 163(j), and the ability to accelerate timing of refundable AMT credits. For the three months ended March 31, 2021 and 2020, there were no material tax impacts to our condensed consolidated financial statements as it relates to COVID-19 measures. The Company continues to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Services ("IRS") and others.

At March 31, 2021, the Company has approximately ~~$1.3~~$0.4 million of unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next ~~12-month~~twelve-month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

~~As of September 30, 2017,~~

At March 31, 2021, the Company’s U.S. federal tax returns for ~~2013~~2017 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to U.S. Internal Revenue Service (“IRS”) examination for periods prior to 2013, although carryforward attributes related to losses generated prior to 2013 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for ~~2010~~2016 and subsequent years generally remain open to examination.

Table of Contents

~~(6)Litigation~~

~~WesternGeco~~

(8)

Litigations

In ~~June 2009, WesternGeco L.L.C.~~July 2018, the Company prevailed in an arbitration that it initiated against the Indian Directorate General of Hydrocarbons (“~~WesternGeco”~~DGH”) relating to the Company’s ability to continue to license data under the Company’s IndiaSPAN program. The DGH filed a lawsuit ~~against~~in court in India to vacate the arbitration award; in connection with that lawsuit, the Company was ordered to escrow approximately $4.5 million in sales proceeds that it had received in respect of sales from the ~~United States District~~IndiaSPAN program, pending the outcome of the DGH’s challenge to the arbitration award. The Company challenged the escrow order, but on December 9, 2019, the Supreme Court ~~for the Southern District~~ of ~~Texas, Houston Division. In the lawsuit, styled~~ ~~WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that~~India ordered the Company ~~had infringed several method and apparatus claims contained~~to comply with it. The Company prepared a petition to file with the court to request that a March 2020 deadline to deposit approximately $4.5 million in ~~four~~ ~~of its United States patents regarding marine seismic streamer steering devices.~~

~~The trial began~~escrow in ~~July 2012. A verdict was returned by the jury in August 2012, finding that the Company infringed the claims contained in the~~ ~~four~~ ~~patents by supplying its DigiFIN~~^® ~~lateral streamer control units and the related software from the United States and awarded WesternGeco the sum of~~ ~~$105.9 million~~ ~~in damages, consisting of~~ ~~$12.5 million~~ ~~in reasonable royalty and~~ ~~$93.4 million~~ ~~in lost profits.~~

~~In June 2013, the presiding judge entered a Memorandum and Order, ruling that WesternGeco is entitled to~~early 2020 be ~~awarded supplemental damages for the additional DigiFIN units that were supplied from the United States before and after the trial that were not included in the jury verdict~~extended due to the ~~timing~~changes to the Company’s business, and to the markets, that have been spurred by the COVID-19 pandemic. The Company was unable to file the application because the courts in India were closed due to the pandemic (other than for emergencies), and were not accepting filings at that time. The Company served a copy of its draft petition on the DGH’s counsel and intends to file it in advance of the ~~trial. In October 2013,~~next hearing, which has been repeatedly delayed due to the ~~judge entered another Memorandum and Order, ruling~~COVID-19 pandemic. The Company prevailed on the number of DigiFIN units that are subject to supplemental damages and also ruling that the supplemental damages applicable to the additional units should be calculated by adding together the jury’s previous reasonable royalty and lost profits damages awards per unit, resulting in supplemental damages of $73.1 million.

~~In April 2014, the judge entered another Order, ruling that lost profits should not have been included~~merits in the ~~calculation of supplemental damages~~arbitration and expects to have that award upheld in ~~the October 2013 Memorandum and Order and reduced the supplemental damages award~~Indian court, which would result in the case from $73.1 million to $9.4 million. In the Order, the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement and license that WesternGeco entered into with a customerrelease of the ~~Company that had purchased and used DigiFIN units that were also included in the damage amounts awarded against the Company.~~

~~In May 2014, the judge signed and entered a Final Judgment in the amount~~portion of $123.8 million related to the case. The Final Judgment also included an injunction that enjoins the Company, its agents and anyone acting in concert with it, from supplying in or from the United States the DigiFIN product or any parts unique to the DigiFIN product, or any instrumentality no more than colorably different from any of these products or parts, for combination outside of the United States. The Company has conducted its business in compliance with the District Court’s orders in the case, and the Company has reorganized its operations such that it no longer supplies the DigiFIN product or any parts unique to the DigiFIN product in or from the United States.

The Company and WesternGeco each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit in Washington, D.C. On July 2, 2015, the Court of Appeals reversed in part the judgment, holding the District Court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest was approximately $10.9 million of the $123.8 million Final Judgment. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015 the Court of Appeals denied WesternGeco’s petition for rehearing en banc.

~~On February 26, 2016, WesternGeco filed a petition for writ of certiorari~~money escrowed by the ~~Supreme Court.~~Company. The ~~Company filed its response on April 27, 2016. Subsequently, on June 20, 2016,~~DGH’s request to vacate the Supreme Court refused to disturb the Court of Appeals ruling finding no lost profits as a matter of law. Separately, in light of the changes in case law regarding the standard of proof for willfulness in the Halo and Stryker cases, the Supreme Court indicated that the case should be remanded to the Federal Circuit for a determination of whether or not the willfulness determination by the District Court was appropriate.

On November 14, 2016, the District Court issued an order reducing the amount of the appeal bond from $120.0 million to $65.0 million, ordered the sureties to pay principal and interest on the royalty previously awarded and declined to issue a final judgment until after consideration of whether enhanced damages related to willfulness should be awarded in the case. While the Company did not agree with the unusual decision by the District Court ordering payment of the royalty damages and interest without a final judgment, the Company paid the $20.8 million due pursuant to the order to WesternGeco on November 25, 2016.

On March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness would be payable. The Judge found that ION’s infringement was willful, based on his perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during trial. However, in his May 16, 2017 order, he limited enhanced damages to $5.0 million because it was a “close case,” there was no evidence of copying, and ION was simply acting as a competitor in a capitalist marketplace. The District Court also ordered the appeal bondarbitration award is currently scheduled to be released and discharged. The Court’s findings were memorialized in an order issued on May 16, 2017. On June 30, 2017, WesternGeco and the Company jointly agreed that neither party would appeal the District Court's award of $5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the course of 12 months with $1.25 million being paid in two installments of $0.625 million in 2017 and the remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1, 2018. This agreement was memorializedheard by the court in ~~an order issued~~India on July ~~26, 2017.~~

~~WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on February 17, 2017, appealing the lost profits issue again.~~14,2021. The Company ~~filed its response to WesternGeco’s second attempt to appeal to~~has not escrowed the Supreme Court the lost profits issue, raising both the substantive matters the Company addressed by opposing WesternGeco’s first petition, and also raising a procedural argument that WesternGeco cannot raise the same issue for a second time in a second petition for certiorari. On May 30, 2017, the Supreme Court called for the viewsmoney as of the U.S. Solicitor General regarding whether or not to grant certiorari. (The U.S. Supreme Court has discretion to hear, or not hear, WesternGeco’s appeal; granting WesternGeco’s request for a writ of certiorari would mean that the U.S. Supreme Court decided to hear WesternGeco’s appeal of the decision by the United States Court of Appeals for the Federal Circuit with respect to the lost profits issue. If the Supreme Court agrees to hear WesternGeco’s appeal, the Company will contest WesternGeco’s appeal at the Supreme Court. In such a case, it is possible that the Supreme Court could issue a ruling adverse to the Company.) The Company and WesternGeco each met with the Solicitor General’s office in late July, 2017. The Solicitor General is expected to issue its brief as to whether the Supreme Court should grant certiorari near the end of 2017 or the beginning of 2018, although there is no deadline for the Solicitor General to issue its brief.

~~Other~~

March 31, 2021.

The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. ~~Management~~The Company currently believes that the ultimate resolution of these matters will not have a material adverse ~~impact~~effect on its financial condition or results of operations.

(9)

Details of Selected Balance Sheet Accounts

Accounts Receivable

A summary of accounts receivable follows (in thousands):

	March 31,			December 31,
	2021			2020
Accounts receivable, principally trade	$	11,186		$	10,458
Less: allowance for expected credit losses		(2,729	)		(2,413	)
Accounts receivable, net	$	8,457		$	8,045

Inventories

A summary of inventories follows (in thousands):

	*March 31,*			*December 31,*
	*2021*			*2020*
Raw materials and purchased subassemblies	$	18,215		$	18,638
Work-in-process		1,363			1,218
Finished goods		4,372			4,417
Less: reserve for excess and obsolete inventories		(12,919	)		(13,006	)
Inventories, net	$	11,031		$	11,267

The Company's inventories relate to its Operations Optimization segment. No additional provision for excess and obsolete inventories was recognized during the three months ended March 31, 2021 and 2020.

Property, Plant and Equipment

	*March 31,*			*December 31,*
	*2021*			*2020*
Buildings	$	15,675		$	15,675
Machinery and equipment		120,979			120,949
Seismic rental equipment		2,030			2,003
Furniture and fixtures		3,172			3,172
Other (a)		30,666			30,287
Total		172,522			172,086
Less: accumulated depreciation		(126,906	)		(126,022	)
Less: impairment of long-lived assets		(36,553	)		(36,553	)
Property, plant, equipment and seismic rental equipment, net	$	9,063		$	9,511

^(a)Consists primarily of cable-based ocean bottom acquisition technologies that were fully impaired.

Total depreciation expense, including amortization of assets recorded under equipment finance leases, for the three months ended March 31, 2021 and 2020 was $0.9 million and $0.8 million, respectively. NaN impairment charge was recognized during the three months ended March 31, 2021 and 2020.

Table of Contents

Multi-client Data Library

	*March 31,*			*December 31,*
	*2021*			*2020*
Gross costs of multi-client data creation	$	1,024,429		$	1,021,758
Less: accumulated amortization		(841,985	)		(838,700	)
Less: impairments to multi-client data library		(132,144	)		(132,144	)
Multi-client data library, net	$	50,300		$	50,914

Total amortization expense for the three months ended March 31, 2021 and 2020 was $3.3 million and $8.0 million, respectively. The decrease in total amortization expense is primarily due to higher revenue-based amortization of the multi-client data library in the prior quarter related to the increased sales of the Company's 2D global data library. For the three months ended March 31, 2021 and 2020, the Company recognized an impairment to multi-client data library of zero and $1.2 million, respectively, for programs with capitalized costs exceeding the remaining sales forecasts.

Goodwill

	*E&P Technology & Services*		*Optimization Software & Services*			*Total*
Balance at January 1, 2020	$	2,943	$	20,642		$	23,585
Impairment of goodwill		0		(4,150	)		(4,150	)
Impact of foreign currency translation adjustments		0		130			130
Balance at December 31, 2020		2,943		16,622			19,565
Impact of foreign currency translation adjustments		0		208			208
Balance at March 31, 2021	$	2,943	$	16,830		$	19,773

The Company, following the qualitative consideration, assessed the relevant events and circumstances in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. During the first quarter 2020, markets for oil and gas, as well as other commodities and equities, experienced significant volatility and price declines amid concerns over the economic effects of the COVID-19 pandemic. As a result, the Company’s stock price experienced a significant decline. Based on these facts, the Company performed a goodwill impairment test at March 31,2020 to determine if it was more likely than not that the fair value of certain reporting units was less than their carrying value.

The Company, following the quantitative consideration, compared the fair value of each reporting unit against its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment loss shall be recognized in an amount equal to that excess. The fair value of each reporting unit at March 31, 2020 was determined using a discounted cash flow model. The Company utilized a discount rate of 19% for both reporting units. The Company used reasonable assumptions based on historical data supplemented by anticipated market conditions and estimated growth rates. However, given the uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ which could result in additional impairment charges in the future.

As a result of this assessment, the Company recorded an impairment charge of $4.2 million for the three months ended March 31, 2020 related to its Optimization Software & Services reporting unit, which is included within the Operations Optimization segment. NaN impairment charge was recognized for the Optimization Software & Services reporting unit for the three months ended March 31, 2021. NaN impairment charge was recognized for the E&P Technology Services reporting unit for the three months ended March 31, 2021 and 2020.

Table of Contents

(10)

Stockholders' Equity and Stock-based Compensation

Registered Direct Offering

On February 16, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) which provided for the sale and issuance by the Company of an aggregate of 2,990,001 shares (the “Shares”) of the Company’s common stock, $0.01 par value per share (the “Common Stock”) at an offering price of $3.50 per share for gross proceeds of approximately $10.5 million before deducting the placement agent’s fees and related offering expenses. The Securities Purchase Agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties and termination provisions. The Company used the net proceeds for working capital and general corporate purposes.

The Registered Direct Offering was made pursuant to a Registration Statement (No.333-234606) on Form S-3, which was filed by the Company with the SEC on November 8, 2019, as amended on December 19, 2019, and declared effective on December 23, 2019.

Stock-Based Compensation

The total number of shares issued or reserved for future issuance under outstanding stock options at March 31, 2021 and 2020 was 481,786 and 669,209, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at March 31, 2021 and 2020 was 689,931 and 903,204, respectively. The total number of stock appreciation rights (“SARs”) awards outstanding at March 31, 2021 and 2020 was 662,591 and 937,597, respectively. The following table presents a summary of the activity related to stock options, restricted stock, restricted stock unit awards and SARs awards for the three months ended March 31, 2021:

				*Restricted Stock*			*Stock Appreciation*
	*Stock Options*			*and Units Awards*			*Rights*
Outstanding at January 1, 2020		533,320			732,707			754,582
Increase in shares authorized		—			23,533			—
Granted		0			0			0
Stock options and SARs exercised/restricted stock and unit awards vested		0			(24,365	)		(5,000	)
Cancelled/forfeited		(51,534	)		(41,944	)		(86,991	)
Outstanding at March 31, 2021		481,786			689,931			662,591

Stock-based compensation expense recognized for the three months ended March 31, 2021 and 2020, totaled $0.3 million and $0.6 million, respectively. SARs expense (credit) recognized for the three months ended March 31, 2021 and 2020, totaled zero and $(1.1) million, respectively.

SARs awards are considered liability awards as they are ultimately settled in cash. As such, these amounts are incrementally accrued in the liability section of the condensed consolidated balance sheets over the service period. All of the Company’s currently outstanding SARs awards achieve vesting through both a market condition and a service condition. SARs awards that are fully vested under both conditions are measured at intrinsic value (i.e. the difference between the market price on the ~~financial condition, results of operations or liquidity~~last day of the quarter and the strike price of the awards times the number of awards vested and outstanding) and marked to market each quarter until settled. SARs awards that are not fully vested are incrementally accrued over the service period and adjusted to their fair value each quarter until settled based on a valuation model. The Company calculated the fair value of each award at March 31, 2021 and December 31, 2020 using a Monte Carlo simulation model. The following assumptions were used:

Risk-free interest rates	0.7	%
Expected lives (in years)	5.31
Expected dividend yield	0	%
Expected volatility	94.7	%

At-The-Market Equity Offering Program

On April 26, 2021, the Company filed a prospectus supplement under which it may sell up to $10.0 million of its common stock through an "at-the-market" equity offering program (the "ATM Program"). The Company intends to use the net proceeds from sales under the ATM Program for working capital and general corporate purposes. The timing of any sales will depend on a variety of factors to be determined by the Company.

Table of Contents

~~(7) Other Income (Expense)~~

(11)

Lease Obligations

The Company leases offices, processing centers, warehouse spaces and, to a lesser extent, certain equipment. These leases have remaining terms of 1 year to 10 years, some of which have options to extend for up to 10 years and/or options to terminate within 1 year. The options to renew are not recognized as part of the Company’s right-of-use assets and operating lease liabilities as the Company is not reasonably certain that it will exercise these options.

In January 2020, the Company amended its existing Houston, Texas headquarters lease agreement by extending the lease term from September 30, 2023 to June 30, 2029 and surrendering back to the landlord floors for which the Company had previously vacated. In July 2020, the Company re-negotiated the above-mentioned lease agreement to modify the rent abatement period from October 2023 through February 2024 to July 2020 through March 2021.

In May 2020, the Company amended its Houston data center lease agreement to reflect changes in the monthly base rent throughout the term of the lease and extend the lease term three months to December 2025. The execution of this amendment and the amendment to the Houston, Texas headquarters lease resulted in the Company obtaining rent relief of approximately $4.0 million.

Total operating lease expense, including short-term lease expense was $2.6 million and $2.5 million for the three months ended March 31, 2021 and 2020, ~~Net~~respectively.

Equipment Finance Leases

The Company has entered into equipment finance leases that are due in installments for the purpose of financing the purchase of computer equipment through August 2021. Interest accrues under these leases at a rate of 8.7% per annum, and the leases are collateralized by liens on the computer equipment. The assets are amortized over the lesser of their related lease terms or their estimated productive lives and such charges are reflected within depreciation expense.

(12)

Supplemental Cash Flow Information and Non-Cash Activity

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

	*Three Months Ended March 31,*
	*2021*		*2020*
Cash paid during the period for:
Interest	$	541	$	160
Income taxes		722		4,304

The following table is a ~~summary of other income (expense), net (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Accrual for loss related to legal proceedings (Footnote 6) $ —
$ —
$ (5,000 ) $ —
Loss on bond exchange —
—
—
(2,182 )
Other income (expense), net 722
(2,027 ) 846
(1,442 )
Total other income (expense), net $ 722
$ (2,027 ) $ (4,154 ) $ (3,624 )

~~(8)Details of Selected Balance Sheet Accounts~~

~~Inventories~~

The following table is a summary of inventories (in thousands):

September 30, 2017 December 31, 2016
Raw materials and subassemblies $ 20,519
$ 21,454
Work-in-process 1,044
2,255
Finished goods 7,392
6,581
Reserve for excess and obsolete inventories (14,691 ) (15,049 )
Total $ 14,264
$ 15,241

~~(9)~~ ~~Accumulated Other Comprehensive Loss~~

~~The following table is a summary of changes in accumulated other comprehensive loss by component (in thousands):~~

Foreign currency translation adjustments Total
Accumulated other comprehensive loss at December 31, 2016 $ (21,748 ) $ (21,748 )
Net current-period other comprehensive income 2,749
2,749
Accumulated other comprehensive loss at September 30, 2017 $ (18,999 ) $ (18,999 )

~~(10)Supplemental Cash Flow Information and Non-cash Activity~~

~~The following table is a summary~~reconciliation of cash, ~~paid for Interest~~cash equivalents, and ~~Income taxes and non-cash items from investing and financing activities (in thousands):~~

restricted cash to the condensed consolidated balance sheets:

	March 31,
	2021			2020
	(In thousands)
Cash and cash equivalents	$	34,228		$	42,663
Restricted cash included in prepaid expenses and other current assets		2,327	(a)		0
Restricted cash included in other long-term assets		0			25
Total cash, cash equivalents, and restricted cash shown in consolidated statements of cash flows	$	36,555		$	42,688

^(a)Relates to letters of credit issued during third quarter 2020, primarily in connection with the Houston office lease deposit.

Nine Months Ended September 30,
2017 2016
Cash paid during the period for:
Interest $ 7,273
$ 8,819

Income taxes 3,756
2,579

Non-cash items from investing and financing activities:
Investment in multi-client data library in accounts payable and accrued expenses 8,485
—

Bond exchange —
10,740
^(a)

Table of Contents

(13)	Fair Value of Financial Instruments
^(a)	~~This represents the non-cash portion of the bond exchange.~~

~~(11)Fair Value of Financial Instruments~~

Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a ~~three-level~~three-level hierarchy, ~~prioritizing and defining~~under which the ~~types of~~fair value hierarchy prioritizes the inputs used to measure fair value.

The ~~carrying amounts of the Company’s debt~~three-tiered hierarchy is summarized as ~~of September 30, 2017~~follows:

Level 1—Quoted prices in active markets for identical assets and ~~December 31, 2016 were $159.6 million~~liabilities.

Level 2—Other significant observable inputs including quoted prices or other market data for similar assets and ~~$163.9 million, respectively, compared to its fair values of $139.8 million~~liabilities in active markets or quoted prices for identical or similar assets and ~~$114.8 million as of September 30, 2017 and December 31, 2016, respectively. The fair value of the debt was calculated using a readily observable price (Level 1).~~

~~Fair Value of Other Financial Instruments.~~ liabilities in less active markets.

Level 3—Significant unobservable inputs that require significant judgment for which there is little or no market data.

Due to their highly liquid nature, the amount of the Company’s other financial instruments, including cash and cash equivalents, restricted cash, accounts and unbilled receivables, ~~notes receivable,~~ accounts payable and accrued multi-client data library royalties, represent their approximate fair value.

~~(12) Stockholder's Equity, Stock-Based Compensation Expense and Repurchase Plan~~

~~At-The-Market Equity Offering Program~~

On December 22, 2016 the Company announced that it filed a prospectus supplement under which it could have sold up to $20 million of its common stock through an "at-the-market" equity offering program (the "ATM Program"). ION intended to use the net proceeds from sales under the ATM Program to be positioned to capitalize on opportunities such as acquiring complementary distressed assets, or other value-added transactions. Effective May 2, 2017, the Company terminated and canceled the ATM Program. No shares were sold pursuant to the ATM Program.

~~Stock-Based Compensation~~

The total number of shares issued or reserved for future issuance under outstanding stock options at September 30, 2017 and 2016 was 782,739 and 877,569, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2017 and 2016 was 163,184 and 293,340, respectively. The following table presents a summary of the activity related to stock options, restricted stock and restricted stock unit awards for the nine months ended September 30, 2017:

Stock Options Restricted Stock and Unit Awards
Number of Shares
Outstanding at December 31, 2016 847,635
285,308
Granted —
17,500
Stock options exercised/restricted stock and unit awards vested (12,500 ) (115,133 )
Cancelled/forfeited (52,396 ) (24,491 )
Outstanding at September 30, 2017 782,739
163,184

~~Stock-based compensation expense recognized for the nine months ended September 30, 2017 and 2016, totaled $1.7 million and $2.5 million, respectively.~~

~~In the first quarter 2017, the Company adopted ASU 2016-09,~~ ~~"Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,"~~ that changed how the Company accounts for certain aspects of share-based payments to employees. The Company is required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled. The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changed and now requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. There was no impact of adoption of ASU 2016-09 on net income, basic and diluted earnings per share, deferred tax assets or net cash from operations.

~~Stock Repurchase Program~~

On November 4, 2015, the Company’s board of directors approved a stock repurchase program authorizing a Company stock repurchase, from time to time from November 10, 2015, through November 10, 2017, up to $25 million in sharescarrying amounts of the Company’s ~~outstanding common stock.~~Old Notes at March 31, 2021 and December 31, 2020 were $120.6 million and $120.6 million, respectively, compared to its fair values of $114.9 million and $106.3 million at March 31, 2021 and December 31, 2020, respectively. Market conditions could cause an instrument to be reclassified from Level 1 to Level 2, or Level 2 to Level 3. The ~~stock repurchase program may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion. The actual timing, number and~~fair value of ~~shares repurchased~~the Old Notes was calculated using Level 2 inputs using significant observable data points for similar liabilities where estimated values are determined from observable transactions.

The carrying amount of any borrowings outstanding under the ~~program will be determined by management at its discretion~~Credit Facility approximate fair value, as the interest rate is variable and ~~will depend on a number~~reflective of ~~factors including the~~ market price of the shares of our common stock and general market and economic conditions, applicable legal requirements and compliance with the terms of our outstanding indebtedness. The repurchase program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time and could be terminated prior to completion. As of September 30, 2017, the Company had repurchased $3.0 million or 451,792 shares of its common stock under the repurchase program at an average price per share of $6.41. The Company does not expect to repurchase any additional shares prior to the expiration of the program on November 10, 2017.

~~(13) Recent Accounting Pronouncements~~

~~Revenue Recognition~~ — In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new accounting guidance for recognition of revenue. In August 2015, the FASB issued guidance deferring the effective date to years beginning after December 15, 2017, and interim periods within those years. This new guidance replaces virtually all existing U.S. GAAP and IFRS guidance on revenue recognition. The underlying principle is that the entity will recognize revenue to depict the transfer of goods and services to customers at an amount that the entity expects to be entitled to in the exchange of goods and services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of timerates.

Fair value ~~of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies~~measurements are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The Company currently expects to use the modified retrospective adoption method effective January 1, 2018. While the Company continues to finalize its assessment regarding how the implementation of this new guidance may affect the Company’s New Venture group’s financial position or results of operations, no material impact is currently expected. The Company does not expect the adoption of ASC 606 to have a material impact on its consolidated balance sheets or consolidated statement of operations for its Imaging Services group, Devices group, Optimization Software & Services group or its Ocean Bottom Seismic Services segment. The Company has put in place an implementation team to review contracts subject to the new revenue standard, provide trainings and work with third party specialists to assist in the evaluation. The implementation team continues to review contracts and monitor the potential impact to the Company’s financial position or results of operations.

~~In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”~~ which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The guidance will be effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company currently expects that the adoption of ASU 2016-02 may have a material impact related to its facility operating leases on its consolidated financial statements, and continues to evaluate the impact of vessel leases in the Company’s Ocean Bottom Seismic Services segment.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~“Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-18),”~~ that will require entities to show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. The guidance will be effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company does not currently expect the adoption of ASU 2016-18 to have a material impact on its consolidated financial statements.

~~(14) Condensed Consolidating Financial Information~~

The Notes were issued by ION Geophysical Corporation and are guaranteed by the Guarantors, all of which are wholly-owned subsidiaries. The Guarantors have fully and unconditionally guaranteed the payment obligations of ION Geophysical Corporationapplied with respect to ~~the Notes. The following condensed consolidating financial information presents the results of operations, financial position~~non-financial assets and ~~cash flows for:~~

~~ION Geophysical Corporation and the Guarantors (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).~~

~~All other subsidiaries of ION Geophysical Corporation that are not Guarantors.~~

~~The consolidating adjustments necessary to present ION Geophysical Corporation’s results~~liabilities on a ~~consolidated basis.~~

~~This condensed consolidating financial~~non-recurring basis (e.g. when possible indicators of impairment exist), which would consist of measurements of goodwill, multi-client data library and property, plant and equipment. The fair value of these assets is determined based on valuation techniques using the best information ~~should be read in conjunction with the accompanying consolidated financial statements~~available and ~~footnotes. For additional information pertaining to the Notes, See~~ may include market comparables and discounted cash flow projections.

Table of Contents

Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations~~” in Part II of this Form 10-Q.~~

September 30, 2017
Balance Sheet ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 17,244
$ —
$ 22,981
$ —
$ 40,225
Accounts receivable, net 40
6,034
33,300
—
39,374
Unbilled receivables —
11,357
14,476
—
25,833
Inventories —
8,582
5,682
—
14,264
Prepaid expenses and other current assets 1,558
504
2,197
—
4,259
Total current assets 18,842
26,477
78,636
—
123,955
Property, plant, equipment and seismic rental equipment, net 761
8,292
46,135
—
55,188
Multi-client data library, net —
68,791
27,960
—
96,751
Investment in subsidiaries 679,958
303,996
—
(983,954 ) —
Goodwill —
—
24,048
—
24,048
Intangible assets, net —
2,002
24
—
2,026
Intercompany receivables —
—
52,655
(52,655 ) —
Other assets 1,080
145
260
—
1,485
Total assets $ 700,641
$ 409,703
$ 229,718
$ (1,036,609 ) $ 303,453
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 38,278
$ 541
$ —
$ —
$ 38,819
Accounts payable 2,682
19,720
2,272
—
24,674
Accrued expenses 16,325
13,458
11,091
—
40,874
Accrued multi-client data library royalties —
24,371
205
—
24,576
Deferred revenue —
2,431
8,444
—
10,875
Total current liabilities 57,285
60,521
22,012
—
139,818
Long-term debt, net of current maturities 116,506
—
—
—
116,506
Intercompany payables 497,658
38,708
—
(536,366 ) —
Other long-term liabilities 461
6,170
10,435
—
17,066
Total liabilities 671,910
105,399
32,447
(536,366 ) 273,390
Equity:
Common stock 119
290,460
49,394
(339,854 ) 119
Additional paid-in capital 901,138
180,699
202,290
(382,989 ) 901,138
Accumulated earnings (deficit) (853,527 ) 233,706
42,766
(276,472 ) (853,527 )
Accumulated other comprehensive income (loss) (18,999 ) 4,385
(19,746 ) 15,361
(18,999 )
Due from ION Geophysical Corporation —
(404,946 ) (78,765 ) 483,711
—
Total stockholders’ equity 28,731
304,304
195,939
(500,243 ) 28,731
Noncontrolling interests —
—
1,332
—
1,332
Total equity 28,731
304,304
197,271
(500,243 ) 30,063
Total liabilities and equity $ 700,641
$ 409,703
$ 229,718
$ (1,036,609 ) $ 303,453

December 31, 2016
Balance Sheet ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 23,042
$ —
$ 29,610
$ —
$ 52,652
Accounts receivable, net —
12,775
7,995
—
20,770
Unbilled receivables —
5,275
8,140
—
13,415
Inventories —
8,610
6,631
—
15,241
Prepaid expenses and other current assets 3,387
4,624
1,548
—
9,559
Total current assets 26,429
31,284
53,924
—
111,637
Property, plant, equipment and seismic rental equipment, net 1,745
12,369
53,374
—
67,488
Multi-client data library, net —
97,369
8,566
—
105,935
Investment in subsidiaries 660,880
257,732
—
(918,612 ) —
Goodwill —
—
22,208
—
22,208
Intangible assets, net —
3,008
95
—
3,103
Intercompany receivables —
—
32,174
(32,174 ) —
Other assets 2,469
145
231
—
2,845
Total assets $ 691,523
$ 401,907
$ 170,572
$ (950,786 ) $ 313,216
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 11,281
$ 3,166
$ 134
$ —
$ 14,581
Accounts payable 2,101
19,720
5,068
—
26,889
Accrued expenses 8,579
10,016
7,645
—
26,240
Accrued multi-client data library royalties —
23,663
—
—
23,663
Deferred revenue —
2,667
1,042
—
3,709
Total current liabilities 21,961
59,232
13,889
—
95,082
Long-term debt, net of current maturities 143,930
279
—
—
144,209
Intercompany payables 472,276
10,155
—
(482,431 ) —
Other long-term liabilities 467
12,117
7,943
—
20,527
Total liabilities 638,634
81,783
21,832
(482,431 ) 259,818
Equity:
Common stock 118
290,460
19,138
(309,598 ) 118
Additional paid-in capital 899,198
180,700
232,590
(413,290 ) 899,198
Accumulated earnings (deficit) (824,679 ) 216,730
(3,639 ) (213,091 ) (824,679 )
Accumulated other comprehensive income (loss) (21,748 ) 4,420
(21,787 ) 17,367
(21,748 )
Due from ION Geophysical Corporation —
(372,186 ) (78,071 ) 450,257
—
Total stockholders’ equity 52,889
320,124
148,231
(468,355 ) 52,889
Noncontrolling interests —
—
509
—
509
Total equity 52,889
320,124
148,740
(468,355 ) 53,398
Total liabilities and equity $ 691,523
$ 401,907
$ 170,572
$ (950,786 ) $ 313,216

Three Months Ended September 30, 2017
Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
Net revenues $ —
$ 16,554
$ 44,541
$ —
$ 61,095
Cost of sales —
19,517
11,469
—
30,986
Gross profit (loss) —
(2,963 ) 33,072
—
30,109
Total operating expenses 8,349
7,856
3,968
—
20,173
Income (loss) from operations (8,349 ) (10,819 ) 29,104
—
9,936
Interest expense, net (4,054 ) 36
59
—
(3,959 )
Intercompany interest, net 259
(1,603 ) 1,344
—
—
Equity in earnings of investments 17,097
31,565
—
(48,662 ) —
Other income (expense) 19
(8 ) 711
—
722
Net income (loss) before income taxes 4,972
19,171
31,218
(48,662 ) 6,699
Income tax expense 37
837
812
—
1,686
Net income 4,935
18,334
30,406
(48,662 ) 5,013
Net income attributable to noncontrolling interests —
—
(78 ) —
(78 )
Net income (loss) attributable to ION $ 4,935
$ 18,334
$ 30,328
(48,662 ) $ 4,935
Comprehensive net income $ 5,968
$ 18,347
$ 31,351
$ (49,620 ) $ 6,046
Comprehensive income attributable to noncontrolling interest —
—
(78 ) —
(78 )
Comprehensive net income attributable to ION $ 5,968
$ 18,347
$ 31,273
$ (49,620 ) $ 5,968

Three Months Ended September 30, 2016
Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
Net revenues $ —
$ 30,155
$ 48,467
$ —
$ 78,622
Cost of sales —
22,724
24,133
—
46,857
Gross profit —
7,431
24,334
—
31,765
Total operating expenses 7,692
7,186
5,023
—
19,901
Income (loss) from operations (7,692 ) 245
19,311
—
11,864
Interest expense, net (4,583 ) (32 ) 8
—
(4,607 )
Intercompany interest, net 276
(1,138 ) 862
—
—
Equity in earnings of investments 13,494
15,039
—
(28,533 ) —
Other income (expense) 245
948
(3,220 ) —
(2,027 )
Net income before income taxes 1,740
15,062
16,961
(28,533 ) 5,230
Income tax expense 41
670
2,605
—
3,316
Net income 1,699
14,392
14,356
(28,533 ) 1,914
Net income attributable to noncontrolling interests —
—
(215 ) —
(215 )
Net income attributable to ION $ 1,699
$ 14,392
$ 14,141
(28,533 ) $ 1,699
Comprehensive net income $ 616
$ 14,392
$ 13,058
$ (27,235 ) $ 831
Comprehensive income attributable to noncontrolling interest —
—
(215 ) —
(215 )
Comprehensive net income attributable to ION $ 616
$ 14,392
$ 12,843
$ (27,235 ) $ 616

Nine Months Ended September 30, 2017
Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
Net revenues $ —
$ 44,533
$ 95,119
$ —
$ 139,652
Cost of sales —
55,473
32,351
—
87,824
Gross profit (loss) —
(10,940 ) 62,768
—
51,828
Total operating expenses 25,761
20,727
12,888
—
59,376
Income (loss) from operations (25,761 ) (31,667 ) 49,880
—
(7,548 )
Interest expense, net (12,697 ) (60 ) 93
—
(12,664 )
Intercompany interest, net 852
(4,743 ) 3,891
—
—
Equity in earnings of investments 13,963
49,418
—
(63,381 ) —
Other income (expense) (5,068 ) (348 ) 1,262
—
(4,154 )
Net income (loss) before income taxes (28,711 ) 12,600
55,126
(63,381 ) (24,366 )
Income tax expense 137
(4,376 ) 7,909
—
3,670
Net income (28,848 ) 16,976
47,217
(63,381 ) (28,036 )
Net income attributable to noncontrolling interests —
—
(812 ) —
(812 )
Net income (loss) attributable to ION $ (28,848 ) $ 16,976
46,405
$ (63,381 ) (28,848 )
Comprehensive net income (loss) $ (26,099 ) $ 16,941
$ 49,257
$ (65,386 ) $ (25,287 )
Comprehensive income attributable to noncontrolling interest —
—
(812 ) —
(812 )
Comprehensive net income (loss) attributable to ION $ (26,099 ) $ 16,941
$ 48,445
$ (65,386 ) $ (26,099 )

Nine Months Ended September 30, 2016
Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
(In thousands)
Net revenues $ —
$ 58,907
$ 78,532
$ —
$ 137,439
Cost of sales —
67,061
42,690
—
109,751
Gross profit (loss) —
(8,154 ) 35,842
—
27,688
Total operating expenses 24,894
21,687
15,960
—
62,541
Income (loss) from operations (24,894 ) (29,841 ) 19,882
—
(34,853 )
Interest expense, net (13,917 ) (179 ) 53
—
(14,043 )
Intercompany interest, net 727
(3,250 ) 2,523
—
—
Equity in earnings (losses) of investments (18,617 ) 19,163
—
(546 ) —
Other income (expense) (1,841 ) 771
(2,554 ) —
(3,624 )
Net income (loss) before income taxes (58,542 ) (13,336 ) 19,904
(546 ) (52,520 )
Income tax expense 115
1,419
4,331
—
5,865
Net income (loss) (58,657 ) (14,755 ) 15,573
(546 ) (58,385 )
Net income attributable to noncontrolling interests —
—
(272 ) —
(272 )
Net income (loss) applicable to ION $ (58,657 ) (14,755 ) $ 15,301
$ (546 ) $ (58,657 )
Comprehensive net income (loss) $ (63,939 ) $ (14,755 ) $ 10,019
$ 5,008
$ (63,667 )
Comprehensive income attributable to noncontrolling interest —
—
(272 ) ��
(272 )
Comprehensive net income (loss) attributable to ION $ (63,939 ) $ (14,755 ) $ 9,747
$ 5,008
$ (63,939 )

Nine Months Ended September 30, 2017
Statement of Cash Flows ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
(In thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ (2,785 ) $ 11,764
$ 1,039
$ 10,018
Cash flows from investing activities:
Cash invested in multi-client data library —
(7,041 ) (9,535 ) (16,576 )
Purchase of property, plant, equipment and seismic rental equipment (165 ) (775 ) (81 ) (1,021 )
Net cash used in investing activities (165 ) (7,816 ) (9,616 ) (17,597 )
Cash flows from financing activities:
Payments on notes payable and long-term debt (1,018 ) (3,244 ) (58 ) (4,320 )
Intercompany lending (1,574 ) (704 ) 2,278
—
Costs associated with issuance of equity (123 ) —
—
(123 )
Other financing activities (134 ) —
—
(134 )
Net cash provided by (used in) financing activities (2,849 ) (3,948 ) 2,220
(4,577 )
Effect of change in foreign currency exchange rates on cash and cash equivalents —
—
(271 ) (271 )
Net decrease in cash and cash equivalents (5,799 ) —
(6,628 ) (12,427 )
Cash and cash equivalents at beginning of period 23,042
—
29,610
52,652
Cash and cash equivalents at end of period $ 17,243
$ —
$ 22,982
$ 40,225

Nine Months Ended September 30, 2016
Statement of Cash Flows ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
(In thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ (31,403 ) $ 50,669
$ (16,034 ) $ 3,232
Cash flows from investing activities:
Investment in multi-client data library —
(10,027 ) (1,574 ) (11,601 )
Purchase of property, plant, equipment and seismic rental equipment —
(567 ) —
(567 )
Net cash used in investing activities —
(10,594 ) (1,574 ) (12,168 )
Cash flows from financing activities:
Borrowings under revolving line of credit 15,000
—
—
15,000
Repurchase of common stock (964 ) —
—
(964 )
Payments on notes payable and long-term debt (951 ) (5,304 ) (471 ) (6,726 )
Cost associated with issuance of notes (6,638 ) —
—
(6,638 )
Intercompany lending 31,867
(34,771 ) 2,904
—
Payment to repurchase bonds (15,000 ) —
—
(15,000 )
Other financing activities 13
—
—
13
Net cash provided by (used in) financing activities 23,327
(40,075 ) 2,433
(14,315 )
Effect of change in foreign currency exchange rates on cash and cash equivalents —
—
854
854
Net decrease in cash and cash equivalents (8,076 ) —
(14,321 ) (22,397 )
Cash and cash equivalents at beginning of period 33,734
—
51,199
84,933
Cash and cash equivalents at end of period $ 25,658
$ —
$ 36,878
$ 62,536

~~Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
~~Executive Summary~~
~~Our Business~~

In this Form 10-Q, “ION Geophysical,” “ION,” “the company” (or, “the Company”), “we,” “our,” “ours” and “us” refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.

The information contained in this Quarterly Report on Form 10-Q contains references to trademarks, service marks and registered marks of ION and our subsidiaries, as indicated. Except where stated otherwise or unless the context otherwise requires, the term “DigiFIN” refers to DigiFIN®, a registered mark owned by ION or its affiliates, and the terms ~~“VectorSeis,” “Orca,” “WiBand,”~~“Gemini”, “Marlin SmartPort” and ~~“4Sea” refer~~“SailWing” refers to ~~VECTORSEIS~~^®the Gemini™, ~~ORCA~~^®, ~~WiBand~~^®Marlin SmartPort™ and ~~4Sea~~^®~~registered~~SailWing™ trademarks and service marks owned by ION.

Going Concern and Old Notes Restructuring

On April 20, 2021, we completed our Restructuring Transactions (as further discussed below) that extended the maturity of the notes by four years to December 2025 and provided additional liquidity to help meet our anticipated cash needs. As a result of the Restructuring Transactions, $113.5 million in aggregate principal amount outstanding of the 9.125% Senior Secured Second Priority Notes due 2021 (the “Old Notes”) has been reclassified from short-term debt to long-term debt in the Condensed Consolidated Balance Sheets.While we may continue to explore additional funding through private or public equity transactions, debt financing or other capital sources to meet our ongoing cash needs, management believes the completion of the Restructuring Transactions removes the substantial doubt raised in December 31, 2020 about our ability to continue as a going concern as of March 31, 2021.

On April 20, 2021, we successfully completed our previously announced offer to exchange (the “Exchange Offer”) ION's Old Notes for newly issued 8.00% Senior Secured Second Priority Notes due 2025 (the “New Notes”) and other consideration in the form of cash and ION common stock, as described in ION's Prospectus dated March 10, 2021 and our previously announced rights offering (the "Rights Offering") to the holders of ION's common stock, par value $0.01 per share (the"Common Stock") to purchase for (i) $2.78 principal amount of the New Notes per right, at a purchase price of 100% of the principal amount thereof or (ii) 1.08 shares of common stock per right, at a purchase price of $2.57 per whole share of common stock. The Exchange Offer and the ~~terms “Marlin”~~Rights Offering are sometimes referred to herein as the Restructuring Transactions.

In the Exchange Offer, approximately $113.5 million, or approximately 94.1%, of the $120.6 million outstanding Old Notes were accepted and ~~“Gator,” refers~~exchanged for (1) $84.7 million aggregate principal amount of our New Notes, (ii) 6.1 million shares of Common Stock, including 1.5 million shares issued as the early participation payment and 4.6 million shares issued as stock consideration in lieu of the New Notes and (iii) $20.7 million paid in cash, including $3.6 million of accrued and unpaid interest that became due on the Old Notes as part of the exchange. We have accepted for exchange all such Old Notes validly tendered and not validly withdrawn in the Exchange Offer as of the expiration time on April 12, 2021. Pursuant to the ~~Marlin™~~Exchange Offer, we will make an offer to participants to repurchase New Notes at par for up to 50% of the proceeds raised in excess of $35.0 million from the Rights Offering valued at $3.4 million.

In the concurrent Rights Offering, an aggregate amount of $41.8 million of rights (including over-subscription) was validly exercised by the holders of ION's Common Stock, apportioned as $30.1 million in New Notes and ~~GATOR™, trademarks owned by ION.~~

$11.8 million in Common Stock allocated in 4.6 million shares. All over-subscription rights were exercised without proration as the $50.0 million limit on proceeds was not exceeded. Backstop parties were paid 5% backstop fees, in kind, resulting in the issuance of an additional $1.5 aggregate principal amount of New Notes and 0.2 million shares of Common Stock.

In total, $116.2 million in aggregate principal amount of New Notes and 10.9 million shares of Common Stock were issued. We ~~provide geoscience technology, services~~received approximately $14 million in net proceeds from the transactions after deducting noteholder obligations, estimated transaction fees and ~~solutions~~accrued and unpaid interest paid on the Old Notes. After the Restructuring Transactions, $7.1 million of Old Notes remain outstanding and a total of 28.8 million shares of Common Stock are outstanding as of April 20, 2021.

The amendment to the ~~global oil and gas industry. Our offerings are designed~~Old Notes Indenture is effective as of April 20, 2021. The Old Notes have been modified to, ~~allow oil and gas companies to obtain higher resolution images~~among other things, provide for the release of the ~~Earth’s subsurface~~second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to ~~reduce their risk~~the Old Notes. For further details, refer to Footnote 4 "Long-term Debt - New Notes" of Footnotes to the Condensed Consolidated Financial Statements.

COVID-19 Business Impact and ~~optimize assets across~~Response

The COVID-19 pandemic caused the global economy to enter a recessionary period, which may be prolonged and severe. During 2020, the exploration and production ~~lifecycle. Seismic imaging plays a fundamental~~(“E&P”) industry faced the dual impact of demand deterioration from COVID-19 and market oversupply from increased production, which caused oil and natural gas prices to decline significantly for most of 2020. Brent crude prices, which are most relevant to ION’s internationally focused business increased to approximately $66 per barrel during April 2021, which is consistent with prices prior to the pandemic. This reflects the continued expectation of rising oil demand as both the global economic activity and COVID-19 vaccination rates, increase combined with ongoing crude oil production limits from members of OPEC and partner countries.

The level and consistency of crude prices play an integral role in ~~hydrocarbon exploration~~the level of customers' offshore capital spending programs. While commodity prices can be volatile, the sharp decline throughout 2020 triggered E&P companies to reduce budgets by approximately 25%. Exploration offerings and ~~reservoir development by delineating structures, rock types~~data purchases are often discretionary and, ~~fluid locations~~therefore, receive disproportionately higher reductions than overall budget cuts. Consequently, there has been a material slowdown in offshore seismic spending since the second quarter of 2020.

While management expects the E&P market to remain challenging in the ~~subsurface. The high resolution images~~near-term, there have been a number of positive developments that point to improving market conditions. Analyst projections and client activity continue to suggest increasing E&P spend and demand for seismic data in the second half of the ~~Earth’s subsurface can be used~~year. Spurred by increasing global demand and on-going production limits, Brent crude oil pricing, which is most relevant to ~~reduce uncertainty associated with identifying sources~~ION’s internationally-focused business, has rebounded to pre-pandemic levels. In addition, there has been positive momentum across a number of ~~hydrocarbons and pinpointing drilling locations for wells, which can be costly and risky.~~

~~We acquire and process seismic data on both a proprietary and multi-client basis. The multi-client seismic surveys~~leading indicators for our business, such as license rounds, tender activity, services engagements and backlog. Therefore, the we remain cautiously optimistic market conditions will improve through the second half of 2021. The market backdrop serves as a catalyst to drive necessary cost restructuring and digital transformation of the E&P industry.

In January 2021, the Biden Administration ordered an indefinite moratorium on new U.S. oil and gas leasing and drilling permits on federal lands onshore and offshore waters. Management believes this will have a negligible impact on our business given ION's diversified global footprint and international offshore focus. Should the moratorium result in longer-term change, this could drive large scale E&P company portfolio investment more towards international offshore, which would be well aligned with our offerings.

Our management expects continued portfolio rationalization and high grading as E&P companies seek to find the best return on investment opportunities to meet oil and gas demand in the next decade. Near-term, due to the impact of the COVID-19 pandemic, project high grading will likely be more acute due to budget reductions. Over the last several years, we strategically shifted our portfolio closer to the reservoir, where revenue tends to be higher and more consistent. New Venture data ~~library~~acquisition offshore and Software and related personnel-based offshore services are expected to continue to be most impacted by COVID-19 travel restrictions. While offshore operations have been temporarily impacted by travel restrictions, we believe the demand for digitalization technologies will remain strong. In some cases, ION technology is expected to be more relevant and valuable in the current environment, such as offerings that facilitate remote working.

We continue to work closely with our clients to understand their budgets and spending priorities and to scale our business ~~are pre-funded, or underwritten,~~appropriately. We partially mitigated the impact of the current macroeconomic environment by fully benefiting from the structural changes and associated cost reductions through salary cuts of approximately $40 million, reduced capital expenditures, renegotiation of our current leases and application for various government assistance programs, among others. The management plan reflects our continued focus on preserving cash and managing liquidity in ~~part by~~the current uncertain macroeconomic environment. In the event our customers experience more extensive capital constraints and ~~with the exception~~budget reductions, further reducing demand for our services and products, resulting in deterioration of our ~~ocean bottom seismic (“OBS”) data acquisition~~revenues below our current forecasted levels, management may be required to update its plan by implementing further cost reductions and delaying capital investments. Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.

Table of Contents

Our Business

ION is an innovative, asset light global technology company ~~OceanGeo B.V. (“OceanGeo”),~~that delivers powerful data-driven decision-making offerings to offshore energy and ports and harbors industries. We are entering a fourth industrial revolution where technology is fundamentally changing how decisions are made. Decision-making is shifting from what was historically an art to a science. Data, analytics and digitalization provide a step-change opportunity to translate information into insights, enabling our clients to enhance decisions, gain a competitive edge and deliver superior returns.

We have been a leading technology innovator for over 50 years. While the traditional focus of our technology has been on the E&P industry, we ~~utilize an “asset lite” strategy by contracting with third party seismic data acquisition companies~~are now broadening and diversifying our business into relevant adjacent markets such as offshore logistics and ports and harbors. Our offerings are focused on improving subsurface knowledge to ~~acquire the seismic data, all of which is intended~~enhance E&P decision-making and improving situational awareness to ~~minimize our risk exposure.~~optimize offshore operations. We serve customers in most major energy producing regions of the world from ~~offices~~ strategically located ~~across six continents.~~

offices.

The Company is publicly listed on the New York Stock Exchange under the ticker IO. We are headquartered in Houston, Texas with regional offices around the world. We have approximately 400 employees, 45% of whom are in technical roles and 21% have advanced degrees.

We provide our services and products through ~~three~~two business segments: E&P Technology & Services ~~E&P~~and Operations ~~Optimization and Ocean Bottom Seismic Services.~~Optimization. In addition, we have a 49% ownership interest in ~~our~~ INOVA Geophysical Equipment Limited (“INOVA Geophysical” or “INOVA”), a joint venture with BGP Inc. (“~~INOVA Geophysical,” or “INOVA”~~BGP”)~~. As~~, a subsidiary of ~~December 31, 2014, we~~China National Petroleum Corporation. BGP owns the remaining 51% equity interest in INOVA. We wrote ~~down~~ our investment in INOVA ~~Geophysical~~down to zero ~~and therefore no longer record~~in 2014. See further discussion below on our ~~share of losses~~agreement to sell our interest in ~~the joint venture.~~

For decades, we have provided innovative seismic data acquisition technology, such as multicomponent imaging with VectorSeis products, the ability to record seismic data from basins below ice, and cableless seismic techniques. The advanced technologies we currently offer include our Orca and Gator command and control software systems, WiBand broadband data processing technology, our OBS acquisition systems, and other technologies, each of which is designed to deliver improvements in both image quality and productivity. In 2015, we introduced our Marlin solution for optimizing simultaneous operations offshore. Our new OBS technology, 4Sea, opens a much larger market due to the system’s increased flexibility and efficiency. We introduced this system to all major consumers of OBS projects at the European Association of Geophysical Contractors annual meeting in June 2017 and it was extremely well received. We have worked quietly for over three years to develop this system and believe it will be extremely competitive.

We have approximately 500 patents and pending patent applications in various countries around the world. Approximately 49% of our employees are in technical roles and over 25% of our employees have advanced degrees.

~~E&P Technology & Services~~. INOVA.

Our E&P Technology & Services segment ~~provides three distinct service activities that often work together.~~

~~Our E&P Technology & Services segment focuses on providing~~creates digital data assets and delivers services to help E&P companies ~~to make better decisions,~~improve decision-making, reduce risk and maximize value. ~~For example,~~ Across the E&P lifecycle, our E&P offerings focus on driving customer decisions, such as which blocks to bid on and for how much, how to maximize portfolio value, where to drill wells or how to optimize production.

Our Operations Optimization segment develops mission-critical subscription offerings and provides engineering services that enable operational control and optimization offshore. This segment is comprised of our Optimization Software & Services and Devices offerings. Our hardware and software offerings facilitate some of the largest man-made mobile operations and in some of the harshest conditions.

We historically conducted our land seismic equipment business through INOVA, which manufactures land seismic data acquisition systems, digital sensors, vibroseis vehicles (i.e., vibrator trucks), and energy source controllers. In March 2020, we announced an agreement to sell our 49% ownership interest in INOVA joint venture for $12.0 million, subject to regulatory approvals and other closing conditions. Closing of the transaction is expected in 2021.

E&P Technology & Services provides information to better understand new frontiers, imaging services to better understand complex subsurface geologies and consulting services to optimize asset decisions and portfolios and to help host governments maximize assets by supporting a license round, etc.

. Our ~~Ventures services~~offerings are designed to ~~manage~~help E&P companies improve decision-making, reduce risk and maximize value. Within our E&P Technology and Services segment, there are two synergistic groups: Imaging and Reservoir Services and Ventures.

While our Imaging and Reservoir Services group processes and images data for customers on a proprietary basis, the ~~entire~~majority of these resources support our higher potential return multi-client business. The proprietary work we take on is complex, where our advanced technology is valued and where we closely collaborate with our customers to solve their toughest challenges. We maintain approximately 19 petabytes of digital seismic data storage through our global data centers, including a core data center located in Houston. We utilize a globally distributed network of Linux-cluster processing centers in combination with our major hubs in Houston and London to process ~~for~~seismic data using advanced, proprietary algorithms and workflows.

Table of Contents

Our Ventures group leverages the geoscience skills of the Imaging and Reservoir Services group to create global digital data assets that are licensed to multiple E&P companies to optimize their investment decisions. Our global data library consists of over 740,000 km of 2D and over 390,000 sq km of 3D multi-client seismic data in virtually all major offshore petroleum provinces. Ventures provides services to manage multi-client or proprietary surveys, from survey planning and design to data acquisition and management, to final subsurface imaging and reservoir characterization. ~~Our Ventures group focuses~~We focus on the technologically intensive components of the image development process, such as survey planning and design, and data processing and interpretation, while outsourcing ~~the logistics~~asset-intensive components (such as field acquisition) to experienced ~~seismic and other geophysical~~ contractors. ~~Since 2002, our basin exploration seismic data programs~~

Occasionally we develop proprietary technology solutions that fill a gap we have ~~resulted in a substantial data library that covers significant portions of many basins~~identified in the ~~world, including offshore East~~market and ~~West Africa, South America,~~support our multi-client program development efforts. For example, previously we created an under-ice acquisition solution to collect data in the Arctic ~~the Gulf of Mexico~~ and ~~Australia.~~

~~Our Imaging Services group offers data processing and imaging services designed~~Marlin™ was initially developed to help manage our ~~E&P~~own complex survey operations. In 2020, we commercialized Gemini™ extended frequency source technology. Gemini’s unique design efficiently supports substantially improved data quality and lower environmental impact desired by the industry. This important ingredient to enhancing subsurface knowledge differentiates ION as we expand into the larger 3D multi-client new acquisition market while maintaining our asset light approach.

We offer our services to customers ~~reduce exploration~~on both a proprietary and ~~production risk, evaluate and develop reservoirs, and increase production. Imaging Services develops~~multi-client (non-exclusive) basis. In both cases, a ~~series~~majority of subsurface images by applying its processing technology to data owned or licensed by its customers. We maintain approximately 17 petabytes of digital seismic data storage in four global data centers, including two core data centers located in Houston and in the U.K.

Our E&P Advisors group partners with operators, energy industry regulators and capital institutions to capture and monetize E&P opportunities worldwide. This group provides technical, commercial and strategic advice across the E&P value chain, working at basin, prospect and field scales.

~~E&P Operations Optimization~~. ~~Our E&P Operations Optimization segment combines~~ our ~~Optimization Software & Services and Devices offerings.~~

~~Our Optimization Software & Services group provides~~ survey design and command and control software systems and related services for towed marine streamer and seabed operations. Our Orca software is installed on towed streamer marine vessels worldwide, and our Gator software is used by many re-deployable and permanent seabed acquisition systems. Our Marlin solution is used for optimizing simultaneous operations offshore.

~~Our Devices group is engaged in the manufacture and repairs of marine towed streamer positioning and control systems and analog geophone sensors.~~

~~Ocean Bottom Seismic Services. Through our experienced OceanGeo team, we offer a fully integrated OBS solution that includes survey design, planning, and acquisition services performed~~costs are generally pre-funded by our ~~crew using custom~~customers, limiting our cost exposure. The period during which our multi-client surveys are being designed, ~~vessels~~acquired or processed is referred to maximize image quality, operational efficiency and safety. Our team manufactures and repairs re-deployable ocean bottom cable seismic data acquisition systems and shipboard recorders for use in OBS data acquisition. In addition, our team provides superior imaging via OceanGeo’s exclusive useas the “New Venture” phase. Once the New Venture phase is completed, the surveys become part of our ~~seabed acquisition systems; and data processing, interpretation and reservoir~~Data Library. For proprietary services, ~~by our Imaging Services and E&P Advisors groups.~~

~~INOVA Geophysical~~. Historically, we conducted our land seismic equipment business through INOVA Geophysical, which is a joint venture with BGP Inc. (“BGP”). BGP is a subsidiary of China National Petroleum Corporation, and is generally regarded as the world’s largest land geophysical service contractor. BGP owns a 51% equity interest in INOVA Geophysical, and we own the remaining 49% interest. INOVA manufactures cable-based and cableless data acquisition systems, digital sensors, vibroseis vehicles (i.e., vibrator trucks) and source controllers for land seismic surveys.

~~Macroeconomic Conditions~~

Demand for our services and products is cyclical and dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness to invest capital in the exploration for oil and natural gas. Our customers’ capital spending programs are generally based on their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. Following an unprecedented two years of double-digit declines, third-party reports now indicate that global exploration and production spending is expected to increase 8% in 2017, with further increases of 4% in 2018.

In the past few years, crude oil prices have been volatile due to global economic uncertainties. Significant downward oil price volatility began late in 2014 and reached a low average of $33 per barrel in early 2016. The material decrease in crude oil prices can be attributed principally to high levels of global crude oil inventories resulting from significant production growth in the U.S. shale plays, the strengtheningcustomer has exclusive ownership of the ~~U.S. dollar relative to other foreign currencies and the Organization~~data. For multi-client surveys, we generally retain ownership of Petroleum Exporting Countries (“OPEC”) increasing its production, causing a global supply and demand imbalance for crude oil. In late November 2016, OPEC and other non-OPEC participants such as Russia reached an agreement to cut their oil production.

The prices for Intercontinental Exchange Brent (“Brent”) and West Texas Intermediate (“WTI”) crude oil remained steady at an average of $52 per barrel and $49 per barrel, respectively, in the first nine months of 2017. This represents an improvement over the average crude oil prices for the full year 2016 of $43 per barrel and $42 per barrel, respectively. This increase was due to multiple factors, including successful OPEC production cuts and net inventory crude draws which reduced the current crude surplus. Many analysts currently expect the crude price to remain closeour long-term exclusive marketing rights to the ~~current price for the remainder of 2017. Energy reform in Mexico~~data and a bill passed in Brazil that eliminates the requirement for Petrobras to participate in every presalt offshore block, in conjunction with the stability of oil prices, has resulted in increased investment in those areas. In addition, price stability has encouraged North American drillers to increase shale production. During the first nine months of 2017, U.S. producers added 282 rigs bringing the total U.S. rig count 940, a 43% increase during the first nine months of 2017, compared to 658 rigs at the end of 2016.

Given the historical volatility of crude prices, there is a continued risk that if prices start to decline again due to high levels of crude oil production, there is a potential for slowing growth rates in various global regions and/or forreceive ongoing ~~supply/demand imbalances.~~

Prices for natural gas in the U.S. averaged $3.01 per mmBtu in the first nine months of 2017, compared to $2.40 per mmBtu for the full year 2016, and $4.57 per mmBtu for the first nine months of 2014. As a result of natural gas production growth outpacing demand in the U.S., natural gas prices continue to be weak relative to prices experienced from 2006 through 2008. If the supply of natural gas from conventional and unconventional production or associated natural gas production from oil wells continues to exceed demand, prices for natural gas may remain depressed for an extended period of time.

After a period of growth in exploration activities and associated spending leading up to the end of 2014, many E&P companies shifted their focus to production activities, away from exploration, as the continued decline in oil and gas prices resulted in decreased revenues, prompting cost reduction initiatives across the industry. From the end of 2014 through 2016, E&P companies decreased spending on exploration and reportedly focused their spending on critical production requirements and existing commitments. We believe this was due to several factors, but primarily because operational cash flows of E&P companies were no longer sufficient to cover capital expenditures while continuing to pay cash dividends to shareholders. E&P companies relied on asset sales and debt financings to fund capital requirements amid demands for greater returns to shareholders. The combination of these factors placed many E&P companies in a position where they were unable to cover both their capital expenditure budgets and targeted cash returns to shareholders. As a result, E&P companies dramatically cut spending, with exploration spending receiving the largest reductions and seismic spending being one of the most discretionary parts of their exploration budgets. As a result of this industry downturn, many customers experienced a significant reduction in their liquidity with challenges accessing the capital markets. Several exploration and production companies declared bankruptcy, or exchanged equity for the forgiveness of debt, while others were forced to sell assets in an effort to preserve liquidity. However, over the past 12 months, access to the capital and debt markets improved significantly for certain of these customers.

During 2017 and into 2018, E&P spending is expected to rebound and increase following two successive years of double digit declines as commodity prices are forecasted to remain more stable. This positive trend in E&P spending, aided by favorable macroeconomic conditions has resulted in increased revenues during the first nine months of 2017. If the global supply of oil decreases due to reduced capital investment by E&P companies, government instability occurs in a major oil-producing nation or energy demand increases in the U.S. or in countries such as China and India, the recovery in WTI and Brent crude oil prices could continue to improve. If commodity prices start to deteriorate again, demand for our services and products could decline.

~~Impact to Our Business~~

During the first nine months of 2017, we saw renewed customer interest in underwriting of our new venture programs as oil companies were able to right-size their expenditures to current oil prices and generate profits for the first time in nine quarters. During the first nine months of 2017, revenues increased by 2% as compared to the first nine months of 2016. During the first nine months of 2016, our OBS Services segment completed a survey offshore Nigeria, since which the crew has remained idle. Excluding the OBS Services revenue from ~~one year ago, revenues were up 38%. Investments in our multi-client~~subsequent data library are dependent upon the timing of our new venture projects and the availability of underwriting by our customers. We continue to maintain high standards for the underwriting of any new projects, and have sanctioned several new programs in the current year that were originally planned to occur during 2016. license sales.

Our ~~“asset lite” strategy enables us to scale our business to avoid significant fixed costs and to remain financially flexible as we manage the timing and levels of our capital expenditures.~~

~~In our~~ E&P Technology & Services segment ~~our new venture~~net revenues ~~increased related~~decreased compared to ~~progress and new sales on our 3-D reimaging programs, as well as 2-D new venture programs that met our conservative underwriting standards, this increase~~the first quarter 2020 due to decline in ~~new venture revenues was partially offset by a decline in~~multi-client data library sales. We invested ~~$16.6~~$5.2 million in our multi-client data library during the first three ~~quarters~~months of ~~2017~~2021 and we expect investments in our multi-client data library to be in athe range of ~~$20~~$25.0 million to ~~$30~~$40.0 million for ~~2017,~~2021 (a significant portion of which is estimated to be pre-funded or underwritten by our customers) compared to the ~~$14.9~~$9.7 million invested in ~~2016.~~

As2020. Whether remaining planned expenditures will actually be spent in 2021 depends on industry conditions, project approvals and schedules, and careful monitoring of ~~September 30, 2017,~~our levels of liquidity.

At March 31, 2021, our E&P Technology & Services segment backlog, which consists of commitments for (i) ~~data processing~~imaging and reservoir services work and (ii) ~~both multi-client~~ new venture projects (both multi-client and ~~proprietary projects~~proprietary) by our Ventures group underwritten by our customers, was ~~$39.6~~$21.4 million compared to ~~$33.9~~$19.7 million at December 31, ~~2016~~2020 and ~~$29.9~~$14.6 million at ~~September 30, 2016. The growth of backlog was due to ongoing activity in Mexico as well as activity related to several newly sanctioned programs.~~March 31, 2020. We anticipate that ~~the majority~~most of our backlog will be recognized as revenue ~~over~~during the ~~next six months.~~

~~For~~second and third quarters of 2021 as our Mid North Sea High program progresses this summer.

Over the first nine months of 2017, our Ocean Bottom Seismic Services segment continues to be affected by E&P companies delaying or canceling decisions to commit capital to OBS projects, while our crew has remained idle since completion of a survey offshore Nigeria in the third quarter 2016. Despite political issues and uncertainty, we see significant long-term potential for OceanGeo and our technologies to improve OBS productivity, and we expect demand for OBS surveys to increase.

Our seismic contractor customers are also experiencing weakened demand due to the reduction in seismic spending by their oil company customers. Since early 2014, seismic contractors have taken approximately 35 seismic vessels, or about 29% of the fleet, out of the market, contributing to slightly lower E&P Operations Optimization segment sales year-over-year.

We continue to monitor the global economy, the demand for crude oil and natural gas and the resulting impact on the capital spending plans and operations of our E&P customers to plan our business. During late 2014 and continuing through mid-2016, we reduced our workforce by over 60%, and closed selected facilities. Our workforce has since stabilized. These actions are expected to result in annualized cash savings of approximately $95 million which we began to fully realize in 2017. We remain confident that, despite current marketplace challenges described above,last five years, we have ~~positioned ourselves~~made an effort to ~~take advantage of the next E&P market upturn by reducing our cost structure to reflect our revenue base, shifting our focus more toward E&P solutions and less on equipment sales, and by diversifying~~diversify our offerings across the E&P ~~lifecycle.~~life cycle and move closer to the reservoir, where capital investment tends to be higher and more consistent. Historically, our data library was largely 2D and exploration focused, which limited our revenues to approximately 3% of a $2.0 to $3.0 billion-dollar offshore multi-client market. In 2020, we entered the 3D multi-client new acquisition market, where revenue and earnings potential are at least five times a typical new 2D exploration program. This strategy shift builds on our 3D multi-client reimaging success and leverages our tier 1 imaging and new Gemini seismic source technology.

Operations Optimization. Our Operations Optimization segment develops mission-critical subscription offerings and provides engineering services that enable operational control and optimization offshore. Our advanced systems improve situational awareness, communication and risk management to enable rapid, informed decisions in challenging offshore environments. Our industry-leading mission management, navigation, communications and sensing technologies enable safer, more efficient operations.

This segment is comprised of our Optimization Software & Services and Devices offerings.

Our Optimization Software & Services group provides survey design, command and control software systems and related services for marine towed streamer and seabed operations. We are market leaders in our core business and adapted our platform to more broadly optimize operations beyond our core market. Our software offerings leverage a leading data integration platform to control and optimize operations. Engineering services experts deliver in-field optimization services, equipment maintenance and training to maximize value from our offerings.

Table of Contents

Our Devices group develops intelligent equipment controlled by our software to optimize operations. Our Devices group develops, manufactures and repairs marine towed streamer and seabed data acquisition technology, sensors and compasses which have been deployed in marine robotics, defense, E&P and other commercial applications.

Our Operations Optimization net revenues decreased compared to the first quarter 2020 resulting from COVID-19 reduced seismic activity and vessel stacking.

It is our view that technologies that provide a competitive advantage through improved imaging, lower costs, higher productivity, or enhanced safety will continue to be valued in ~~our marketplace.~~the market. We believe ~~that~~ our newest technologies ~~such as Marlin and 4Sea,~~ will continue to attract customer interest because these technologies are designed to deliver those desirable ~~qualities.~~

~~WesternGeco Litigation~~

~~A more in depth treatment of the WesternGeco Litigation is set forth in Footnote 6 “Litigation” of~~ ~~Footnotes to Unaudited Condensed Financial Statements~~attributes.

INOVA Geophysical. As noted in such Footnote, on July 2, 2015, the United States Court of Appeals for the Federal Circuit in Washington, D.C. reversed in part the District Court’s judgment, holding the District Court erred by including lost profits in the Final Judgment. Lost profits were $93.4 millionINOVA manufactures land acquisition systems, land source products, vibroseis vehicles, and prejudgment interest was approximately $10.9 million of the $123.8 million Final Judgment. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015 the Court of Appeals denied WesternGeco’s petition for rehearing en banc.

On February 26, 2016, WesternGeco filed a petition for writ of certiorari by the Supreme Court. We filed our response on April 27, 2016. Subsequently, on June 20, 2016, the Supreme Court refused to disturb the Court of Appeals ruling finding no lost profits as a matter of law. Separately, in light of the changes in case law regarding the standard of proof for willfulness in the Halosource controllers and Stryker cases, the Supreme Court indicated that the case should be remanded to the Federal Circuit for a determination of whether or not the willfulness determination by the District Court was appropriate.

On November 14, 2016, the District Court issued an order reducing the amount of the appeal bond from $120.0 million to $65.0 million, ordered the sureties to pay principal and interest on the royalty previously awarded and declined to issue a final judgment until after consideration of whether enhanced damages related to willfulness should be awarded in the case. While we did not agree with the unusual decision by the District Court ordering payment of the royalty damages and interest without a final judgment, we paid the $20.8 million due pursuant to the order to WesternGeco on November 25, 2016.

On March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness would be payable. The Judge found that ION’s infringement was willful, based on his perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during trial. However, he limited enhanced damages to $5.0 million because it was a “close case,” there was no evidence of copying, and ION was simply acting as a competitor in a capitalist marketplace. The District Court also ordered the appeal bond to be released and discharged. The Court’s findings were memorialized in an order issued on May 16, 2017. On June 30, 2017, WesternGeco and we jointly agreed that neither party would appeal the District Court's award of $5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the course of 12 months with $1.25 million being paid in two installments of $0.625 million in 2017 and the remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1, 2018. This agreement was memorialized by the court in an order issued on July 26, 2017.

WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on February 17, 2017, appealing the lost profits issue again. We filed our response to WesternGeco’s second attempt to appeal to the Supreme Court the lost profits issue, raising both the substantive matters we addressed by opposing WesternGeco’s first petition, and also raising a procedural argument that WesternGeco cannot raise the same issue for a second time in a second petition for certiorari. On May 30, 2017, the Supreme Court called for the views of the U.S. Solicitor General regarding whether or not to grant certiorari. (The U.S. Supreme Court has discretion to hear, or not hear, WesternGeco’s appeal; granting WesternGeco’s request for a writ of certiorari would mean that the U.S. Supreme Court decided to hear WesternGeco’s appeal of the decision by the United States Court of Appeals for the Federal Circuit with respect to the lost profits issue. If the Supreme Court agrees to hear WesternGeco’s appeal, we will contest WesternGeco’s appeal at the Supreme Court. In such a case, it is possible that the Supreme Court could issue a ruling adverse to ION.) We and WesternGeco each met with the Solicitor General’s office in late July, 2017. The Solicitor General is expected to issue its brief as to whether the Supreme Court should grant certiorari near the end of 2017 or the beginning of 2018, although there is no deadline for the Solicitor General to issue such an opinion.

multicomponent sensors.

Key Financial Metrics

The table below provides an overview of key financial metrics for our company as a whole and our ~~three~~two business segments for the three ~~and nine~~ months ended ~~September 30, 2017~~,March 31, 2021, compared to the same period of ~~2016 (in thousands, except share data).~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net revenues:
E&P Technology & Services:
New Venture $ 43,542
$ 8,393
$ 70,477
$ 16,278

Data Library 5,044
21,510
25,360
32,057

Total multi-client revenues 48,586
29,903
95,837
48,335

Imaging Services 3,468
6,134
13,409
19,338

Total 52,054
36,037
109,246
67,673

E&P Operations Optimization:
Devices 5,260
8,679
17,929
20,664

Optimization Software & Services 3,781
3,922
12,477
12,685

Total 9,041
12,601
30,406
33,349

Ocean Bottom Seismic Services —
29,984
—
36,417

Total $ 61,095
$ 78,622
$ 139,652
$ 137,439

Gross profit (loss):
E&P Technology & Services $ 28,533
$ 12,888
$ 44,464
$ (418 )
E&P Operations Optimization 4,055
6,866
15,100
16,647

Ocean Bottom Seismic Services (2,479 ) 12,011
(7,736 ) 11,459

Total $ 30,109
$ 31,765
$ 51,828
$ 27,688

Gross margin:
E&P Technology & Services 55 % 36 % 41 % (1 )%
E&P Operations Optimization 45 % 54 % 50 % 50 %
Ocean Bottom Seismic Services — % 40 % — % 31 %
Total 49 % 40 % 37 % 20 %
Income (loss) from operations:
E&P Technology & Services $ 22,695
$ 7,259
$ 27,952
$ (16,867 )
E&P Operations Optimization 998
3,682
5,569
7,162

Ocean Bottom Seismic Services (4,432 ) 9,320
(12,300 ) 2,053

Support and other (9,325 ) (8,397 ) (28,769 ) (27,201 )
Income (loss) from operations $ 9,936
$ 11,864
$ (7,548 ) $ (34,853 )
Operating margin:
E&P Technology & Services 44 % 20 % 26 % (25 )%
E&P Operations Optimization 11 % 29 % 18 % 21 %
Ocean Bottom Seismic Services — % 31 % — % 6 %
Support and other (15 )% (11 )% (21 )% (20 )%
Total 16 % 15 % (5 )% (25 )%
Net income (loss) attributable to ION $ 4,935
$ 1,699
$ (28,848 ) $ (58,657 )
Net income (loss) per share:
Basic $ 0.42
$ 0.14
$ (2.43 ) $ (5.21 )
Diluted $ 0.41
$ 0.14
$ (2.43 ) $ (5.21 )

Special Items —
—
5,000
(a) 4,191
(b)
Net income (loss) attributable to ION as adjusted $ 4,935
$ 1,699
$ (23,848 ) $ (54,466 )
Net income (loss) per share as adjusted:
Basic $ 0.42
$ 0.14
$ (2.01 ) $ (4.83 )
Diluted $ 0.41
$ 0.14
$ (2.01 ) $ (4.83 )


^(a)	~~Represents a loss contingency accrual related to legal proceedings. See footnote 6~~ ~~“Litigation”~~ ~~of Footnotes to Consolidated Financial Statements.~~


^(b)	~~Represents severance charges of $2.0 million and $2.2 million on extinguishment of debt associated with our second quarter 2016 bond exchange.~~

~~We intend that~~2020.

	Three Months Ended March 31,
	2021			2020
Net revenues:
E&P Technology & Services:
New Venture	$	1,087		$	1,441
Data Library		2,484			40,131
Total multi-client revenues		3,571			41,572
Imaging and Reservoir Services		3,665			4,942
Total	$	7,236		$	46,514
Operations Optimization:
Optimization Software & Services	$	2,844		$	4,427
Devices		3,956			5,473
Total	$	6,800		$	9,900
Total net revenues	$	14,036		$	56,414
Gross profit (loss):
E&P Technology & Services	$	(1,607	)	$	23,730		(a)
Operations Optimization		2,466			4,614
Total gross profit	$	859		$	28,344
Gross margin:
E&P Technology & Services		(22	)%		51	%
Operations Optimization		36	%		47	%
Total		6	%		50	%
Income (loss) from operations:
E&P Technology & Services	$	(4,853	)	$	17,952		(a)
Operations Optimization		(820	)		(3,259	)	(b)
Support and other		(4,561	)		(8,367	)
Income (loss) from operations		(10,234	)		6,326
Interest expense, net		(3,262	)		(3,221	)
Other income (expense), net		(607	)		429
Income (loss) before income taxes	$	(14,103	)	$	3,534

^(a)Includes impairment of multi-client data library of $1.2 million for the ~~following discussion~~three months ended March 31, 2020.

^(b)Includes impairment of ~~our financial condition and results~~goodwill of ~~operations will provide information that will assist in understanding our consolidated financial statements,~~$4.2 million for the ~~changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes.~~

three months ended March 31, 2020.

For a discussion of factors that could impact our future operating results and financial condition, see (i) Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~,2020, and (ii) Item 1A. “Risk Factors” in Part II of this Form 10-Q.

Table of Contents

Results of Operations

Three Months Ended ~~September 30, 2017~~March 31, 2021 Compared to Three Months Ended ~~September 30, 2016~~

March 31, 2020

Our consolidated net revenues of ~~$61.1~~$14.0 million for the three months ended ~~September 30, 2017~~March 31, 2021 (the “Current Quarter”) decreased by ~~$17.5~~$42.4 million, or ~~(22)%~~75%, compared to ~~total~~consolidated net revenues of ~~$78.6~~$56.4 million for the three months ended ~~September 30, 2016~~March 31, 2020 (the “Comparable Quarter”). ~~Excluding the OBS Services revenues from the third quarter 2016; OBS Services crew was idle throughout 2017; all other segment revenues were up 26% compared to the third quarter 2016.~~ Our ~~overall~~total gross margin was ~~49%~~6.1% in the Current Quarter, as compared to ~~40%~~50.2% in the Comparable Quarter. For the Current Quarter, our ~~income~~loss from operations was ~~$9.9~~$10.2 million, compared to aan income of ~~$11.9~~$6.3 million for the Comparable Quarter.

Net ~~income~~loss attributable to ION for the Current Quarter was ~~$4.9~~$7.2 million, or ~~$0.41~~$0.46 loss per ~~diluted~~ share, compared to ~~$1.7~~$2.3 million, or ~~$0.14~~$0.16 loss per ~~diluted~~ share, for the Comparable ~~Quarter, which includes OBS operations.~~

Quarter.

Net Revenues, Gross Profits and Gross Margins

E&P Technology & Services — Net revenues for the Current Quarter ~~increased~~decreased by ~~$16.1~~$39.3 million, or ~~44%~~84%, to ~~$52.1~~$7.2 million, compared to ~~$36.0~~$46.5 million for the Comparable Quarter resulting from a significant year-end 2D data library that ultimately closed in the Comparable Quarter. Within the E&P Technology & Services segment, total multi-client net revenues were $3.6 million, a decrease of 91% primarily due to lower volume of data library sales resulting from the lengthy E&P budgeting process and generally subdued spending levels. Imaging and Reservoir Services net revenues were $3.7 million, a decrease of $1.3 million compared to the Comparable Quarter due to lower proprietary tender activity. The Current Quarter reflects a gross loss of $1.6 million, representing a (22)% gross margin, compared to a gross profit of $23.7 million, or 51% gross margin, in the Comparable Quarter. Changes in gross profit (loss) and margin were due to decrease in our net revenues as discussed above.

Operations Optimization — Net revenues for the Current Quarter decreased by $3.1 million, or 31% to $6.8 million, compared to $9.9 million for the Comparable Quarter. ~~The increase in~~Optimization Software & Services net revenues ~~was~~for the Current Quarter declined by $1.6 million, or 36% to $2.8 million, compared to $4.4 million for the Comparable Quarter due to reduced seismic activity and associated services demand resulting from COVID-19. Devices net revenues for the Current Quarter decreased by $1.5 million, or 28%, to $4.0 million, compared to $5.5 million for the Comparable Quarter primarily due to ~~continued revenue from our 3-D multi-client reimaging programs offshore Mexico~~lower sales of towed streamer equipment spares and Brazil, as well as revenues from new 2-D multi-client programs that have recently been launched. These increases were partially offset by a decline in our data library sales, primarily related to a significant one-time purchase by a customer in the third quarter 2016 that did not reoccur in the third quarter 2017, as well as a decrease in imaging services as a result of the shift we made to higher return multi-client new ventures programs.repairs. The Current Quarter reflects a gross profit of ~~$28.5~~$2.5 million, representing a ~~55%~~36% gross margin ~~improving $15.6 million as~~ compared to a gross profit of ~~$12.9~~$4.6 million, ~~which represented~~representing a ~~36%~~47% gross margin infor the Comparable Quarter. ~~These improvements~~Changes in gross profit and margin were due to the ~~increase~~decline in ~~revenues and due to a mix of higher margin 3-D reimaging programs as noted above and~~ our ~~cost control initiatives implemented in 2014 and continued through 2016.~~

~~E&P Operations Optimization~~ ~~— Devices~~ net revenues for the Current Quarter decreased by $3.4 million, or 39%, to $5.3 million, compared to $8.7 million for the Comparable Quarter. Revenues continue to be impacted by reduced activity by seismic contractors as numerous vessels have been taken out of service. Optimization Software & Services net revenues for the third quarter decreased by $0.1 million, or 3% to $3.8 million, compared to $3.9 million for the Comparable Quarter. Gross margin was 45% for the Current Quarter, compared to 54% for the Comparable Quarter. The decline in gross margin was due to a higher mix of lower margin sales in the current quarter.

~~Ocean Bottom Seismic Services~~ — Net revenues for the Current Quarter were zero compared to $30.0 million for Comparable Quarter due to the OBS survey offshore Nigeria in 2016. In 2017, the crew remains idle. Gross loss for the Current Quarter was $2.5 million, compared to gross income of $12.0 million for the Comparable Quarter, due to the reduction in revenue.

discussed above.

Operating Expenses

Research, Development and Engineering — Research, development and engineering expense ~~increased $0.2~~were $2.9 million for the Current Quarter, a decrease of $1.1 million, or ~~5%,~~26% compared to ~~$4.4~~$4.0 million for the Comparable Quarter primarily due to the cost cutting initiative implemented following the COVID-19 related market impact. We continue to invest in imaging algorithms and infrastructure, devices and software. We see significant long-term potential for investing in technologies that improve image quality, safety and productivity.

Marketing and Sales — Marketing and sales expense were $2.8 million for the Current Quarter, a decrease of $2.1 million, or 43% compared to $4.9 million for the Comparable Quarter primarily due to the reduction of commission expense resulting from reduced revenues during the Current Quarter.

General, Administrative and Other Operating Expenses — General, administrative and other operating expenses were $5.4 million for the Current Quarter, a decrease of $3.6 million, or 40% compared to $9.0 million for the Comparable Quarter primarily due to the reduction in severance expenses and lower compensation expenses from furloughs and salary reductions as well as the employee retention credit that we qualified for during the Current Quarter.

Impairment of Goodwill — Impairment of goodwill was zero for the Current Quarter compared to $4.2 million for the Comparable Quarter resulting from an impairment charge recognized during the Comparable Quarter. ~~During the current down-cycle in E&P exploration spending, we have been selective in spending on research and development (“R&D”) projects in order~~See further discussion at Footnote 9 “Details of Selected Balance Sheet Accounts” of Footnotes to reduce expenses without sacrificing our ability to develop our technologies. As discussed above, despite the extended market downturn and uncertainty, we see significant long-term potential for OceanGeo and our technologies to improve OBS productivity. We continue to invest in our 4Sea system and we expect long-term demand for OBS production surveys (4-D) to increase.

~~Marketing and Sales~~Condensed Consolidated Financial Statements.

Other Items

Interest Expense, Net — ~~Marketing and sales~~Interest expense, ~~increased $0.9 million, or 19%, to $5.6~~net, was $3.3 million for the Current Quarter compared to ~~$4.7~~$3.2 million for the Comparable ~~Quarter primarily due to higher commissions driven by increased sales in the E&P Technology & Services segment.~~

~~General, Administrative and Other Operating Expenses~~ ~~— General, administrative and other operating expenses decreased $0.9 million, or 8%, to $10.1 million, for the Current Quarter, compared to $11.0 million for the Comparable~~ Quarter. ~~These improvements were due to our cost control initiatives implemented 2014 and continued through 2016.~~

~~Other Items~~

~~Interest Expense, net~~ — Interest expense, net, was $4.0 million for the Current Quarter compared to $4.6 million for the Comparable Quarter. Interest expense decreased slightly due to lower principal debt balances resulting from the bond exchange in the second quarter 2016. For additional information, please refer to “Liquidity and Capital Resources — Sources of Capital” below.

~~Other~~

Income ~~(Expense), Net~~Tax Expense (Benefit) — ~~Other income~~Income tax expense (benefit) for the Current Quarter was ~~$0.7~~$(6.8) million compared to ~~other expense of $2.0~~$5.9 million for the Comparable Quarter. ~~This difference was~~The income tax benefit for the Current Quarter primarily relates to the reversal of the valuation allowance of $7.7 million related to net deferred tax assets of certain foreign ~~currency losses, primarily due to transaction losses to the portion of Ocean Bottom Services revenue recorded in Nigerian Naira during the Comparable Quarter.~~

~~Income Tax Expense~~ ~~— Income~~subsidiaries. The income tax expense for the ~~Current~~Comparable Quarter ~~was $1.7 million compared~~primarily relates to ~~$3.3 million~~results generated by our non-U.S. businesses in Latin America. The income tax expense for the Comparable ~~Quarter.~~Quarter includes $2.2 million of valuation allowance related to our non-U.S. businesses. Our effective tax rates for the Current Quarter and Comparable Quarter were ~~25.2%~~ and 63.4%, respectively. The income tax expense for the Current Quarter and Comparable Quarter primarily relates to results generated by our non-U.S. businesses. Our effective tax rate for the Current Quarter was negatively impacted by the change in valuation ~~allowance~~allowances related to ~~U.S.~~U.S and certain foreign operating ~~losses~~losses. Due to the impact of the valuation allowances on tax expense (benefit), our effective tax rates are not meaningful for ~~which we cannot currently recognize a tax benefit.~~all periods presented. See further discussion of establishment of the deferred tax valuation allowance at Footnote 57 “Income Taxes”of~~Notes~~Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

Table of Contents

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

Our consolidated net revenues of $139.7 million for the nine months ended September 30, 2017 (the “Current Period”) increased by $2.2 million, or 2%, compared to total net revenues of $137.4 million for the nine months ended September 30, 2016 (the “Comparable Period”). Excluding the OBS Services revenues from the nine months of 2016; OBS Services crew was idle throughout 2017; all other segment revenues were up 38% compared to the nine months of 2016. Our overall gross profit percentage for the Current Period was 37%, compared to 20%, for the Comparable Period. For the Current Period, our loss from operations was $7.5 million, compared to $34.9 million, for the Comparable Period.

Net loss for the Current Period was $28.8 million, or $(2.43) per share, compared to a net loss of $58.7 million, or $(5.21) per share, in the Comparable Period. Excluding the impact of special items, as noted in the above table, adjusted net loss for Current Period was $23.8 million, or $(2.01) per share compared to adjusted net loss of $54.5 million, or $(4.83) per share, in the Comparable Period.

~~Net Revenues, Gross Profits and Gross Margins~~

~~E&P Technology & Services~~ — Net revenues for the Current Period increased by $41.6 million, or 61%, to $109.2 million, compared to $67.7 million for the Comparable Period. The change in revenues during the Current Period is fairly consistent with the changes as described for the Current Quarter as discussed above. Gross profit increased by $44.9 million to a gross profit of $44.5 million, representing a 41% gross margin, compared to a gross loss of $0.4 million, representing a (1)% gross margin, in the Comparable Period. These improvements in gross profit and margin were due to the increase in revenues and due to a mix of higher margin 3-D reimaging programs as noted above and our cost control initiatives implemented in 2014 and continued through 2016.

~~E&P Operations Optimization~~ — Devices net revenues for the Current Period decreased by $2.7 million, or 13%, to $17.9 million, compared to $20.7 million for the Comparable Period. Revenues continue to be impacted by reduced activity by seismic contractors as numerous vessels have been taken out of service; reduced revenues have been partially offset by new system sales to non-traditional customers for scientific and military applications and from incremental sales of recently commercialized products. Optimization Software & Services net revenues for the Current Periods decreased by $0.2 million, or 2%, to $12.5 million compared to $12.7 million for the Comparable Period. Excluding the effect of foreign currencies, Optimization Software & Services revenues were up 6% in terms of local GBP currency. Gross profit decreased by $1.5 million to $15.1 million, representing a 50% gross margin, for the Current Period compared to $16.6 million, representing a 50% gross margin, for the Comparable Period. Gross profits decreased due to lower sales as noted above, while the gross margin remained consistent the the Comparable Period.

~~Ocean Bottom Services~~ — Net revenues for the Current Period were zero compared to $36.4 million for the Comparable Period due to the OBS survey offshore Nigeria in 2016. In 2017, the crew remains idle. Gross loss for the Current Period was $7.7 million compared to gross profit of $11.5 million for the Comparable Period. The decrease in gross profit corresponds to the decrease in revenues as described above.

~~Operating Expenses~~

~~Research, Development and Engineering~~ — Research, development and engineering expense was $12.0 million for the Current Period, a decrease of $2.6 million, or 18%, compared to $14.6 million for the Comparable Period. During the current down-cycle in E&P exploration spending, we have been selective in spending on research and development (“R&D”) projects in order to reduce expenses without sacrificing our ability to develop our technologies. As discussed above, despite the extended market downturn and uncertainty, we see significant long-term potential for OceanGeo and our technologies to improve OBS productivity. We continue to invest in our 4Sea system and we expect long-term demand for OBS production surveys (4-D) to increase.

~~Marketing and Sales~~ — Marketing and sales expense was $15.1 million for the Current Period, an increase of $1.7 million, or 13%, compared to $13.4 million, for the Comparable Period, primarily due to higher commissions driven by increased sales in the E&P Technology & Services segment.

~~General, Administrative and Other Operating Expenses~~ — General, administrative and other operating expenses were $32.3 million for the Current Period, a decrease of $2.3 million, or 7%, compared to $34.6 million for the Comparable Period. This decrease was primarily due to the benefit of our cost control initiatives, implemented in 2014 and continued through 2016.

~~Other Items~~

~~Interest Expense, net~~ — Interest expense, net, was $12.7 million for the Current Period compared to $14.0 million for the Comparable Period. Interest expense decreased due to lower debt balances resulting from the bond exchange in the second quarter 2016. For additional information, please refer to “

Liquidity and Capital Resources —

Sources of Capital~~” below.~~

~~Other Expense, Net~~ — Other expense for the Current Period was $4.2 million compared to other expense of $3.6 million for the Comparable Period. This difference was primarily related to an increase in our loss contingency accrual related to the WesternGeco legal proceedings of $5.0 million in the current period, compared to a loss of $2.2 million on the exchange of bonds during the Comparable Period.

~~Income Tax Expense~~ — Income tax expense for the Current Period was $3.7 million compared to $5.9 million for the Comparable Period. Our effective tax rates for the Current Period and Comparable Period were (15.1)% and (11.2)%, respectively. Our income tax expense for the Current Period and Comparable Periods, were primarily related to results from our non-US businesses. Our effective tax rate for the Current Period was negatively impacted by the change in valuation allowance related to U.S. operating losses for which we cannot currently recognize a tax benefit. See further discussion of establishment of the deferred tax valuation allowance at Footnote 5 “~~Income Taxes~~”of ~~Notes to Unaudited Condensed Consolidated Financial Statements.~~

~~Liquidity and Capital Resources~~

~~Sources of Capital~~

~~As of~~ ~~September 30, 2017~~,

At March 31, 2021, we had ~~$40.2~~total liquidity of $39.5 million, consisting of $34.2 million of cash on hand and ~~$12.1~~$5.3 million of ~~undrawn~~remaining borrowing ~~base availability~~capacity under ~~the~~our Credit Facility. As of March 31, 2021, we had outstanding indebtedness of $21.3 million under our Credit Facility.

Our cash requirements include working capital requirements and cash required for our debt service payments, multi-client seismic data acquisition activities and capital expenditures. As of ~~September 30, 2017,~~March 31, 2021, we had negative working capital of ~~$(15.8)~~$43.6 million ~~which includes a current liability~~compared to $150.9 million as of ~~$28.5~~December 31, 2020. Improvement in working capital resulted from the $113.5 million in aggregate principal amount outstanding of ~~Senior secured third-priority lien notes~~Old Notes that ~~are payable during~~were reclassified from short-term debt to long-term debt in the ~~second quarter 2018, which we expect to pay at maturity using available liquidity.~~Condensed Consolidated Balance Sheets. Working capital requirements are primarily driven by our investment in our multi-client data library ($~~16.6~~5.2 million in the Current ~~Period)~~Period and $25.0 million to $40.0 million expected, for the full year, a significant portion of which is estimated to be pre-funded or underwritten by our customers) and royalty payments for multi-client sales. ~~Also,~~Our multi-client data library investment in 2021 includes $2.5 million of payments to our acquisition partners for seismic acquisition costs incurred in prior years. Approximately 29% of our accounts payable balance as of March 31, 2021 relates to amounts owed to our seismic acquisition partners. Whether remaining planned expenditures will actually be spent in 2021 depends on industry conditions, project approvals and schedules, and careful monitoring of our levels of liquidity.

Our headcount has traditionally been a significant driver of our working capital needs. As a significant portion of our business is involved in the planning, processing and interpretation of seismic data services, one of our largest investments is in our employees, which ~~involves~~requires cash expenditures for their salaries, bonuses, payroll taxes and related compensation ~~expenses. During late 2014~~expenses, including stock appreciation awards, typically in advance of related revenue billings and continuing through mid-2016, we reduced our workforce by over 60%, and closed selected facilities. Our workforce has since stabilized. These actions are expected to result in annualized cash savings of approximately $95 million which we began to fully realize in 2017.

collections.

Our working capital requirements may change from time to time depending upon many factors, including our operating results and adjustments in our operating plan in response to industry conditions, competition and unexpected events. In recent years, our primary sources of funds have been cash flows generated from operations, existing cash balances, debt and equity issuances and borrowings under our ~~revolving credit facilities.~~

~~Revolving~~ Credit ~~Facility~~

Facility.

~~In August 2014,~~

Registered Direct Offering

On February 16, 2021, we ~~and our material U.S. subsidiaries, GX Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (collectively, the “Subsidiary Borrowers”)~~ entered into a ~~Revolving Credit~~securities purchase agreement (the “Securities Purchase Agreement”) which provided for the sale and ~~Security~~issuance by us of an aggregate of 2,990,001 shares (the “Shares”) of ION common stock, $0.01 par value per share (the “Common Stock”) at an offering price of $3.50 per share for gross proceeds of approximately $10.5 million before deducting the placement agent’s fees and related offering expenses. The Securities Purchase Agreement ~~with PNC Bank, National Association (“PNC”), as agent (the “Original Credit Agreement”),~~contained customary representations, warranties and agreements by us, customary conditions to closing, indemnification obligations of ION, other obligations of the parties and termination provisions. We used the net proceeds for working capital and general corporate purposes.

The Registered Direct Offering was made pursuant to a Registration Statement (No. 333-234606) on Form S-3, which was filed by us with the SEC on November 8, 2019, as amended ~~by the First Amendment~~on December 19, 2019, and declared effective on December 23, 2019.

Old Notes Restructuring

On April 20, 2021, we successfully completed our previously announced offer to ~~Revolving Credit and Security Agreement in August 2015~~exchange (the ~~“First Amendment”~~“Exchange Offer”) ION's 9.125% Senior Secured Second Priority Notes due 2021 (the “Old Notes”) for newly issued 8.00% Senior Secured Second Priority Notes due 2025 (the “New Notes”) and other consideration in the ~~Second Amendment~~form of cash and ION common stock, as described in ION's Prospectus dated March 10, 2021 and our previously announced rights offering (the "Rights Offering") to ~~Revolving Credit and Security Agreement in April 2016 (the “Second Amendment”; the Original Credit Agreement, as amended by the First Amendment and the Second Amendment, the “Credit Facility”~~our holders of ION's common stock, par value $0.01 per share (the"Common Stock").

~~The Credit Facility is available~~ to ~~provide~~purchase for ~~the Borrowers’ general corporate needs, including working capital requirements, capital expenditures, surety deposits and acquisition financing. The maximum~~(i) $2.78 principal amount of the ~~revolving line~~New Notes per right, at a purchase price of ~~credit under the Credit Facility is the lesser of $40.0 million and a monthly borrowing base.~~

~~The borrowing base under the Credit Facility will increase or decrease monthly using a formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage~~100% of the ~~net orderly liquidation value~~principal amount thereof or (ii) 1.08 shares of ~~our multi-client data library (not to exceed $15.0~~common stock per right, at a purchase price of $2.57 per whole share of common stock.

In total, $116.2 million for the multi-client data library component). As of September 30, 2017, the borrowing base under the Credit Facility was $22.1 million, and there was $10.0 million of outstanding indebtedness under the Credit Facility. Even though the Company experienced a significant increase in ~~its accounts and unbilled receivables, those increases were part of the Company’s foreign operations which are not included the borrowing base calculation.~~

The Credit Facility requires us to maintain compliance with various covenants. At September 30, 2017, we were in compliance with all of the covenants under the Credit Facility. For further information regarding our Credit Facility, see Footnote 3 “~~Long-term Debt” of~~ ~~Footnotes to Unaudited Condensed Financial Statements~~.

~~Senior Secured Notes~~

~~In May 2013, we sold $175.0 million~~ aggregate principal amount of ~~8.125% Senior Secured Second-Priority~~New Notes ~~due 2018 (the “Third Lien Notes”)~~and 10.9 million shares of ION common stock were issued. We received approximately $14 million in net proceeds from the transactions after deducting noteholders obligations, estimated transaction fees and accrued and unpaid interest paid on the Old Notes. After the Restructuring Transactions, $7.1 million of Old Notes remain outstanding and a ~~private offering pursuant to an indenture dated~~total of 28.8 million shares of Common Stock are outstanding as of ~~May 13, 2013 (the “Third Lien~~April 20, 2021. For further details, refer to Footnote 1 "Summary of Significant Accounting Policies - Going Concern and Old Notes ~~Indenture”). On April 28, 2016, we successfully completed an exchange offer (the “Exchange Offer”) and consent solicitation (the “Consent Solicitation”) related~~Restructuring" of Footnotes to the ~~Third Lien Notes. For a complete discussion of the terms of the Exchange Offer and Consent Solicitation, see Footnote 4 to the~~Condensed Consolidated Financial Statements ~~included in the Company’s Annual Report on Form 10-K for the year ended December~~.

Old Notes

At March 31, 2016. Prior to the completion of the Exchange Offer and Consent Solicitation on April 28, 2016, the Third Lien Notes were our senior secured second-priority obligations. After giving effect to the Exchange Offer and Consent Solicitation, the remaining aggregate principal amount of approximately $28.5 million of outstanding Third Lien Notes became our senior secured third-priority obligations subordinated to the liens securing all of our senior and second priority indebtedness, including under the Credit Facility and Second-Priority Lien Notes.

~~Pursuant to the Exchange Offer and Consent Solicitation,~~2021, we ~~(i) issued approximately~~had $120.6 million in aggregate principal amount outstanding of our ~~new~~9.125% Senior Secured Second ~~Lien~~Priority Notes, and 1,205,477 shares of common stock, (utilizing 508,464 of treasury shares) in exchange for approximately $120.6 million in aggregate principal amount of Third Lien Notes, and (ii) purchased approximately $25.9 million in aggregate principal amount of Third Lien Notes in exchange for aggregate cash consideration totaling approximately $15.0 million, plus accrued and unpaid interestwhich mature on ~~the Third Lien Notes from the applicable last interest payment date to, but not including, April 28, 2016.~~

~~After giving effect~~December 15, 2021 (the “Old Notes”), prior to the ~~Exchange Offer~~Restructuring Transactions completed in April 2021 as discussed in further details above and ~~Consent Solicitation, the aggregate principal amount~~ of ~~the Third Lien Notes remaining outstanding was approximately $28.5 million and the aggregate principal amount~~Footnote 4 “Long-term Debt” of ~~Second Lien Notes outstanding was approximately $120.6 million.~~

~~The Third Lien Notes are guaranteed by our material U.S. subsidiaries, GX Technology Corporation, ION Exploration Products (U.S.A.)~~Footnotes to Condensed Consolidated Financial Statements, Inc. and I/O Marine Systems, Inc. (the “Guarantors”). The Third Lien Notes mature on May 15, 2018. Interest on the Third Lien Notes accrues at the rate of 8.125% per annum and is payable semiannually in arrears on May 15 and November 15 of each year during their term.

~~The Third Lien Notes Indenture requires us to maintain compliance with various covenants. At September 30, 2017, we~~ were ~~in compliance with all of the covenants under the Third Lien Notes Indenture.~~

~~The Second Lien Notes are~~ senior secured second-priority obligations guaranteed by the ~~Guarantors. The Second Lien~~Material U.S. Subsidiaries and the Mexican Subsidiary (each as defined above and herein below, with the reference to the Old Notes, ~~mature~~the “Guarantors”). As a result of the Restructuring Transactions, $113.5 million in aggregate principal amount outstanding of Old Notes has been reclassified from short-term debt to long-term debt in the Condensed Consolidated Balance Sheets. Also, $7.1 million of Old Notes remain outstanding and are due along with unpaid interest on December 15, 2021. Interest on the Second Lien Notes accrues at the rate of 9.125% per annum and is payable semiannually in arrears on June 15 and December 15 of each year during their term, except that the interest payment otherwise payable on June 15, 2021, will be payable on December 15, 2021.

The ~~indenture dated~~ April ~~28,~~ 2016 indenture governing the ~~Second Lien~~Old Notes (the ~~“Second Lien~~"Old Notes ~~Indenture”~~Indenture") ~~contains~~contained certain covenants that, among other things, ~~limits~~limited or ~~prohibits our ability and the ability of our restricted subsidiaries to take~~prohibited us from taking certain actions or ~~permit~~permitting certain conditions to exist during the term of the ~~Second Lien~~Old Notes, including among other things, incurring additional indebtedness in excess of permitted indebtedness, creating liens, paying dividends and making other distributions in respect of our capital stock, redeeming our capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These and other restrictive covenants contained in the ~~Second Lien~~ Notes Indenture are subject to certain exceptions and qualifications. All of our subsidiaries are currently restricted subsidiaries.

At ~~September 30, 2017,~~March 31, 2021, we were in compliance with all of the covenants under the ~~Second Lien~~Old Notes. For further information regarding our Old Notes, see above Footnote 4 “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements.

Table of Contents

On April 20, 2021, we, the Guarantors, Wilmington Savings Fund Society, FSB, as trustee, and collateral agent, entered into a supplemental indenture (the “Supplemental Indenture”) to the Old Notes Indenture, dated as of April 28, 2016, among us, the Guarantors, Wilmington Savings Fund Society, FSB (as successor to Wilmington Trust, National Association), as trustee, and U.S. Bank National Association, as collateral agent, governing the Old Notes Indenture. The Supplemental Indenture, among other things, provides for the release of the second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to the Old Notes. The Old Notes Indenture, as modified by the Supplemental Indenture, is materially less restrictive and affords significantly reduced protection to holders of such securities as compared to the restrictive covenants, events of default and other provisions previously contained in the Old Notes Indenture.

New Notes

~~On or after~~

The New Notes are governed by the Indenture (the "New Notes Indenture") dated as of April 20, 2021, among us, certain of our subsidiaries, as guarantors (as defined under Old Notes above), and UMB Bank, National Association, as trustee and collateral agent (the “New Notes Trustee”). The New Notes are senior secured second-priority debt obligations of us and will mature on December 15, ~~2019, we may~~2025. The New Notes will bear interest at a rate of 8.00% per annum. Interest on the New Notes will be payable on each June 15 and December 15, commencing on June 15, 2021. The New Notes will initially be guaranteed by each of ION’s material domestic subsidiaries and one ~~or more occasions redeem~~subsidiary organized under the laws of Mexico (provided that certain matters with respect to such Mexico subsidiary will be finalized within 60 days of settlement) (“Guarantors”). For further details, refer to Footnote 1 "Summary of Significant Accounting Policies - Going Concern and Old Notes Restructuring" of Footnotes to the Condensed Consolidated Financial Statements.

The New Notes will be senior obligations of ION; will be secured on a second-priority basis, equally and ratably with all ~~or a part~~obligations of ION under any future Parity Lien Debt (as defined in the New Notes Indenture), by Liens on all of the ~~Second~~assets of ION other than the Excluded Assets, subject to the Liens securing ION’s obligations under the Credit Agreement and any other Priority Lien Debt and other Permitted Prior Liens (as defined in the New Notes Indenture); will be effectively junior to any Permitted Prior Liens, to the extent of the value of the assets of ION subject to those Permitted Prior Liens; will be senior in right of payment to any future subordinated Indebtedness of ION, if any; will be unconditionally guaranteed by the Guarantors; and will be structurally subordinated to all existing and future Indebtedness (as defined in the New Notes Indenture), claims of holders of preferred stock and other liabilities of subsidiaries of ION that do not guarantee the New Notes.

Each guarantee of the New Notes will be senior obligations of each Guarantor; will be secured on a second-priority basis, equally and ratably with all obligations of that Guarantor under any other future Parity Lien Debt, by Liens on all of the assets of that Guarantor other than the Excluded Assets, subject to the Liens securing that Guarantor’s guarantee of the Credit Agreement obligations and any other Priority Lien Debt and other Permitted Prior Liens; will be effectively junior, to the extent of the value of the Collateral (as defined in the New Notes Indenture), to that Guarantor’s guarantee of the Credit Agreement and any other Priority Lien Debt, which will be secured on a first-priority basis by the same assets of that Guarantor that secure the New Notes; will be effectively junior to any Permitted Prior Liens, to the extent of the value of the assets of that Guarantor subject to those Permitted Prior Liens; and will be senior in right of payment to any future subordinated Indebtedness of that Guarantor, if any.

If a Change of Control (as described in the New Notes Indenture) occurs, holders of the New Notes may require us to repurchase their New Notes at a cash repurchase price equal to 101% of the ~~redemption prices set forth below,~~principal amount of the New Notes to be repurchased, plus accrued and unpaid ~~interest and special interest, if any, on the Second Lien Notes redeemed during the 12-month period beginning on December 15th of the years indicated below:~~

Date Percentage
2019 105.500%
2020 103.500%
2021 and thereafter 100.000%

interest. For further information regarding our New Notes, refer to Footnote 4 “ Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements.

Revolving Credit Facility

On August 16, 2018, we and our material U.S. subsidiaries — GX Technology Corporation, ION Exploration Products (U.S.A), Inc. and I/O Marine Systems, Inc. (the “Material U.S. Subsidiaries”) — along with GX Geoscience Corporation, S. de R.L. de C.V., a limited liability company (Sociedad de Responsibilidad Limitada de Capital Variable) organized under the laws of Mexico, and our subsidiary (the “Mexican Subsidiary”) (the Material U.S. Subsidiaries and the Mexican Subsidiary are collectively, the “Subsidiary Borrowers”, together with ION Geophysical Corporation are the “Borrowers”) — the financial institutions party thereto, as lenders, and PNC Bank, National Association (“PNC”), as agent for the lenders, entered into that certain Third Amendment and Joinder to Revolving Credit and Security Agreement (the “Third Amendment”), amending the Revolving Credit and Security Agreement, dated as of August 22, 2014 (as previously amended by the First Amendment to Revolving Credit and Security Agreement, dated as of August 4, 2015 and the Second ~~Lien Notes~~Amendment to Revolving Credit and Security Agreement, dated as of April 28, 2016, the “Credit Agreement”). The Credit Agreement, as amended by the First Amendment, the Second Amendment and the Third ~~Lien~~Amendment is herein called the “Credit Facility”).

On April 20, 2021, we and the Guarantors, as co-borrowers, the financial institutions party thereto, as lenders, and PNC Bank, National Association, as agent for the lenders, entered into a fourth amendment (the “Fourth Amendment”) to the Credit Facility. The Credit Facility, as amended by the Fourth Amendment, among other things, permitted the consummation of the Restructuring Transactions, including the issuance of the New Notes and certain cash payments to our noteholders in connection with the Exchange Offer and the Rights Offering, and made certain other changes to the Credit Facility’s definitions and other provisions, including with respect to LIBOR, where the successor LIBOR rate index will be the benchmark replacement determined by PNC..

The maximum amount available under the Credit Facility is the lesser of $50.0 million or a monthly borrowing base. The borrowing base under the Credit Facility will increase or decrease monthly using a formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage of the net orderly liquidation value of the Borrowers’ multi-client data library (not to exceed $28.5 million for the multi-client data library component). At March 31, 2021, there was $21.3 million outstanding indebtedness under the Credit Facility and the undrawn remaining borrowing base capacity was $5.3 million. During April 2021, we repaid $1.5 million of the outstanding indebtedness under the Credit Facility to bring the excess borrowing availability above $6.25 million.

The Credit Facility requires us to maintain compliance with various covenants. At March 31, 2021, we were in compliance with all of the covenants under the Credit Facility. For further information regarding our Credit Facility, see above Footnote 4 “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements.

At-The-Market Equity Offering Program

On April 26, 2021, we filed a prospectus supplement under which it may sell up to $10 million of its common stock through an "at-the-market" equity offering program (the "ATM Program"). We intend to use the net proceeds from sales under the ATM Program for working capital and general corporate purposes. The timing of any sales will depend on a variety of factors to be determined by us.

Table of Contents

Government Relief Funding

On April 11, 2020, we entered into a Note Agreement (“Note”) with PNC amounting to $6.9 million pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) Paycheck Protection Program (“PPP”). Amounts outstanding under this Note will bear interest at 1% per annum beginning on the six-month anniversary of the date of the Note. Interest will be calculated based on the actual number of days that principal is outstanding over a year of 365 days. The Note matures in two years after the receipt of the loan proceeds.

During fourth quarter 2020, we applied to PNC for forgiveness of the amount due on this Note in an amount based on the sum of the following costs incurred by our US operations during the 24-week period beginning on the date of first disbursement (for payroll costs, beginning on the date of the first pay period following disbursement; for non-payroll costs, beginning on the date of first disbursement) of this Note: (a) payroll costs; (b) any payment on a covered rent obligation; and (c) any covered utility payment. The amount of forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act. The forgiveness amount will be subject to the Small Business Administration’s review. Any outstanding principal amount under this Note that is not forgiven under the PPP shall convert to an amortizing term loan.

Further, we qualified for an employee retention credit ("ERC") of $1.6 million for the three months ended March 31, 2021 and expected to be refunded during the second quarter 2021. Further, we expect that it will qualify for the ERC during the second quarter 2021 with the refund expected to be received during third quarter 2021. Refer to Footnote 5 "Government Relief Funding" of Footnotes to Condensed Consolidated Financial Statements.

Disclosure of Guarantees

As discussed in Footnote 4 “Long-term Debt” of Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements,.prior to the Restructuring Transactions,the Old Notes are senior secured second-priority obligations issued by ION and are guaranteed by Guarantors, all of which are wholly-owned subsidiaries. The Old Notes contains certain covenants that, among other things, limits or prohibits us and the ability of our restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the Old Notes, including among other things, incurring additional indebtedness in excess of permitted indebtedness, creating liens, paying dividends and making other distributions in respect of ION’s capital stock, redeeming ION’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. On April 20, 2021, we entered into a Supplemental Indenture (refer to "Old Notes" above and in Footnote 4 “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements) to the Old Notes Indenture that among other things, provides for the release of the second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to the Old Notes. The Old Notes Indenture, as modified by the Supplemental Indenture, will be materially less restrictive and will afford significantly reduced protection to holders of such securities as compared to the restrictive covenants, events of default and other provisions previously contained in the Old Notes Indenture.

The following is a description of the terms and conditions of the guarantees under the Old Notes:

	●	The Guarantors jointly and severally, unconditionally guarantees the payment of the principal, premium (if any) and interest on the Old Notes in full when due, whether at maturity, by acceleration or redemption. If we fail to make a scheduled payment, Guarantors will be jointly and severally obligated to pay the same immediately.

	●	The guarantees are subject to release in the following circumstances: (i) the sale or disposition either through merger, consolidation or otherwise of the assets or capital stock of a Guarantor that does not violate the provisions of the Old Notes Indenture other than to us or any of our restricted subsidiary; or (ii) the designation of a Guarantor as an “Unrestricted Subsidiary” (All of ION subsidiaries are currently restricted subsidiaries) or (iii) upon legal defeasance or covenant defeasance or (iv) upon liquidation or dissolution provided no default of event or (v) if consent is provided by an act of approximately 67% of our noteholders.

●

Each guarantee is limited to an amount that will not render the guarantee, as it relates to each Guarantor, voidable under applicable law relating to fraudulent conveyances or fraudulent transfers.

On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of its guarantee of the Old Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

Table of Contents

The following tables includes the summarized financial information of ION, the Guarantors, all other subsidiaries of ION that are not Guarantors and the consolidating adjustments necessary to present ION’s results on a consolidated basis.

	March 31, 2021
Summarized Balance Sheet	ION Geophysical Corporation		The Guarantors		All Other Subsidiaries		Consolidating Adjustments			Total Consolidated
	(In thousands)
ASSETS
Total current assets	$	33,812	$	16,601	$	14,775	$	—		$	65,188
Investment in subsidiaries		839,033		287,143		—		(1,126,176	)		—
Intercompany receivables		—		—		137,939		(137,939	)		—
Total noncurrent assets		862,958		352,215		173,401		(1,264,115	)		124,459
Total assets	$	896,770	$	368,816	$	188,176	$	(1,264,115	)	$	189,647

LIABILITIES
Total current liabilities	$	43,394	$	55,348	$	10,009	$	—		$	108,751
Intercompany payables		789,360		12,244		—		(801,604	)		—
Total noncurrent liabilities		922,824		24,750		3,297		(801,604	)		149,267
Total liabilities	$	966,218	$	80,098	$	13,306	$	(801,604	)	$	258,018

	Three Months Ended March 31, 2021
Summarized Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries		Consolidating Adjustments			Total Consolidated
	(In thousands)
Total net revenues	$	—		$	7,656		$	6,380	$	—		$	14,036
Gross profit		—			(1,720	)		2,579		—			859
Income (loss) from operations		(4,570	)		(5,981	)		317		—			(10,234	)
Equity earnings (losses)		1,014			1,340			—		(2,354	)		—
Net income (loss)		(7,163	)		879			1,384		(2,354	)		(7,254	)

This summarized financial information should be read in conjunction with the accompanying condensed consolidated financial statements and footnotes.

Table of Contents

Meeting our Liquidity Requirements

~~As of September 30, 2017,~~

At March 31, 2021, our total outstanding indebtedness (including ~~capital lease obligations)~~equipment finance leases) was approximately ~~$155.3~~$142.0 million, ~~including~~consisting primarily of approximately $120.6 million outstanding ~~Second Lien~~Old Notes, ~~$28.5 million outstanding Third Lien Notes, $10.0~~$21.3 million outstanding indebtedness under our Credit Facility, ~~$0.5~~$0.9 million of equipment ~~capital leases.~~

finance leases and other short-term debt, partially offset by $0.7 million of debt issuance costs.

For the Current Period, total capital expenditures, including the investments in our multi-client data library, were ~~$17.6 million~~.$5.2 million. We expect that our total capital expenditures, primarily related to investments in our multi-client data library, this year to be in the range of ~~$20~~$25.0 million to ~~$30 million. We expect capital expenditures related to property, plant, equipment and seismic rental assets~~$40.0 million, a significant portion of which is estimated to be pre-funded or underwritten by our customers. Whether remaining planned expenditures will actually be spent in 2021 depends on industry conditions, project approvals and schedules, and careful monitoring of our levels of liquidity.

Old Notes Restructuring

On April 20, 2021, we successfully completed our previously announced offer to exchange (the “Exchange Offer”) ION's 9.125% Senior Secured Second Priority Notes due 2021 (the “Old Notes”) for newly issued 8.00% Senior Secured Second Priority Notes due 2025 (the “New Notes”) and other consideration in the ~~range~~form of ~~$1 million~~cash and ION common stock, as described in ION's Prospectus dated March 10, 2021 and our previously announced rights offering (the "Rights Offering") to $2our holders of ION's common stock, par value $0.01 per share (the"Common Stock") to purchase for (i) $2.78 principal amount of the New Notes per right, at a purchase price of 100% of the principal amount thereof or (ii) 1.08 shares of common stock per right, at a purchase price of $2.57 per whole share of common stock.

In total, $116.2 million in ~~2017.~~

~~For~~aggregate principal amount of New Notes and 10.9 million shares of ION common stock were issued. We received approximately $14 million in net proceeds from the ~~Current Period, we~~transactions after deducting noteholders obligations, estimated transaction fees and accrued and unpaid interest paid ~~$0.6~~on the Old Notes. After the Restructuring Transactions, $7.1 million of Old Notes remain outstanding and a total of 28.8 million shares of Common Stock are outstanding as of April 20, 2021. For further details, refer to Footnote 1 "Summary of Significant Accounting Policies - Going Concern and Old Notes Restructuring" of Footnotes to the $5.0 million litigation accrual we established in the first quarter of 2017. In addition, we reclassified the $28.5 million outstanding Third Lien Notes to a current liability as this balance matures in the second quarter 2018. With respect to our ongoing WesternGeco litigation and the approaching maturity of our outstanding Third Lien Notes, we believe that our existing cash balance, cash from operations and undrawn availability under our Credit Facility will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, as described at Part II, Item 1. “~~Legal Proceedings,” there are possible scenarios involving an outcome in the WesternGeco lawsuit that could materially and adversely affect our liquidity.~~Condensed Consolidated Financial Statements.

Cash Flow from Operations

In the Current Period, we ~~generated $10.0 million of~~used cash from operating activities of $4.3 million compared to ~~$3.2~~$7.0 million for the Comparable Period. The ~~increase in net cash provided~~decrease was driven primarily by ~~operations was due to improved operating results, which was partially~~reduced costs resulting from our cost reduction efforts partly offset by ~~increases~~the decline in ~~accounts receivable and unbilled receivables as September 30, 2017.~~

revenues in the Current Period.

Cash Flow from Investing Activities

Cash used in investing activities was ~~$17.6~~$5.8 million in the Current Period compared to ~~$12.2~~ $10.2 million for the Comparable Period. The principal uses of cash in our investing activities during the Current Period were ~~$16.6 million invested in our multi-client data library and $1.0 million for capital expenditures related to property, plant, equipment and seismic rental assets.~~

~~The principal use of cash in our investing activities during the Comparable Period were $11.6~~$5.2 million invested in our multi-client data library and $0.6 million for capital expenditures related to property, plant ~~equipment~~ and ~~seismic rental assets.~~

equipment.

Cash Flow from Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$4.6~~$6.7 million in the Current Period, compared to ~~$14.3~~$26.2 million infor the Comparable Period. ~~The primary use of cash in our~~Cash provided by financing activities during the Current Period was ~~$4.3~~related to $9.8 million received from the registered direct offering, partially offset by $2.0 million of payments of long-term debt, including equipment ~~capital leases.~~

~~The net cash used in financing activities during the Comparable Period was primarily related to $6.7 million of payments of long-term debt, $6.7~~finance leases and $0.8 million of costs associated with issuance of ~~debt, $15.0 million~~debt.

Table of ~~payments to repurchase bonds, offset by $15.0 million of borrowings on our revolver.~~

Contents

Inflation and Seasonality

Inflation in recent years has not had a material effect on our cost of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand often occurring in the ~~fourth quarter~~second half of our fiscal year.

Critical Accounting Policies and Estimates

Refer to our Annual Report on Form 10-K for the year ended December 31, ~~2016~~,2020, for a complete discussion of our significant accounting policies and estimates. ~~There have been no material changes in the Current Period regarding our critical accounting policies and estimates. For discussion of recent accounting pronouncements, see Footnote 13 “Recent Accounting Pronouncements”~~ of ~~Footnotes to Unaudited Condensed Consolidated Financial Statements.~~

Foreign Sales Risks

The majority of our foreign sales are denominated in U.S. dollars. Product revenues are allocated to ~~geographical~~geographic locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the ~~geographical~~geographic location of initial shipment. Service revenues, which primarily relate to our E&P Technology & Services segment, are allocated based upon the billing location of the ~~customer.~~customer and the geographic location of the data. The table below includes certain reclassifications to make Comparable Period amounts consistent with the Current Period presentation. For the Current and Comparable Periods, international sales comprised ~~78%~~91% and ~~79%~~97%, respectively, of total net revenues.

The following table is a summary of net revenues by geographic area (in thousands): Nine Months Ended September 30,
2017 2016
Net revenues by geographic area:
Latin America $ 53,318
$ 13,323
North America 30,639
28,811
Europe 28,201
34,289
Asia Pacific 15,318
11,777
CIS 7,803
1,480
Africa 2,660
39,995
Middle East 1,713
7,764
Total $ 139,652
$ 137,439

	Three Months Ended March 31,
	2021		2020
Europe	$	4,366	$	7,472
Latin America		3,503		20,062
Asia Pacific		2,201		7,763
Africa		1,772		12,240
North America		1,208		3,888
Middle East		727		954
Other		259		4,035
Total	$	14,036	$	56,414

Credit Risks

~~At September 30, 2017,~~

For each of the three months ended March 31, 2021 and 2020, we had two ~~multi-national oil company~~ customers with sales that each exceeded 10% of our consolidated net revenues.

At March 31, 2021, we had one customer with balances ~~greater than 10%~~that accounted for 12% of our total combined accounts receivable and unbilled receivable balances. ~~These customers’ receivable and unbilled balances represented 21%, and 18%, respectively,~~At March 31, 2020, we had one customer with a balance that accounted for 51% of our ~~net~~total combined accounts receivable and unbilled ~~receivables at September 30, 2017. Additionally, there was one multi-national oil company customer that comprised 10% of our total net revenues for the nine months ended September 30, 2017.~~

receivable balances.

The loss of these customers or deterioration in our relationship with these customers could have a material adverse effect on our results of operations and financial condition.

We routinely evaluate the financial stability and creditworthiness of our customers. We have a corporate credit policy that is intended to minimize the risk of financial loss due to a customer’s inability to pay. Credit coverage decisions for customers are based on references, payment histories, financial and other data. We utilize a third party trade credit insurance policy. We have historically not extended long-term credit to our customers.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

For the three months ended March 31, 2021 and 2020, we recorded net foreign currency losses of approximately $0.9 million and $0.5 million, respectively, primarily due to currency fluctuations related to our operations in Brazil.

Refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 for a discussion regarding our quantitative and qualitative disclosures about market risk. There have been no material changes to those disclosures during the Current Period.

Item 4.Controls and Procedures

Disclosure Controls and Procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file with or submit to the ~~Securities and Exchange Commission (the “SEC”)~~SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. Disclosure controls and procedures are defined in Rule 13a-15(e) under the Exchange Act, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2017~~.March 31, 2021. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017~~.

March 31, 2021.

Changes in Internal Control over Financial Reporting. There was not any change in our internal control over financial reporting that occurred during the three months ended ~~September 30, 2017~~,March 31, 2021, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

~~WesternGeco~~

In ~~June 2009, WesternGeco L.L.C.~~July 2018, we prevailed in an arbitration that we initiated against the Indian Directorate General of Hydrocarbons (“~~WesternGeco”~~DGH”) relating our ability to continue to license data under our IndiaSPAN program. The DGH filed a lawsuit ~~against us~~ in court in India to vacate the ~~United States District Court for the Southern District of Texas, Houston Division. In the~~arbitration award; in connection with that lawsuit, ~~styled~~ ~~WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleged~~we were ordered to escrow approximately $4.5 million in sales proceeds that we had ~~infringed several method and apparatus claims contained~~received in ~~four~~respect of ~~its United States patents regarding marine seismic streamer steering devices.~~

~~The trial began~~sales from our IndiaSPAN program, pending the outcome of the DGH’s challenge to the arbitration award. We challenged the escrow order, but on December 9, 2019, the Supreme Court of India ordered us to comply with it. We prepared a petition to file with the court to request that a March 2020 deadline to deposit approximately $4.5 million in ~~July 2012. A verdict was returned by the jury~~escrow in ~~August 2012, finding that we infringed the claims contained in the~~ ~~four~~ ~~patents by supplying our DigiFIN~~^® ~~lateral streamer control units and the related software from the United States and awarded WesternGeco the sum of~~ ~~$105.9 million~~ ~~in damages, consisting of~~ ~~$12.5 million~~ ~~in reasonable royalty and~~ ~~$93.4 million~~ ~~in lost profits.~~

~~In June 2013, the presiding judge entered a Memorandum and Order, ruling that WesternGeco is entitled to~~early 2020 be ~~awarded supplemental damages for the additional DigiFIN units that were supplied from the United States before and after the trial that were not included in the jury verdict~~extended due to the ~~timing~~changes to our business, and to the markets, that have been spurred by the COVID-19 pandemic. We were unable to file the application because the courts in India were closed due to the pandemic (other than for emergencies), and were not accepting filings at that time. We served a copy of our draft petition on the DGH’s counsel and intend to file it in advance of the ~~trial. In October 2013,~~next hearing, which has been repeatedly delayed due to the ~~judge entered another Memorandum and Order, ruling~~COVID-19 pandemic. We prevailed on the number of DigiFIN units that are subject to supplemental damages and also ruling that the supplemental damages applicable to the additional units should be calculated by adding together the jury’s previous reasonable royalty and lost profits damages awards per unit, resulting in supplemental damages of $73.1 million.

~~In April 2014, the judge entered another Order, ruling that lost profits should not have been included~~merits in the ~~calculation~~arbitration and expect to have that award upheld in Indian court, which would result in release of supplemental damages in the October 2013 Memorandum and Order and reduced the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order, the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement and license that WesternGeco entered into with a customer of ours that had purchased and used DigiFIN units that were also included in the damage amounts awarded against us.

~~In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million related to the case. The Final Judgment also included an injunction that enjoins us,~~ our agents and anyone acting in concert with us, from supplying in or from the United States the DigiFIN product or any parts unique to the DigiFIN product, or any instrumentality no more than colorably different from any of these products or parts, for combination outsideportion of the ~~United States. We have conducted our business in compliance with~~escrowed money. The DGH’s request to vacate the ~~district court’s orders in the case, and we have reorganized our operations such that we no longer supply the DigiFIN product or any part unique to the DigiFIN product in or from the United States.~~

We and WesternGeco each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit in Washington, D.C. On July 2, 2015, the Court of Appeals reversed in part the District Court’s judgment, holding the District Court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest was approximately $10.9 million of the $123.8 million Final Judgment. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015, the Court of Appeals denied WesternGeco’s petition for rehearing en banc.

On February 26, 2016, WesternGeco filed a petition for writ of certiorari by the Supreme Court. We filed our response on April 27, 2016. Subsequently, on June 20, 2016, the Supreme Court refused to disturb the Court of Appeals ruling finding no lost profits as a matter of law. Separately, in light of the changes in case law regarding the standard of proof for willfulness in the Halo and Stryker cases, the Supreme Court indicated that the case should be remanded to the Federal Circuit for a determination of whether or not the willfulness determination by the District Court was appropriate.

On November 14, 2016, the District Court issued an order reducing the amount of the appeal bond from $120.0 million to $65.0 million, ordered the sureties to pay principal and interest on the royalty previously awarded and declined to issue a final judgment until after consideration of whether enhanced damages related to willfulness should be awarded in the case. While we did not agree with the unusual decision by the District Court ordering payment of the royalty damages and interest without a final judgment, we paid the $20.8 million due pursuant to the order to WesternGeco on November 25, 2016.

On March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness would be payable. The Judge found that ION’s infringement was willful, based on his perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during trial. However, he limited enhanced damages to $5.0 million because it was a “close case,” there was no evidence of copying, and ION was simply acting as a competitor in a capitalist marketplace. The District Court also ordered the appeal bondarbitration award is currently scheduled to be released and discharged. The Court’s findings were memorialized in an order issued on May 16, 2017. On June 30, 2017, WesternGeco and we jointly agreed that neither party would appeal the District Court's award of $5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the course of twelve months with $1.25 million being paid in two installments of $0.625 million in 2017 and the remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1, 2018. This agreement was memorializedheard by the court in ~~an order issued~~India on July ~~26, 2017.~~

~~WesternGeco filed a second petition for writ~~14, 2021. We have not escrowed the money as of certiorari in the U.S. Supreme Court on February 17, 2017, appealing the lost profits issue again. We filed our response to WesternGeco’s second attempt to appeal to the Supreme Court the lost profits issue, raising both the substantive matters we addressed by opposing WesternGeco’s first petition, and also raising a procedural argument that WesternGeco cannot raise the same issue for a second time in a second petition for certiorari. On May 30, 2017, the Supreme Court called for the views of the U.S. Solicitor General regarding whether or not to grant certiorari. (The U.S. Supreme Court has discretion to hear, or not hear, WesternGeco’s appeal; granting WesternGeco’s request for a writ of certiorari would mean that the U.S. Supreme Court decided to hear WesternGeco’s appeal of the decision by the United States Court of Appeals for the Federal Circuit with respect to the lost profits issue. If the Supreme Court agrees to hear WesternGeco’s appeal, we will contest WesternGeco’s appeal at the Supreme Court. In such a case, it is possible that the Supreme Court could issue a ruling adverse to ION.) We and WesternGeco each met with the Solicitor General’s office in late July, 2017. The Solicitor General is expected to issue its brief as to whether the Supreme Court should grant certiorari near the end of 2017 or the beginning of 2018, although there is no deadline for the Solicitor General to issue such an opinion. See Footnote 6 “~~Litigation” of~~ ~~Footnotes to Unaudited Condensed Financial Statements~~.

~~Other Litigation~~

March 31, 2021.

We have been named in various other lawsuits or threatened actions that are incidental to our ordinary business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time-consuming, cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate resolution of these matters will not have a material adverse effect on our financial condition or results of operations or our liquidity.

Table of Contents

Item 1A.Risk Factors

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

~~any additional damages or adverse rulings in the WesternGeco litigation and future potential adverse effects on our liquidity;~~

~~future levels of capital expenditures of our customers for seismic activities;~~

~~future oil and gas commodity prices;~~

~~the effects of current and future worldwide economic conditions (particularly in developing countries) and demand for oil and natural gas and seismic equipment and services;~~

	•	our ability to continue as a going concern;
	•	the ultimate benefits of our completed restructuring transactions;
	•	our ability to comply with our debt financial covenants;
	•	the impact of the COVID-19 pandemic on our business, financial condition, and results of operations;

•

future levels of our capital expenditures and of our customers for seismic activities;

•

future oil and gas commodity prices;

•

the effects of current and future worldwide economic conditions (particularly in developing countries) and demand for oil and natural gas and seismic equipment and services;

•

future implication of our negative working capital and stockholders’ deficit, including future cash needs and availability of cash, to fund our operations and pay our obligations;

•

the effects of current and future unrest in the Middle East, North Africa and other regions;

•

the timing of anticipated revenues and the recognition of those revenues for financial accounting purposes;

•

the effects of ongoing and future industry consolidation;

•

the timing of future revenue realization of anticipated orders for multi-client survey projects and data processing work in our E&P Technology & Services segment;

•

future government laws or regulations pertaining to the oil and gas industry, including trade restrictions, embargoes and sanctions imposed by the U.S government or laws curtailing the exploration for, or use of; hydrocarbons;

��

future government actions that may result in the deprivation of our contractual rights, including the potential for adverse decisions by judicial or administrative bodies in foreign countries with unpredictable or corrupt judicial systems;

•

expected net revenues, gross margins, income from operations and net income for our services and products;

•

future seismic industry fundamentals, including future demand for seismic services and equipment;

•

future benefits to our customers to be derived from new services and products;

•

future benefits to be derived from our investments in technologies, joint ventures and acquired companies;

•

future growth rates for our services and products;

•

the degree and rate of future market acceptance of our new services and products;

•

expectations regarding E&P companies and seismic contractor end-users purchasing our more technologically-advanced services and products;

•

anticipated timing and success of commercialization and capabilities of services and products under development and start-up costs associated with their development;

•

future opportunities for new products and projected research and development expenses;

•

expectations regarding realization of deferred tax assets;

•

expectations regarding the impact of the U.S. Tax Cuts, Jobs Act and CARES Act;

•

expectations regarding the approval of our request for forgiveness of the PPP loan;

•

anticipated results with respect to certain estimates we make for financial accounting purposes;

•

future success dependent on our continuing ability to identify, hire, develop, motivate and retain skilled personnel for all areas of our organization;

•

breaches to our systems could lead to loss of intellectual property, dissemination of highly confidential information, increased costs and impairment of our ability to conduct our operations;

•

evolving cybersecurity risks, such as those involving unauthorized access or control, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches or other actions;

	•	compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties;
	•	anticipated approval of the INOVA sale by applicable regulators;
	•	expectations regarding the collectability of our accounts receivables; and
	•	the adoption of additional executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, delaying or restricting oil and gas development activities in certain areas, during the Biden Administration.

Risks Related to the New Notes

Our indebtedness could adversely affect our liquidity, financial condition and our ability to fulfill our obligations and operate our business.

We have a substantial amount of indebtedness. Prior to the Exchange Offer and Rights Offering (together, the “Restructuring Transactions”) and as of March 31, 2021, we had approximately $142.0 million of total outstanding indebtedness, consisting primarily of approximately $120.6 million Old Notes, $21.3 million outstanding under our Credit Facility, $0.8 million of equipment finance leases and other short-term debt, which is partially offset by $0.7 million of debt issuance costs. After the completion of the Restructuring Transactions, the Company had $116.2 million of New Notes and $7.1 million of Old Notes outstanding. In addition, we may also incur additional indebtedness in the future. Higher levels of indebtedness could have negative consequences to us, including:

•

we may have difficulty satisfying our obligations with respect to our outstanding debt;


	•	we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;


	•	we may need to use all, or a substantial portion, of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;


	•	our vulnerability to general economic downturns and adverse industry conditions could increase;


	•	our flexibility in planning for, or reacting to, changes in our business and in our industry in general could be limited;


	•	our amount of debt and the amount we must pay to service our debt obligations could place us at a competitive disadvantage compared to our competitors that have less debt;


	•	our customers may react adversely to our significant debt level and seek or develop alternative licensors or suppliers;


	•	we may have insufficient funds, and our debt level may also restrict us from raising the funds necessary to repurchase all of the News Notes tendered to us upon the occurrence of a change of control, which would constitute an event of default under the New Notes; and


	•	our failure to comply with the restrictive covenants in our debt instruments which, among other things, limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects.

Our level of indebtedness will require that we use a substantial portion of our cash flow from operations to pay principal of, and interest on, our indebtedness, which will reduce the availability of cash to fund ~~our operations and pay our obligations;~~

~~the effects of current and future unrest in the Middle East, North Africa, Korea and other regions;~~

~~the timing of anticipated revenues and the recognition of those revenues for financial accounting purposes;~~

~~the effects of ongoing and future industry consolidation, including, in particular, the effects of consolidation and vertical integration in the towed marine seismic streamers market;~~

~~the timing of future revenue realization of anticipated orders for multi-client survey projects and data processing work in our E&P Technology & Services segment;~~

~~future levels of our~~working capital ~~expenditures;~~

~~future government regulations pertaining to the oil and gas industry;~~

~~expected net revenues, income from operations and net income;~~

~~expected gross margins for our services and products;~~

~~future benefits to be derived from our OceanGeo subsidiary;~~

~~future seismic industry fundamentals, including future demand for seismic services and equipment;~~

~~future benefits to our customers to be derived from new services and products;~~

~~future benefits to be derived from our investments in technologies, joint ventures and acquired companies;~~

~~future growth rates for our services and products;~~

~~the degree and rate of future market acceptance of our new services and products;~~

~~expectations regarding E&P companies and seismic contractor end-users purchasing our more technologically-advanced services and products;~~

~~anticipated timing and success of commercialization and capabilities of services and products under development and start-up costs associated with their development;~~

~~future opportunities for new products and projected~~requirements, capital expenditures, research and development ~~expenses;~~

~~expected continued compliance with our debt financial covenants;~~

~~expectations regarding realization of deferred tax assets;~~

~~anticipated results with respect to certain estimates we make for financial accounting purposes; and~~

~~compliance with the U.S. Foreign Corrupt Practices Act~~ and other ~~applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties.~~

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 makegeneral corporate or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions.

Information regarding factors that may cause actual results to vary from our expectations, referred to as “risk factors,” appears in our Annual Report on Form 10-K for the year ended December 31, 2016, in Part I, Item 1A. “Risk Factors,” as previously filed with the SEC, as well as the following additional risk factors.

If we cannot meet the continued listing requirements of the New York Stock Exchange (the “NYSE”), the NYSE may delist our common shares, which would have an adverse impact on the trading volume, liquidity and market price of our common shares.

On July 20, 2017, ION Geophysical Corporation (the “Company”) received written notice from the New York Stock Exchange (the “NYSE”) that it is not in compliance with the continued listing standards set forth in Section 802.01B of the NYSE Listed Company Manual. The Company is considered below criteria established by the NYSE for continued listing because its average market capitalization was less than $50 million over a consecutive 30 trading-day period, and at the same time its last reported stockholders’ equity was below $50 million.

On August 28, 2017, the Company submitted a plan to the NYSE to demonstrate the Company’s ability to bring the Company into conformity with the continued listing standards within 18 months of the date of the NYSE’s initial notice. On October 5, 2017, the NYSE notified the Company that the NYSE had accepted the Company’s plan. Accordingly, the Company is subject to ongoing monitoring for compliance with the plan.

During the 18-month period, the Company's shares will continue to be listed and traded on the NYSE, subject to its continued compliance with the plan and other NYSE continued listing standards. The Company can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain a listing of its shares.

There is no immediate impact on the listing of the Company’s common stock, which will continue to trade on the NYSE, subject to the Company’s compliance with other listing standards. The Company will continue to file periodic and other reports with the SEC under applicable federal securities laws.

A delisting of our common shares from the NYSE would negatively impact us because it would: (i) reduce the liquidity and market price of our common shares; (ii) reduce the number of investors willing to hold or acquire our common shares, which could negatively impact our ability to raise equity financing; (iii) limit our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets, and (iv) impair our ability to provide equity incentives to our employees.

~~We face a significant debt maturity in 2018.~~

Our $28.5 million aggregate principal amount of Senior Secured Third-Priority Lien notes mature on May 15, 2018. If our cash flows from operations and other capital resources are insufficient to pay off such notes, we may face substantial liquidity problems and may be forced to reduce or delay investments, dispose of material assets or operations, or issue additional debt or equity. business activities.

We may not be able to ~~take~~generate sufficient cash flow to meet our debt service obligations.

Our ability to make payments on our indebtedness, including the New Notes and any Old Notes remaining outstanding after the Restructuring Transactions, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to conditions in the oil and gas industry, the COVID-19 pandemic, general economic and financial conditions and the impact of legislative and regulatory actions on how we conduct our business and other factors, all of which are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations to service our outstanding indebtedness, or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other capital needs. If our business does not generate sufficient cash flow from operations to service our outstanding indebtedness, we may have to undertake alternative financing plans, such ~~actions,~~as:

•

refinancing or restructuring our debt;


	•	selling assets;


	•	reducing or delaying acquisitions or our drilling program; or seeking to raise additional capital.

However, we cannot assure you that we would be able to implement alternative financing plans, if necessary, on commercially reasonable terms or at ~~all.~~ all, or that implementing any such alternative financing plans would allow us to meet our debt obligations. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness, including the New Notes, would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms.

Our inability to generate sufficient cash ~~flows~~flow to satisfy our debt obligations, including our obligations under the New Notes, or to obtain alternative financings, could materially and adversely affect our business, financial condition, results of operations and prospects.

Despite our current level of indebtedness, we may incur substantially more debt.

We may incur substantial additional indebtedness in the future, subject to certain limitations, including under our revolving credit facility (the “Credit Facility”) and the indenture governing the New Notes (the “New Notes Indenture”). If new indebtedness is added to our current debt levels, the related risks that we now face could increase. Our level of indebtedness could, for instance, prevent us from engaging in transactions that might otherwise be beneficial to us or from making desirable capital expenditures. This could put us at a competitive disadvantage relative to other less leveraged competitors that have more cash flow to devote to their operations. In addition, the incurrence of additional indebtedness could make it more difficult to satisfy our existing financial obligations, including those relating to the New Notes. Furthermore, the New Notes Indenture permits us to incur up to $75 million of priority debt (inclusive of borrowings under the Credit Facility). If we incur any additional indebtedness that ranks prior to the New Notes, the holders of such indebtedness will be entitled to receive proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of us before the holders of the New Notes, and if we incur additional indebtedness that ranks equal to the New Notes, the holders of that indebtedness will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of us.

Our Credit Facility and the New Notes Indenture contain, a number of restrictive covenants that will limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest.

Our Credit Facility and the New Notes Indenture impose, and the terms of any future indebtedness may impose, operating and other restrictions on us and our subsidiaries. Such restrictions affect or will affect, and in many respects limit or prohibit, among other things, our ability and the ability of our restricted subsidiaries to:

•

incur additional indebtedness (including certain capital lease obligations), grant or incur additional liens on our properties, pledge shares of our subsidiaries, enter into certain merger or other change-in-control transactions, enter into certain transactions with our affiliates, make certain sales or other dispositions of assets, make certain investments and acquire other businesses;


	•	pay cash dividends on our common stock; and

•

repurchase and acquire our capital stock.

Our Credit Facility contains other restrictions and covenants which require us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

The restrictions contained in our Credit Facility and the New Notes Indenture could:

•

limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans; and


	•	adversely affect our ability to finance our operations or other capital needs or to engage in other business activities that would be in our interest.

A failure to comply with the restrictions in our Credit Facility or the New Notes Indenture could result in an event of default under the New Notes Indenture. Our future operating results may not be sufficient to enable compliance with the covenants in our Credit Facility or New Notes Indenture or to remedy any such default. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our indebtedness or make any accelerated payments, including those under our Credit Facility or our outstanding notes. Also, we may not be able to obtain new financing. Even if we were able to obtain new financing, we cannot guarantee that the new financing will be on commercially reasonable terms or ~~at all, would~~terms that are acceptable to us. If we default on our indebtedness, our business, financial condition or results of operations could be materially and adversely ~~affect our financial position and results or operations.~~affected.

Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Stock Repurchase Program~~

~~On November 4, 2015, our board~~

(c) Purchase of ~~directors approved a stock repurchase program authorizing us to repurchase, from time to time from November 10, 2015 through November 10, 2017, up to $25 million~~Equity Securities by the Issuer and Affiliated Purchasers

During the three months ended March 31, 2021, in connection with the vesting of (or lapse of restrictions on) shares of our ~~outstanding common stock. Since the program’s inception on November 10, 2015 through September 30, 2017,~~restricted stock held by certain employees, we ~~had repurchased 451,792~~acquired shares our common stock at an average price per share of $6.41, and we have approximately $22 million of remaining authorized capacity available pursuant to the repurchase program. We do not expect to repurchase any additional shares prior to the expiration of the program on November 10, 2017. For further information regarding the Stock Repurchase Program, see Footnote 12 ~~“Stockholder's Equity, Stock-Based Compensation Expense and Repurchase Plan.” of~~ ~~Footnotes to Unaudited Condensed Financial Statements~~.

~~At-The-Market Equity Offering Program~~

~~On December 22, 2016 we announced that we filed a prospectus supplement under which we could have sold up to $20 million~~ of our common stock ~~through an "at-the-market" equity offering program (the "ATM Program"). We intended to use~~in satisfaction of tax withholding obligations that were incurred on the ~~net proceeds from sales under the ATM Program to be positioned to capitalize on opportunities such~~vesting date. The date of acquisition, number of shares and average effective acquisition price per share were as ~~acquiring complementary distressed assets, or other value-added transactions. Effective May 2, 2017, we terminated and canceled the ATM Program. No shares were sold pursuant to the ATM Program.~~follows:

	(a)		(b)		(c)	(d)
Period	Total Number of Shares Acquired		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Program
January 1, 2021 to January 31, 2021		—	$	—	Not applicable	Not applicable
February 1, 2021 to February 28, 2021		—	$	—	Not applicable	Not applicable
March 1, 2021 to March 31, 2021		3,280	$	2.67	Not applicable	Not applicable
Total		3,280	$	2.67

Table of Contents

Item 5. Other Information

None.

~~None.~~

Table of Contents

Item 6.Exhibits

1.1	Placement Agency Agreement, dated February 16, 2021, between ION Geophysical Corporation and A.G.P./Alliance Global Partners, filed on February 18, 2021 as Exhibit 1.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

~~31.1~~3.1	Amended and Restated Certificate of Incorporation of ION Geophysical Corporation filed on April 20, 2020 as Exhibit 3.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

4.1	Indenture, dated as of April 20, 2021, among ION Geophysical Corporation, the Guarantors thereto, UMB Bank, National Association, as trustee, and UMB Bank, National Association, as collateral agent filed on April 20, 2020 as Exhibit 4.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

4.2	Form of New Note (included in Exhibit 4.1) filed on April 20, 2020 as Exhibit 4.2 to the Company's Current Report on Form 8-K and incorporated herein by reference.

4.3	First Supplemental Indenture, dated as of April 20, 2021, by and among ION Geophysical Corporation, the Guarantors thereto, Wilmington Savings Fund Society, FSB, as Trustee (the “Trustee”) and Wilmington Savings Fund Society, FSB, as Collateral Agent (the “Collateral Agent”) filed on April 20, 2020 as Exhibit 4.3 to the Company's Current Report on Form 8-K and incorporated herein by reference.

4.4	Certificate of Designation, Powers, Preferences and Rights of Series A Preferred Stock of ION Geophysical Corporation filed on April 20, 2020 as Exhibit 4.4 to the Company's Current Report on Form 8-K and incorporated herein by reference.

4.5	Form of Series A Preferred Stock Certificate (included in Exhibit 4.4) filed on April 20, 2020 as Exhibit 4.5 to the Company's Current Report on Form 8-K and incorporated herein by reference.

10.1	Intercreditor Agreement, dated as of April 20, 2021, among PNC Bank, National Association, and UMB Bank, National Association filed on April 20, 2020 as Exhibit 10.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

10.2	Fourth Amendment to Revolving Credit and Security Agreement, dated as of April 20, 2021, by and among ION GEOPHYSICAL CORPORATION, ION EXPLORATION PRODUCTS (U.S.A.), INC., I/O MARINE SYSTEMS INC., GX TECHNOLOGY CORPORATION, GX GEOSCIENCE CORPORATION, S. DE R.L. DE C.V., the financial institutions a party hereto as lenders, and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for Lenders filed on April 20, 2020 as Exhibit 10.2 to the Company's Current Report on Form 8-K and incorporated herein by reference.

10.3	First Amendment Investment Rights Agreement dated as of February 22, 2021 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation, filed on February 22, 2021 as Exhibit 1.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

10.4	Securities Purchase Agreement dated February 16, 2021, by and among ION Geophysical Corporation and the purchasers identified on the signature pages thereto, filed on February 18, 2021 as Exhibit 10.1 to the Company's Current Report on Form 8-K and incorporated herein by reference.

31.1	Certification of Chief Executive Officer ~~Pursuant to Rule 13a-14(a).~~

31.2			Certification of Chief Financial Officer ~~Pursuant to Rule 13a-14(a).~~

32.1			Certification of Chief Executive Officer ~~Pursuant to 18 U.S.C. §1350.~~

32.2			Certification of Chief Financial Officer ~~Pursuant to 18 U.S.C. §1350.~~

101		The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, (ii) Condensed Consolidated Statements of Operations for the ~~three-~~three months ended March 31, 2021 and ~~nine-months ended September 30, 2017 and 2016,~~2020, (iii) Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the ~~three-~~three months ended March 31, 2021 and ~~nine-months ended September 30, 2017 and 2016,~~2020, (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, (v) Condensed Consolidated Statements of Stockholders' Deficit for the three months ended March 31, 2021 and 2020 and (vi) Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements.

101.INS	Inline XBRL Instance Document.

101.SCH	Inline XBRL Taxonomy Schema Document.

101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document.

104	Cover page interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ION GEOPHYSICAL CORPORATION

~~ION GEOPHYSICAL CORPORATION~~

(Registrant)

/s/ ~~Steven A. Bate~~Mike Morrison

~~Steven A. Bate~~

Mike Morrison

Executive Vice President and Chief Financial Officer

Date: ~~November 2, 2017~~

May 6, 2021

~~EXHIBIT INDEX~~



~~Exhibit No.~~		~~Description~~
~~31.1~~		~~Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).~~

~~31.2~~		~~Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).~~

~~32.1~~		~~Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.~~

~~32.2~~		~~Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.~~

~~101~~		The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations for the three- and nine-months ended September 30, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three- and nine-months ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, (v) Footnotes to Unaudited Condensed Consolidated Financial Statements.


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



~~2105 CityWest Blvd.~~
~~Suite 100~~
~~Houston, Texas~~		~~77042-2839~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IO	New York Stock Exchange



Large accelerated filer	☐	o	Accelerated filer	ý☐

Non-accelerated filer	☒	o ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o ☐

			Emerging growth company	o ☐

		PAGE

	~~PAGE~~
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020		3
Condensed Consolidated Statements of Operations for the ~~three-~~three months ended March 31, 2021 and ~~nine-months ended September 30, 2017 and 2016~~2020		4
Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the ~~three-~~three months ended March 31, 2021 and ~~nine-months ended September 30, 2017 and 2016~~2020		5
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020		6
Condensed Consolidated Statements of Stockholders' Deficit for the three months ended March 31, 2021 and 2020		7
Footnotes to ~~Unaudited~~ Condensed Consolidated Financial Statements		78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2421
Item 3. Quantitative and Qualitative Disclosures about Market Risk		3431
Item 4. Controls and Procedures		3531

PART II. Other Information
Item 1. Legal Proceedings		3632
Item 1A. Risk Factors		3733
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3934
Item 5. Other Information		3935
Item 6. Exhibits		4036


☒
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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



	September 30, 2017			December 31, 2016
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	40,225		$	52,652
Accounts receivable, net	39,374			20,770
Unbilled receivables	25,833			13,415
Inventories	14,264			15,241
Prepaid expenses and other current assets	4,259			9,559
Total current assets	123,955			111,637
Property, plant, equipment and seismic rental equipment, net	55,188			67,488
Multi-client data library, net	96,751			105,935
Goodwill	24,048			22,208
Intangible assets, net	2,026			3,103
Other assets	1,485			2,845
Total assets	$	303,453		$	313,216
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	38,819		$	14,581
Accounts payable	24,674			26,889
Accrued expenses	40,874			26,240
Accrued multi-client data library royalties	24,576			23,663
Deferred revenue	10,875			3,709
Total current liabilities	139,818			95,082
Long-term debt, net of current maturities	116,506			144,209
Other long-term liabilities	17,066			20,527
Total liabilities	273,390			259,818
Equity:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 11,896,190 and 11,792,447 shares at September 30, 2017 and December 31, 2016, respectively	119			118
Additional paid-in capital	901,138			899,198
Accumulated deficit	(853,527		)	(824,679		)
Accumulated other comprehensive loss	(18,999		)	(21,748		)
Total stockholders’ equity	28,731			52,889
Noncontrolling interest	1,332			509
Total equity	30,063			53,398
Total liabilities and equity	$	303,453		$	313,216



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands, except per share data)
Service revenues	$	52,615		$	65,914		$	110,897		$	104,500
Product revenues	8,480			12,708			28,755			32,939
Total net revenues	61,095			78,622			139,652			137,439
Cost of services	26,392			40,694			73,518			93,706
Cost of products	4,594			6,163			14,306			16,045
Gross profit	30,109			31,765			51,828			27,688
Operating expenses:
Research, development and engineering	4,396			4,231			11,998			14,601
Marketing and sales	5,645			4,680			15,062			13,374
General, administrative and other operating expenses	10,132			10,990			32,316			34,566
Total operating expenses	20,173			19,901			59,376			62,541
Income (loss) from operations	9,936			11,864			(7,548		)	(34,853		)
Interest expense, net	(3,959		)	(4,607		)	(12,664		)	(14,043		)
Other income (expense), net	722			(2,027		)	(4,154		)	(3,624		)
Income (loss) before income taxes	6,699			5,230			(24,366		)	(52,520		)
Income tax expense	1,686			3,316			3,670			5,865
Net income (loss)	5,013			1,914			(28,036		)	(58,385		)
Net income attributable to noncontrolling interests	(78		)	(215		)	(812		)	(272		)
Net income (loss) attributable to ION	$	4,935		$	1,699		$	(28,848	)	$	(58,657	)
Net income (loss) per share:
Basic	$	0.42		$	0.14		$	(2.43	)	$	(5.21	)
Diluted	$	0.41		$	0.14		$	(2.43	)	$	(5.21	)
Weighted average number of common shares outstanding
Basic	11,890			11,786			11,862			11,269
Diluted	12,071			11,907			11,862			11,269



Obligations (in thousands)	September 30, 2017			December 31, 2016
Senior secured second-priority lien notes (maturing December 15, 2021)	$	120,569		$	120,569
Senior secured third-priority lien notes (maturing May 15, 2018)	28,497			28,497
Revolving line of credit (maturing August 22, 2019)	10,000			10,000
Equipment capital leases	542			3,446
Other debt	—			1,415
Costs associated with issuances of debt ⁽¹⁾	(4,283		)	(5,137		)
Total	155,325			158,790
Current portion of long-term debt and lease obligations ⁽²⁾	(38,819		)	(14,581		)
Non-current portion of long-term debt and lease obligations	$	116,506		$	144,209



Date		Percentage
2019		105.500%
2020		103.500%
2021 and thereafter		100.000%



	Foreign currency translation adjustments			Total
Accumulated other comprehensive loss at December 31, 2016	$	(21,748	)	$	(21,748	)
Net current-period other comprehensive income	2,749			2,749
Accumulated other comprehensive loss at September 30, 2017	$	(18,999	)	$	(18,999	)



	Stock Options		Restricted Stock and Unit Awards
	Number of Shares
Outstanding at December 31, 2016	847,635		285,308
Granted	—		17,500
Stock options exercised/restricted stock and unit awards vested	(12,500	)	(115,133	)
Cancelled/forfeited	(52,396	)	(24,491	)
Outstanding at September 30, 2017	782,739		163,184



	September 30, 2017
Balance Sheet	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	17,244		$	—		$	22,981		$	—		$	40,225
Accounts receivable, net	40			6,034			33,300			—			39,374
Unbilled receivables	—			11,357			14,476			—			25,833
Inventories	—			8,582			5,682			—			14,264
Prepaid expenses and other current assets	1,558			504			2,197			—			4,259
Total current assets	18,842			26,477			78,636			—			123,955
Property, plant, equipment and seismic rental equipment, net	761			8,292			46,135			—			55,188
Multi-client data library, net	—			68,791			27,960			—			96,751
Investment in subsidiaries	679,958			303,996			—			(983,954		)	—
Goodwill	—			—			24,048			—			24,048
Intangible assets, net	—			2,002			24			—			2,026
Intercompany receivables	—			—			52,655			(52,655		)	—
Other assets	1,080			145			260			—			1,485
Total assets	$	700,641		$	409,703		$	229,718		$	(1,036,609	)	$	303,453
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	38,278		$	541		$	—		$	—		$	38,819
Accounts payable	2,682			19,720			2,272			—			24,674
Accrued expenses	16,325			13,458			11,091			—			40,874
Accrued multi-client data library royalties	—			24,371			205			—			24,576
Deferred revenue	—			2,431			8,444			—			10,875
Total current liabilities	57,285			60,521			22,012			—			139,818
Long-term debt, net of current maturities	116,506			—			—			—			116,506
Intercompany payables	497,658			38,708			—			(536,366		)	—
Other long-term liabilities	461			6,170			10,435			—			17,066
Total liabilities	671,910			105,399			32,447			(536,366		)	273,390
Equity:
Common stock	119			290,460			49,394			(339,854		)	119
Additional paid-in capital	901,138			180,699			202,290			(382,989		)	901,138
Accumulated earnings (deficit)	(853,527		)	233,706			42,766			(276,472		)	(853,527		)
Accumulated other comprehensive income (loss)	(18,999		)	4,385			(19,746		)	15,361			(18,999		)
Due from ION Geophysical Corporation	—			(404,946		)	(78,765		)	483,711			—
Total stockholders’ equity	28,731			304,304			195,939			(500,243		)	28,731
Noncontrolling interests	—			—			1,332			—			1,332
Total equity	28,731			304,304			197,271			(500,243		)	30,063
Total liabilities and equity	$	700,641		$	409,703		$	229,718		$	(1,036,609	)	$	303,453



	Three Months Ended September 30, 2017
Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
Net revenues	$	—		$	16,554		$	44,541		$	—		$	61,095
Cost of sales	—			19,517			11,469			—			30,986
Gross profit (loss)	—			(2,963		)	33,072			—			30,109
Total operating expenses	8,349			7,856			3,968			—			20,173
Income (loss) from operations	(8,349		)	(10,819		)	29,104			—			9,936
Interest expense, net	(4,054		)	36			59			—			(3,959		)
Intercompany interest, net	259			(1,603		)	1,344			—			—
Equity in earnings of investments	17,097			31,565			—			(48,662		)	—
Other income (expense)	19			(8		)	711			—			722
Net income (loss) before income taxes	4,972			19,171			31,218			(48,662		)	6,699
Income tax expense	37			837			812			—			1,686
Net income	4,935			18,334			30,406			(48,662		)	5,013
Net income attributable to noncontrolling interests	—			—			(78		)	—			(78		)
Net income (loss) attributable to ION	$	4,935		$	18,334		$	30,328		(48,662		)	$	4,935
Comprehensive net income	$	5,968		$	18,347		$	31,351		$	(49,620	)	$	6,046
Comprehensive income attributable to noncontrolling interest	—			—			(78		)	—			(78		)
Comprehensive net income attributable to ION	$	5,968		$	18,347		$	31,273		$	(49,620	)	$	5,968



	Three Months Ended September 30, 2016
Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
Net revenues	$	—		$	30,155		$	48,467		$	—		$	78,622
Cost of sales	—			22,724			24,133			—			46,857
Gross profit	—			7,431			24,334			—			31,765
Total operating expenses	7,692			7,186			5,023			—			19,901
Income (loss) from operations	(7,692		)	245			19,311			—			11,864
Interest expense, net	(4,583		)	(32		)	8			—			(4,607		)
Intercompany interest, net	276			(1,138		)	862			—			—
Equity in earnings of investments	13,494			15,039			—			(28,533		)	—
Other income (expense)	245			948			(3,220		)	—			(2,027		)
Net income before income taxes	1,740			15,062			16,961			(28,533		)	5,230
Income tax expense	41			670			2,605			—			3,316
Net income	1,699			14,392			14,356			(28,533		)	1,914
Net income attributable to noncontrolling interests	—			—			(215		)	—			(215		)
Net income attributable to ION	$	1,699		$	14,392		$	14,141		(28,533		)	$	1,699
Comprehensive net income	$	616		$	14,392		$	13,058		$	(27,235	)	$	831
Comprehensive income attributable to noncontrolling interest	—			—			(215		)	—			(215		)
Comprehensive net income attributable to ION	$	616		$	14,392		$	12,843		$	(27,235	)	$	616



	Nine Months Ended September 30, 2017
Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
Net revenues	$	—		$	44,533		$	95,119		$	—		$	139,652
Cost of sales	—			55,473			32,351			—			87,824
Gross profit (loss)	—			(10,940		)	62,768			—			51,828
Total operating expenses	25,761			20,727			12,888			—			59,376
Income (loss) from operations	(25,761		)	(31,667		)	49,880			—			(7,548		)
Interest expense, net	(12,697		)	(60		)	93			—			(12,664		)
Intercompany interest, net	852			(4,743		)	3,891			—			—
Equity in earnings of investments	13,963			49,418			—			(63,381		)	—
Other income (expense)	(5,068		)	(348		)	1,262			—			(4,154		)
Net income (loss) before income taxes	(28,711		)	12,600			55,126			(63,381		)	(24,366		)
Income tax expense	137			(4,376		)	7,909			—			3,670
Net income	(28,848		)	16,976			47,217			(63,381		)	(28,036		)
Net income attributable to noncontrolling interests	—			—			(812		)	—			(812		)
Net income (loss) attributable to ION	$	(28,848	)	$	16,976		46,405			$	(63,381	)	(28,848		)
Comprehensive net income (loss)	$	(26,099	)	$	16,941		$	49,257		$	(65,386	)	$	(25,287	)
Comprehensive income attributable to noncontrolling interest	—			—			(812		)	—			(812		)
Comprehensive net income (loss) attributable to ION	$	(26,099	)	$	16,941		$	48,445		$	(65,386	)	$	(26,099	)



	Nine Months Ended September 30, 2016
Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
Net revenues	$	—		$	58,907		$	78,532		$	—		$	137,439
Cost of sales	—			67,061			42,690			—			109,751
Gross profit (loss)	—			(8,154		)	35,842			—			27,688
Total operating expenses	24,894			21,687			15,960			—			62,541
Income (loss) from operations	(24,894		)	(29,841		)	19,882			—			(34,853		)
Interest expense, net	(13,917		)	(179		)	53			—			(14,043		)
Intercompany interest, net	727			(3,250		)	2,523			—			—
Equity in earnings (losses) of investments	(18,617		)	19,163			—			(546		)	—
Other income (expense)	(1,841		)	771			(2,554		)	—			(3,624		)
Net income (loss) before income taxes	(58,542		)	(13,336		)	19,904			(546		)	(52,520		)
Income tax expense	115			1,419			4,331			—			5,865
Net income (loss)	(58,657		)	(14,755		)	15,573			(546		)	(58,385		)
Net income attributable to noncontrolling interests	—			—			(272		)	—			(272		)
Net income (loss) applicable to ION	$	(58,657	)	(14,755		)	$	15,301		$	(546	)	$	(58,657	)
Comprehensive net income (loss)	$	(63,939	)	$	(14,755	)	$	10,019		$	5,008		$	(63,667	)
Comprehensive income attributable to noncontrolling interest	—			—			(272		)	��			(272		)
Comprehensive net income (loss) attributable to ION	$	(63,939	)	$	(14,755	)	$	9,747		$	5,008		$	(63,939	)



	Nine Months Ended September 30, 2017
Statement of Cash Flows	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Total Consolidated
	(In thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	(2,785	)	$	11,764		$	1,039		$	10,018
Cash flows from investing activities:
Cash invested in multi-client data library	—			(7,041		)	(9,535		)	(16,576		)
Purchase of property, plant, equipment and seismic rental equipment	(165		)	(775		)	(81		)	(1,021		)
Net cash used in investing activities	(165		)	(7,816		)	(9,616		)	(17,597		)
Cash flows from financing activities:
Payments on notes payable and long-term debt	(1,018		)	(3,244		)	(58		)	(4,320		)
Intercompany lending	(1,574		)	(704		)	2,278			—
Costs associated with issuance of equity	(123		)	—			—			(123		)
Other financing activities	(134		)	—			—			(134		)
Net cash provided by (used in) financing activities	(2,849		)	(3,948		)	2,220			(4,577		)
Effect of change in foreign currency exchange rates on cash and cash equivalents	—			—			(271		)	(271		)
Net decrease in cash and cash equivalents	(5,799		)	—			(6,628		)	(12,427		)
Cash and cash equivalents at beginning of period	23,042			—			29,610			52,652
Cash and cash equivalents at end of period	$	17,243		$	—		$	22,982		$	40,225