UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2007

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-13601

OYO GEOSPACE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	76-0447780
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

7007 Pinemont Drive

Houston, Texas 77040-6601

(Address of Principal Executive Offices)

(713) 986-4444

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 5,809,208 shares of the Registrant’s Common Stock outstanding as of the close of business on May 3, 2007.

Table of Contents

			Page Number
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
	Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION
	Item 4.	Submission of Matters to a Vote of Security Holders	24
	Item 6.	Exhibits	24

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31, 2007		September 30, 2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,354	$	2,054
Trade accounts receivable, net		23,386		20,720
Notes receivable, net		2,101		1,449
Inventories, net		48,065		49,378
Deferred income tax		2,340		1,805
Prepaid expenses and other		1,418		1,178
Total current assets		81,664		76,584
Rental equipment, net		252		612
Property, plant and equipment, net		29,907		24,481
Patents, net		1,413		1,758
Goodwill		1,843		1,843
Deferred income tax		808		951
Notes receivable-noncurrent, net		1,796		2,302
Other assets		676		645
Total assets	$	118,359	$	109,176
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Book overdrafts	$	496	$	636
Notes payable and current maturities of long-term debt		322		312
Accounts payable		7,319		6,593
Accrued expenses and other		8,250		8,108
Deferred revenue		1,162		9,313
Income tax payable		2,039		1,007
Total current liabilities		19,588		25,969
Long-term debt		8,816		7,440
Total liabilities		28,404		33,409
Stockholders’ equity:
Preferred stock		—		—
Common stock		58		57
Additional paid-in capital		37,704		34,637
Retained earnings		51,025		40,029
Accumulated other comprehensive income		1,168		1,044
Total stockholders’ equity		89,955		75,767
Total liabilities and stockholders’ equity	$	118,359	$	109,176

The accompanying notes are an integral part of the consolidated financial statements.

3

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	March 31, 2007			March 31, 2006			March 31, 2007			March 31, 2006
Sales	$	32,062		$	22,673		$	76,815		$	44,588
Cost of sales		21,420			15,161			47,534			29,891
Gross profit		10,642			7,512			29,281			14,697
Operating expenses:
Selling, general and administrative		4,267			3,749			8,806			7,541
Research and development		1,538			1,582			3,933			2,997
Total operating expenses		5,805			5,331			12,739			10,538
Income from operations		4,837			2,181			16,542			4,159
Other income (expense):
Interest expense		(106	)		(229	)		(217	)		(426	)
Interest income		121			162			247			279
Foreign exchange gains (losses)		(10	)		1			(28	)		(39	)
Other, net		(22	)		14			(9	)		29
Total other expense, net		(17	)		(52	)		(7	)		(157	)
Income before income taxes		4,820			2,129			16,535			4,002
Income tax expense		1,673			562			5,539			1,160
Net income	$	3,147		$	1,567		$	10,996		$	2,842
Basic earnings per share	$	0.54		$	0.28		$	1.91		$	0.50
Diluted earnings per share	$	0.52		$	0.26		$	1.82		$	0.48
Weighted average shares outstanding—Basic		5,776,350			5,679,402			5,760,725			5,656,786
Weighted average shares outstanding—Diluted		6,075,200			5,962,446			6,042,478			5,904,750

The accompanying notes are an integral part of the consolidated financial statements.

4

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended March 31, 2007			Six Months Ended March 31, 2006
Cash flows from operating activities:
Net income	$	10,996		$	2,842
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax expense (benefit)		(446	)		342
Depreciation		1,749			1,757
Amortization		349			329
Stock-based compensation expense		261			339
Inventory obsolescence expense		1,026			120
Loss on disposal of property, plant and equipment		—			49
Bad debt expense		105			243
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable		(2,917	)		(6,657	)
Inventories		287			(10,027	)
Prepaid expenses and other assets		(240	)		(341	)
Accounts payable		725			2,490
Accrued expenses and other		335			2,980
Deferred revenue		(8,151	)		2,643
Income tax payable		1,032			(118	)
Net cash provided by (used in) operating activities		5,111			(3,009	)
Cash flows from investing activities:
Capital expenditures		(6,703	)		(1,455	)
Investment in business acquisitions, net of cash acquired		—			(100	)
Net cash used in investing activities		(6,703	)		(1,555	)
Cash flows from financing activities:
Change in book overdrafts		(140	)		1,147
Borrowings under debt arrangements		13,632			17,825
Principal payments on debt arrangements		(12,247	)		(15,169	)
Excess tax benefit from share-based compensation		1,414			—
Proceeds from exercise of stock options		1,392			952
Net cash provided by financing activities		4,051			4,755
Effect of exchange rate changes on cash		(159	)		(30	)
Increase in cash and cash equivalents		2,300			161
Cash and cash equivalents, beginning of period		2,054			1,753
Cash and cash equivalents, end of period	$	4,354		$	1,914

The accompanying notes are an integral part of the consolidated financial statements.

5

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Significant Accounting Policies

Basis of Presentation

The consolidated balance sheet of OYO Geospace Corporation (“OYO Geospace”) and its subsidiaries (collectively, the “Company”) at September 30, 2006 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at March 31, 2007 and the consolidated statements of operations for the three and six months ended March 31, 2007 and 2006, and the consolidated statements of cash flows for the six months ended March 31, 2007 and 2006 were prepared by the Company without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows were made. The results of operations for the three and six months ended March 31, 2007 are not necessarily indicative of the operating results for a full year or of future operations.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

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

Cash and Cash Equivalents

The Company considers all highly liquid debt securities purchased with an original or remaining maturity at the time of purchase of three months or less to be cash equivalents.

Inventories

The Company records a write-down of its inventory when the cost basis of any manufactured product, including any estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the lower of cost (as determined by the first-in, first-out method) or market value.

Revenue Recognition

The Company primarily derives revenue from the sale, and short-term rental under operating leases, of seismic instruments and equipment and thermal solutions products. The Company generally recognizes sales revenues when its products are shipped and title and risk of loss have passed to the customer. The Company recognizes rental revenues as earned over the rental period. Rentals of the Company’s equipment generally range from daily rentals to rental periods of up to six months or longer. Except for certain of the Company’s reservoir characterization products, its products are generally sold without any customer acceptance provisions and its standard terms of sale do not allow customers to return products for credit. In instances where the customer requires a significant performance test, the Company does not recognize the revenue attributable to the product as to which the performance test applies until the performance test is satisfied. Collection of this revenue may occur at various stages of production or after delivery of the product, and is not refundable to the customer. Most of the Company’s products do not require installation assistance or sophisticated instruction.

6

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The Company recognizes revenue when all of the following criteria are met:

• Persuasive evidence of an arrangement exists. The Company operates under a purchase order/contract system for goods sold to customers, and under rental/lease agreements for equipment rentals. These documents evidence that an arrangement exists.

• Delivery has occurred or services have been rendered. For product sales, the Company does not recognize revenues until delivery has occurred or performance tests are met. For rental revenue, the Company recognizes revenue when earned.

• The seller’s price to the buyer is fixed or determinable. Sales prices are defined in writing in a customer’s purchase order, purchase contract or equipment rental agreement.

• Collectibility is reasonably assured. The Company evaluates customer credit to ensure that collectibility of revenue is reasonably assured.

Occasionally the Company’s seismic customers are not able to take immediate delivery of products which were specifically manufactured to the customer’s specifications. These occasions generally occur when customers face logistical issues such as project delays or with their seismic crew deployment. In these instances, customers have asked the Company to hold the equipment for a short period of time until they can take physical delivery of the product (referred to as “bill and hold” arrangements). The Company considers the following criteria for recognizing revenue when delivery has not occurred:

• Whether the risks of ownership have passed to the customer,

• Whether the Company has obtained a fixed commitment to purchase the goods in written documentation from the customer,

• Whether the customer requested that the transaction be on a bill and hold basis and the Company has received that request in writing,

• Whether there is a fixed schedule for delivery of the product,

• Whether the Company has any specific performance obligations such that the earning process is not complete,

• Whether the equipment is segregated from other inventory and is not subject to being used to fill other orders, and

• Whether the equipment is complete and ready for shipment.

The Company does not modify our normal billing and credit terms for these types of sales. As of March 31, 2007, there were no sales recorded under bill and hold arrangements.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs include salaries, employee benefit costs, department supplies, direct project costs and other related costs.

7

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Product Warranties

The Company offers a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains a reserve for future warranty costs based on historical experience or, in the absence of historical product experience, management’s estimates. Changes in the warranty reserve are reflected in the following table (in thousands):

Balance at the beginning of the period (October 1, 2006)	$	689
Accruals for warranties issued during the period		1,196
Accruals related to pre-existing warranties (including changes in estimates)		—
Settlements made (in cash or in kind) during the period		(892	)
Balance at the end of the period (March 31, 2007)	$	993

Stock-Based Compensation

The Company’s employees and non-employee directors participate in stock-based compensation plans. The plans provide for the granting of non-qualified stock options and other equity-based incentive awards to officers, key employees and non-employee directors.

The Company recorded stock-based compensation expense of approximately $0.1 million and $0.2 million for the three month periods ended March 31, 2007 and March 31, 2006, respectively. The Company recorded stock-based compensation expense of approximately $0.3 million for each of the six month periods ended March 31, 2007 and March 31, 2006. The Company granted no options during the three and six months ended March 31, 2007. The Company granted 12,600 and 17,600 options during the three and six months ended March 31, 2006, respectively.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS No. 154”), “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted the provisions of SFAS No. 154 as of October 1, 2006. The adoption of SFAS No. 154 did not have a material effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for first fiscal year beginning after November 15, 2006. The Company is evaluating the impact that the adoption of SFAS No. 159 will have on its future results of operations and financial position.

8

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

2. Earnings Per Common Share

The following table summarizes the calculation of net earnings and weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	March 31, 2007		March 31, 2006		March 31, 2007		March 31, 2006
Net earnings available to common stockholders	$	3,147	$	1,567	$	10,996	$	2,842
Weighted average common shares outstanding—basic		5,776,350		5,679,402		5,760,725		5,656,786
Weighted average common share equivalents outstanding		298,850		283,044		281,753		247,964
Weighted average common shares and common share equivalents outstanding—diluted		6,075,200		5,962,446		6,042,478		5,904,750
Basic earnings per share	$	0.54	$	0.28	$	1.91	$	0.50
Diluted earnings per common share	$	0.52	$	0.26	$	1.82	$	0.48

Options totaling zero and 154 shares of common stock for the three months ended March 31, 2007 and March 31, 2006, respectively, and options totaling zero and 816 shares of common stock for the six months ended March 31, 2007 and 2006, respectively, were not included in the computation of weighted average shares because the impact of these options was antidilutive.

3. Comprehensive Income

Comprehensive income includes all changes in a company’s equity, except those resulting from investments by and distributions to stockholders. The following table summarizes the components of comprehensive income (in thousands):

	Three Months Ended				Six Months Ended
	March 31, 2007		March 31, 2006		March 31, 2007		March 31, 2006
Net income	$	3,147	$	1,567	$	10,996	$	2,842
Foreign currency translation adjustments		139		257		124		309
Total comprehensive income	$	3,286	$	1,824	$	11,120	$	3,151

9

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. Trade Accounts and Notes Receivable

Current trade accounts receivable consisted of the following (in thousands):

	March 31, 2007			September 30, 2006
Trade accounts receivable	$	24,250		$	21,477
Allowance for doubtful accounts		(864	)		(757	)
	$	23,386		$	20,720

The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses. The Company determines the allowance based upon historical experience and a review of its balances. Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable will not be recoverable.

At March 31, 2007 and September 30, 2006, the Company’s current notes receivable was approximately $2.1 million and $1.4 million, respectively. The Company’s current notes receivable at March 31, 2007 and September 30, 2006 did not require an allowance for doubtful notes. The Company also had notes receivable of approximately $1.8 million and $2.3 million classified as long-term at March 31, 2007 and September 30, 2006, respectively. Notes receivable are generally collateralized by the products sold and bear interest at rates ranging up to 11.3% per year.

5. Inventories

Inventories consisted of the following (in thousands):

	March 31, 2007			September 30, 2006
Finished goods	$	12,542		$	11,077
Work-in-process		12,635			17,661
Raw materials		26,121			23,005
Obsolescence reserve		(3,233	)		(2,365	)
	$	48,065		$	49,378

The Company’s reserve for slow moving and obsolete inventories is analyzed and adjusted periodically to reflect the Company’s best estimate of the net realizable value of such inventories.

6. Segment and Geographic Information

The Company evaluates financial performance based on two business segments: Seismic and Thermal Solutions. The Seismic product lines currently consist of geophones and hydrophones, including multi-component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cable, high definition reservoir characterization products and services, marine seismic cable retrieval devices and small data acquisition systems targeted at niche markets. Thermal Solutions products include thermal imaging equipment and dry thermal film targeted at screen print, point of sale, signage and textile market sectors.

10

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following tables summarize the Company’s segment information (in thousands):

	Three Months Ended						Six Months Ended
	March 31, 2007			March 31, 2006			March 31, 2007			March 31, 2006
Net sales:
Seismic	$	28,487		$	18,731		$	69,707		$	37,728
Thermal solutions		3,533			3,942			6,973			6,860
Corporate		42			—			135			—
Total	$	32,062		$	22,673		$	76,815		$	44,588
Income (loss) from operations:
Seismic	$	6,547		$	4,041		$	20,993		$	8,266
Thermal solutions		317			379			179			90
Corporate		(2,027	)		(2,239	)		(4,630	)		(4,197	)
Total	$	4,837		$	2,181		$	16,542		$	4,159

7. Credit Agreement

On November 22, 2004, several of the Company’s subsidiaries entered into a credit agreement (the “Credit Agreement”) with a bank. Under the Credit Agreement, as amended on January 10, 2007 by the Third Amendment to Credit Agreement, the Company’s borrower subsidiaries can borrow up to $25.0 million secured principally by their accounts receivable, inventories and equipment. Prior to the Third Amendment to Credit Agreement, the Company’s borrower subsidiaries were able to borrow up to $20.0 million. The Credit Agreement, as amended, expires on January 31, 2010. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts the Company’s and the borrower subsidiaries’ ability to pay dividends and contains other covenants customary in agreements of this type.

At March 31, 2007, there were borrowings of $4.4 million under the Credit Agreement and $1.7 million of standby letters of credit outstanding. The Company was not subject to a borrowing base and was able to borrow the full available amount subject to its remaining in compliance with certain covenants. The interest rate for borrowing under the Credit Agreement is, at the Company’s option, a discounted prime rate or a LIBOR based rate, as defined.

8. Intellectual Property; Film Supplier Developments

In April 2002, the Company purchased for $2.3 million certain intellectual property rights from its then primary supplier of dry thermal film (the “Former Primary Film Supplier”). Such purchase gave the Company exclusive ownership of all technology used by the Former Primary Film Supplier to manufacture dry thermal film used in the thermal imaging equipment the Company manufactures. Such purchase included technology then existing and any dry thermal film technology thereafter developed by the Former Primary Film Supplier for use in the Company’s equipment. The Company also entered into an amended supply agreement pursuant to which the Former Primary Film Supplier agreed to provide the Company with dry thermal film. In connection with the purchase, the Company agreed to license the technology to the Former Primary Film Supplier on a perpetual basis so long as it could meet predefined quality and delivery requirements. If the Former Primary Film Supplier could not meet such requirements, the agreement provided the Company with the right to use the technology itself or to license the technology to any third party to manufacture dry thermal film.

11

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

On July 3, 2002, the Former Primary Film Supplier filed a Chapter 11 reorganization petition in Federal Bankruptcy Court for the Western District of New York. At the date of such bankruptcy filing, the Company had $3.4 million of long-term assets carried on its balance sheet as a result of the transactions with the Former Primary Film Supplier described above.

Shortly thereafter, the Former Primary Film Supplier ceased providing the Company with dry thermal film. As a result, the Company began using the technology it purchased from the Former Primary Film Supplier to manufacture its own brand of dry thermal film and continued to purchase large quantities of dry thermal film from an alternative film supplier (the “Other Film Supplier”).

As a result of the bankruptcy filing by the Former Primary Film Supplier, the Company recorded a $1.2 million charge in its third quarter of fiscal year 2002 due to the ultimate uncertainty of realization of value on certain assets, particularly certain prepaid purchase benefits and other benefits under the amended supply contract with the Former Primary Film Supplier. The Company continues to believe there has not been any impairment in the value of the intellectual property it acquired from the Former Primary Film Supplier because of its ability to utilize the intellectual property to manufacture dry thermal film either internally or elsewhere.

On December 10, 2002, the Company received a notice of claim, in connection with the Former Primary Film Supplier’s bankruptcy, for alleged preferential payments made by the Former Primary Film Supplier to it in the period before filing of the bankruptcy proceeding in the approximate amount of $259,000. The Company recorded a provision for this claim based upon its estimate of the likelihood of a liability and probable loss. On July 7, 2004, an amended claim was filed against the Company and the amount of the alleged preferential payments made by the Former Primary Film Supplier was increased to approximately $895,000. On January 20, 2006, a motion to amend was filed regarding the claims pending against the Company. On August 28, 2006, the motion to amend was denied. The Former Primary Film Supplier’s bankruptcy proceeding has been converted to a Chapter 7 liquidation proceeding, and a trustee has been appointed for the bankrupt estate.

On March 8, 2007, the Company and the trustee for the bankruptcy estate entered into a court-approved settlement agreement pursuant to which the Company has paid $95,000 to the bankruptcy estate in full settlement of the claims for preferential payments as described above. The Company’s general unsecured claim as a creditor of the Former Primary Film Supplier has been increased to include this $95,000 payment. The settlement agreement also provided for the full release of any claims by the bankruptcy estate against the Company. The Company is unable at this time to predict the outcome and effects of its claim as a creditor.

9. Income Taxes

The United States statutory tax rate for the periods reported was 34.0%. The Company’s effective tax rate for the three months ended March 31, 2007 and 2006 was 34.7% and 26.4%, respectively. The Company’s effective tax rate for the six months ended March 31, 2007 and 2006 was 33.5% and 29.0%, respectively. When compared to the United States statutory rate, the Company’s lower effective tax rate for each period reflects tax benefits related to (i) the extraterritorial income deductions applicable to foreign export sales, (ii) the new manufacturers’/producers’ deduction, and (iii) lower tax rate applicable to profits earned in foreign jurisdictions.

12

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

The following is management’s discussion and analysis of the major elements of our consolidated financial statements. You should read this discussion and analysis together with our consolidated financial statements and accompanying notes and other detailed information appearing elsewhere in this Form 10-Q.

This report on Form 10-Q and the documents incorporated by reference herein, if any, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the caption “Risk Factors” in our Annual Report Form 10-K for the fiscal year ended September 30, 2006, as well as other cautionary language in such Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Quarterly Report on Form 10-Q could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations.

Industry Overview

We design and manufacture instruments and equipment used in the acquisition and processing of seismic data as well as in the characterization and monitoring of producing oil and gas reservoirs. We have been in the seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas industry. We also design, manufacture and distribute thermal imaging equipment, and dry thermal film products targeted at the screen print, point of sale, signage and textile market sectors. We have been manufacturing thermal imaging products in what is called our Thermal Solutions segment since 1995. We report and evaluate financial information for two segments: Seismic and Thermal Solutions.

Seismic Products

The seismic segment of our business accounts for a majority of our sales. Geoscientists use seismic data primarily in connection with the exploration, development and production of oil and gas reserves to map potential and known hydrocarbon bearing formations and the geologic structures that surround them.

Seismic Exploration Products

Seismic data acquisition is conducted by combining a seismic energy source and a data recording system. We provide many of the components of data recording systems, including geophones, hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cables and other seismic related products. We also design and manufacture specialized data systems targeted at niche markets. On land, our customers use our geophones, leader wire, cables and connectors to receive, measure and transmit seismic reflections resulting from an energy source to data collection units, which store information for processing and analysis. In the marine environment, large ocean-going vessels tow long seismic cables known as “streamers” containing hydrophones which are used to detect pressure changes. Hydrophones transmit electrical impulses back to the vessel’s data collection unit, where the seismic data is stored for subsequent processing and analysis. Our marine seismic products help steer streamers while being towed and help recover streamers if they become disconnected from the vessel.

Our products are compatible with most major seismic data systems currently in use, and sales result primarily from seismic contractors purchasing our products as components of new seismic data systems or to repair and replace components of seismic data systems already in use.

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Our wholly-owned subsidiary in Russia, OYO-GEO Impulse International, LLC (“OYO-GEO Impulse”), manufactures international standard geophone sensors and related seismic products for the Russian and other international seismic marketplaces. Operating in foreign locations involves certain risks as discussed under the heading “Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency” and “—Operations Risk and Foreign Currency Intercompany Accounts and Notes Receivable”.

Seismic Reservoir Products

We have developed permanently installed high-definition reservoir characterization products for ocean-bottom applications in producing oil and gas fields. We also produce a retrievable version of the ocean-bottom system for use on fields where permanently installed systems are not appropriate or economical. Seismic surveys repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the effects of production. Utilizing these products, producers can enhance the recovery of oil and gas deposits over the life of a reservoir.

In addition, we produce seismic borehole acquisition systems which employ a fiber optic augmented wireline capable of very high data transmission rates. These systems are used for several reservoir characterization applications, including an application pioneered by us allowing operators and service companies to monitor and measure the results of fracturing operations. Our customers have deployed these borehole systems in the United States, Canada, Mexico and China.

Emerging Technology Products

We have been expanding our products beyond seismic applications by utilizing our existing engineering experience and manufacturing capabilities. We now design and manufacture power and communication transmission cable products for offshore applications and market these products to the offshore oil and gas and offshore construction industries. These products include a variety of specialized cables, primarily used in deepwater applications, such as remotely operated vehicle (“ROV”) tethers, umbilicals and electrical control cables. These products also include specially designed and manufactured cables, including armored cables, engineered to withstand harsh offshore operating environments.

In addition, we design and manufacture industrial sensors for the vibration monitoring and earthquake detection markets. We also design and manufacture other specialty cable products, such as those used in connection with global positioning products.

Thermal Solution Products

Our thermal solutions product technologies were originally developed for seismic data processing applications. In 1995 we modified this technology for application in other markets. Our thermal solutions products include thermal printers, thermal printheads and dry thermal film. Our thermal printers produce images ranging in size from 12 to 54 inches wide and in resolution from 400 to 1,200 dots per inch, or “dpi”. We market our thermal solutions products to a variety of industries, including the screen print, point of sale, signage and textile markets. We also continue to sell these products to our seismic customers, though this market comprises a small percentage of sales of our thermal solutions products.

In April 2002, we acquired intellectual property necessary to manufacture dry thermal film from Labelon Corporation, our former supplier of dry thermal film (the “Former Primary Film Supplier”). This purchase gave us exclusive ownership of all technology used by our Former Primary Film Supplier to manufacture dry thermal film. We are now using this intellectual property to produce our own brand of dry thermal film to sell to the customers of our manufactured line of thermal printers. We also continue to distribute another brand of dry thermal film to users of our thermal printers.

On July 3, 2002, the Former Primary Film Supplier filed a Chapter 11 reorganization petition in Federal Bankruptcy Court for the Western District of New York. At the date of such bankruptcy filing, we had $3.4 million of long-term assets carried on our balance sheet as a result of prior transactions with the Former Primary Film Supplier (including a $2.3 million investment in intellectual property acquired from the Former Primary Film Supplier described above).

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Shortly thereafter, the Former Primary Film Supplier ceased providing us with dry thermal film. As a result, we are currently purchasing a large quantity of dry thermal film from an alternative film supplier, and we are using the technology we purchased from the Former Primary Film Supplier to manufacture dry thermal film internally.

As a result of the bankruptcy filing by the Former Primary Film Supplier, we recorded a $1.2 million charge in fiscal year 2002 due to the ultimate uncertainty of realization of value on certain assets, particularly certain prepaid purchase benefits and other benefits under the amended supply contract with the Former Primary Film Supplier. We continue to believe there has not been any impairment in the value of the intellectual property we acquired from the Former Primary Film Supplier because we are utilizing such property to manufacture dry thermal film.

On December 10, 2002, we received a notice of claim, in connection with the Former Primary Film Supplier’s bankruptcy, for alleged preferential payments made by the Former Primary Film Supplier to us in the period before the bankruptcy proceeding in the approximate amount of $259,000. On July 7, 2004, an amended claim was filed against us and the amount of the alleged preferential payments made by the Former Primary Film Supplier was increased to approximately $895,000. On January 20, 2006, a motion to amend was filed regarding the claims pending against us. On August 28, 2006, the motion to amend was denied.

On March 8, 2007, we entered into a court-approved settlement agreement with the trustee of the bankruptcy estate pursuant to which we have paid $95,000 to the bankruptcy estate in full settlement of the claims for preferential payments as described above. Our general unsecured claim as a creditor of the Former Primary Film Supplier has been increased to include this $95,000 payment. The settlement agreement also provided for the full release of any claims by the bankruptcy estate against us. We are unable at this time to predict the outcome and effects of our claim as a creditor.

On September 30, 2004, we acquired for $1.8 million the thermal printhead production assets from Graphtec Corporation (“Graphtec”). Prior to that date, Graphtec was the only supplier of wide-format thermal printheads that we used to manufacture our wide-format thermal imaging equipment. We concluded the manufacturing of printheads in Fujisawa, Japan in December 2004 using the assets that we acquired from Graphtec and relocated those assets, along with certain key employees of the division, to our facility located at 7007 Pinemont Drive in Houston, Texas (our “Pinemont facility”). In April 2005, we began producing printheads at our Pinemont facility. As a result, we believe we are now the only manufacturer of wide-format thermal printheads in the world.

The quality of thermal images on film is determined primarily by the interface between a thermal printhead and the thermal film. As a result of our acquisition of intellectual property from our Former Primary Film Supplier and acquisition of thermal printhead production assets from Graphtec, we are now manufacturing thermal printheads and thermal film, which we believe will enable us to more effectively match the characteristics of our thermal printers to thermal film, thereby improving print quality, and make us more competitive in markets for these products.

We also distribute another brand of generally high-quality dry thermal film to users of our thermal printers. This other brand of dry thermal film can be abrasive to our thermal printheads, resulting in high warranty costs associated with the replacement of damaged printheads. We are attempting to modify our thermal printheads so that they interface better with this other brand of dry thermal film. In addition, we are engaged in efforts to develop a new line of dry thermal film in order to improve the image quality of our own film for use with our printheads and thus reduce our reliance on the other brand of dry thermal film that tends to be abrasive to our printheads. Both efforts to modify our printheads and to improve our film have been on-going in recent periods, but at this time we are unable to provide any assurance that we can eliminate printhead and film interface issues in the near future or at all. In order to achieve more than marginal growth in our thermal solutions product business in future periods, we believe that it is important to continue our concentration of efforts on both our printhead changes and film improvements.

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Facilities Expansion

We are currently running at or near full capacity in portions of our Pinemont facility. As a result, we are in the process of expanding the manufacturing space at our Pinemont facility to approximately double its current size and adding the appropriate manufacturing machinery and equipment to meet expected future demand. We estimate the facility expansion and machinery and equipment additions will cost approximately $12.0 million and will be completed by the end of the third quarter of our 2007 fiscal year. Costs for the facility expansion and machinery and equipment are being funded from our internal cash flows and/or from borrowings under our Credit Agreement, discussed below under the heading “—Liquidity and Capital Resources”. Upon completion of the Pinemont facility expansion, we expect to obtain a long-term loan secured by a mortgage on our Pinemont facility to replenish our cash reserves and/or repay borrowings under our Credit Agreement.

As a result of growth in our Russian operation, and with an expectation of new product lines to be introduced over the coming years, we are evaluating the expansion of our existing 120,000 square foot facility in Ufa. We are still in the early phases of planning this construction project and obtaining the necessary permits from local authorities. We now expect this new facility to be completed in the 2008 calendar year at an estimated cost of $3.0 million. The Russian facility expansion is expected to be financed from (i) our internal cash flows, (ii) the sale of non-critical assets, and/or (iii) from borrowings under our Credit Agreement, discussed below under the heading “—Liquidity and Capital Resources”.

Incentive Compensation Program

We have adopted an incentive compensation program for fiscal year 2007 whereby most employees are eligible to receive incentive compensation upon the company reaching a 5% pretax return on shareholders’ equity, which was determined as of September 30, 2006. In addition, certain key employees are also required to achieve specific goals to earn a significant portion of their incentive compensation award. Bonus awards earned under the program are paid out to eligible employees after the end of the fiscal year.

Upon reaching the 5% threshold under this program, an incentive compensation accrual is established equal to 30% of the amount of any consolidated pretax profits above the 5% pretax return threshold. The maximum aggregate bonus under the program for fiscal year 2007 is $3.2 million. As a result of the significant pretax profits earned by the company during the three months ended December 31, 2006 and upon the expectation that key employees will achieve their goals, we have accrued incentive compensation expenses of $3.2 million during our first fiscal quarter of fiscal year 2007, which is the maximum amount allowed under the program. As a result, there were no incentive compensation expenses recorded during our second quarter of fiscal year 2007, and we anticipate that there will be no additional accruals of incentive compensation expense throughout the remainder of fiscal year 2007. Under a similar incentive compensation program for fiscal year 2006, we accrued incentive compensation expenses of $1.0 million for the six months ended March 31, 2006.

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Results of Operations

We report and evaluate financial information for two segments: Seismic and Thermal Solutions. Summary financial data by business segment follows (in thousands):

	Three Months Ended						Six Months Ended
	March 31, 2007			March 31, 2006			March 31, 2007			March 31, 2006
Seismic
Revenue	$	28,487		$	18,731		$	69,707		$	37,728
Operating income		6,547			4,041			20,993			8,264
Thermal Solutions
Revenue		3,533			3,942			6,973			6,860
Operating income		317			379			179			91
Corporate
Revenue		42			—			135			—
Operating loss		(2,027	)		(2,239	)		(4,630	)		(4,196	)
Consolidated Totals
Revenue		32,062			22,673			76,815			44,588
Operating income		4,837			2,181			16,542			4,159

Overview

Three and six months ended March 31, 2007 compared to three and six months ended March 31, 2006

Consolidated sales for the three months ended March 31, 2007 increased by $9.4 million, or 41.4%, from the corresponding period of the prior fiscal year. The increase in sales primarily reflects strong demand for our seismic exploration products resulting from increased worldwide demand for seismic surveys. Consolidated sales for the six months ended March 31, 2007 increased by $32.2 million, or 72.3%, from the corresponding period of the prior fiscal year. Such increase in sales reflects the strong demand for seismic exploration products as well as the revenue recognition of $16.9 million from sales of reservoir characterization systems during our first quarter ended December 31, 2006.

Consolidated gross profits for the three months ended March 31, 2007 increased by $3.1 million, or 41.7%, from the corresponding period of the prior fiscal year. The increase in gross profits for this period is consistent with the corresponding increase in sales described above. Consolidated gross profits for the six months ended March 31, 2007 increased by $14.6 million, or 99.2%, from the corresponding periods of the prior fiscal year. The increased gross profits are the result of increased sales of our seismic exploration and seismic reservoir products, including the revenue recognition of seismic reservoir characterization systems which have higher gross profit margins. Such increased gross profits were partially offset by $0.8 million of additional incentive compensation expense in fiscal year 2007 attributable to our manufacturing employees, as discussed above under the heading “—Incentive Compensation Programs”.

Consolidated operating expenses for the three months ended March 31, 2007 increased $0.5 million, or 8.9%, from the corresponding period of the prior fiscal year. The increase in operating expenses is primarily the result of increased bad debt expense of $0.4 million. Consolidated operating expenses for the six months ended March 31, 2007 increased $2.2 million, or 20.9%, from the corresponding period of the prior fiscal year. The increased operating expenses primarily resulted from an increase in incentive compensation expense of $1.4 million for our non-manufacturing employees as discussed above under the heading “—Incentive Compensation Programs”, and other general expense increases consistent with higher sales.

The United States statutory tax rate for the periods reported was 34.0%. The effective tax rate for the three months ended March 31, 2007 and 2006 was 34.7% and 26.4%, respectively. The effective tax rate for the six months ended March 31, 2007 and 2006 was 33.5% and 29.0%, respectively. When compared to the United States

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statutory rate, our effective tax rate for each period reflects tax benefits related to (i) the extraterritorial income deductions applicable to foreign export sales, (ii) the new manufacturers’/producers’ deduction, and (iii) lower tax rates applicable to profits earned in foreign jurisdictions. As a result of U.S. tax legislation that phases out a special deduction allowed to U.S. export manufacturers, our effective tax rate has increased significantly since the previous fiscal year.

Seismic Products

Net Sales

Sales of our seismic products for the three months ended March 31, 2007 increased $9.8 million, or 52.1%, from the corresponding period of the prior fiscal year. The increase in sales primarily reflects strong demand for our seismic exploration products resulting from increased worldwide demand for seismic surveys. Sales of our seismic products for the six months ended March 31, 2007 increased $32.0 million, or 84.8%, from the corresponding period of the prior fiscal year. The sales increase is primarily due to higher sales of reservoir characterization products, including the recognition of $16.9 million in revenues from the sale of reservoir characterization systems during our first quarter ended December 31, 2006. In addition, sales of our seismic exploration products, including product sales into the Canadian and Russian markets, have increased as a result of increasing worldwide demand for seismic surveys.

Operating Income

Operating income associated with sales of our seismic products for the three months ended March 31, 2007 increased $2.5 million, or 62.0%, from the corresponding period of the prior fiscal year. The increase in operating income resulted from increased sales of our seismic exploration products. For the six months ended March 31, 2007, operating income increased $12.7 million, or 154.0%, from the corresponding period of the prior fiscal year. The increase in operating income resulted from increased sales, including the revenue recognition of the $16.9 million reservoir characterization systems discussed above, which have higher gross profit margins. The increased operating income was partially offset by a $1.9 million increase in incentive compensation expense resulting from the company achieving the maximum accrual allowed under its incentive compensation programs, discussed above under the heading “—Incentive Compensation Program”.

Thermal Solutions Products

Net Sales

Sales of our thermal solutions products for the three months ended March 31, 2007 decreased $0.4 million, or 10.4%, from the corresponding period of the prior fiscal year. Such decrease is primarily the result of lower film and equipment sales during the quarter. We believe this decline in demand is temporary in nature and consistent with past market fluctuations. Sales of our thermal solutions products for the six months ended March 31, 2007 increased $0.1 million, or 1.6%, from the corresponding periods of the prior fiscal year. This increase in sales is primarily from increased sales of thermal imaging equipment and thermal printheads resulting from manufacturing process improvements. This increase in sales was partially offset by a decrease in thermal film sales for the period.

Operating Income

Operating income associated with sales of our thermal solutions products for the three months ended March 31, 2007 decreased $62,000, or 16.4%, from the corresponding period of the prior fiscal year. The decline in operating income is generally a result of a decline in sales. Operating income associated with sales of our thermal solutions products for the six months ended March 31, 2007 increased $87,000, or 95.6%, from the corresponding period of the prior fiscal year. Such improvement is generally the result of increased sales of equipment and printheads which yield higher profit margins, and from manufacturing process improvements implemented since the prior year.

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Liquidity and Capital Resources

At March 31, 2007, we had $4.4 million in cash and cash equivalents. For the six months ended March 31, 2007, we generated approximately $5.1 million of cash from operating activities. The cash generated from operating activities resulted from net income of $11.0 million, which included net non-cash charges of $3.0 million for deferred taxes, depreciation, amortization, stock-based compensation, inventory obsolescence and bad debts. Other sources of cash from operating activities, including changes in our working capital accounts are (i) a $1.0 million increase in income taxes payable resulting from increased profits, (ii) a $0.7 million temporary increase in accounts payable resulting from the timing of cash disbursements, and (iii) a $0.3 million reduction in inventories, primarily resulting from the recognition of revenue due to the sale of a large reservoir characterization system offset with inventory increases for new and anticipated customer orders. As previously noted, we have been in a period of significant demand for our products, which has resulted in a build up of our inventories to be able to continue to meet actual and anticipated future customer demand. Such increases in our inventory levels have likewise resulted in increases in our inventory obsolescence expense as the level of obsolete and slow moving inventories increase. The increased level of inventories has put greater demands on our management of inventories, and we are giving substantial attention to the management of our inventories in this context. These sources of cash were partially offset by an $8.2 million decline in deferred revenue resulting from the recognition of revenue due to the sale of a large reservoir characterization system and a $2.9 million increase in trade accounts and notes receivable resulting from increased sales.

For the six months ended March 31, 2007, we used approximately $6.7 million of cash in investing activities for capital expenditures. We estimate that our total capital expenditures in fiscal year 2007 will be approximately $14.5 million, which includes expenditures to expand our Pinemont facility and to acquire new machinery and equipment. For the six months ended March 31, 2007, we incurred construction costs of $3.9 million for the Pinemont facility expansion and have incurred total construction costs of $4.8 million to-date for the Pinemont facility expansion. We are funding the cost of the Pinemont facility expansion and machinery and equipment from our internal cash flows and/or from borrowings under the Credit Agreement. Upon completion of the Pinemont facility expansion, we expect to obtain a long-term loan secured by a mortgage on our Pinemont facility to replenish our cash reserves and/or repay borrowings under our Credit Agreement. We are also planning to expand our manufacturing facility in the Russian Federation; however, completion of this additional facility is now expected to occur in calendar year 2008 at an estimated cost of $3.0 million. We expect to fund the Russian facility expansion from (i) our internal cash flows, (ii) the sale of non-critical assets, and/or (iii) borrowings under the Credit Agreement.

For the six months ended March 31, 2007, we generated approximately $4.1 million of cash in financing activities. The cash generated from financing activities resulted from $1.4 million of net borrowings under the credit facility, $1.4 million of cash received from the exercise of stock options by directors and employees and a $1.4 million tax benefit related to such stock option exercises.

On November 22, 2004, several of our subsidiaries entered into a credit agreement (the “Credit Agreement”) with a bank. Under the Credit Agreement, as amended on January 10, 2007 by the Third Amendment to Credit Agreement, our borrower subsidiaries can borrow up to $25.0 million principally secured by their accounts, inventories and equipment. Prior to the Third Amendment to Credit Agreement, our borrower subsidiaries could borrow up to $20.0 million. The Credit Agreement, as amended, expires on January 31, 2010. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial amounts, restricts our borrower subsidiaries’ ability to pay dividends and contains other covenants customary in agreements of this type. We believe that the ratio of total liabilities to tangible net worth and the asset coverage ratio could prove to be the most restrictive. The interest rate for borrowings under the Credit Agreement is, at our borrower subsidiaries’ option, a discounted prime rate or a LIBOR based rate. At March 31, 2007, there were borrowings of $4.4 million under the Credit Agreement and $1.7 million of standby letters of credit outstanding.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of

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these financial statements. We continually evaluate our estimates, including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves for medical expenses, product warranty reserves, intangible assets, stock-based compensation and deferred income tax assets. We base our estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Goodwill represents the excess of the purchase price of purchased businesses over the estimated fair value of the acquired business’ net assets. Under the Statement of Financial Accounting Standards, or “SFAS”, 142 (“SFAS 142”), goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed periodically for impairment. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. In accordance with the provisions of SFAS 142, we no longer record goodwill amortization expense. We review the carrying value of goodwill and other long-lived assets to determine whether there has been an impairment since the date of the relevant acquisition. We have elected to make September 30 the annual impairment assessment date and will perform additional impairment tests if a change in circumstances occurs that would more likely than not reduce the fair value of long-lived assets below their carrying amount. The assessment is performed in two steps: step one is to test for potential impairment and if potential losses are identified, step two is to measure the impairment loss. We performed step one at September 30, 2006 and found that there were no impairments at that time; thus, step two was not necessary.

We primarily derive revenue from the sale, and short-term rental under operating leases, of seismic instruments and equipment and thermal solutions products. We generally recognize sales revenues when our products are shipped and title and risk of loss have passed to the customer. We recognize rental revenues as earned over the rental period. Rentals of our equipment generally range from daily rentals to rental periods of up to six months or longer. Except for certain of our reservoir characterization products, our products are generally sold without any customer acceptance provisions and our standard terms of sale do not allow customers to return products for credit. In instances where there is a significant performance test, we do not recognize the revenue attributable to the product as to which the performance test applies until the performance test is satisfied. Collection of this revenue may occur at various stages of production or after delivery of the product, and is not refundable to the customer.

Most of our products do not require installation assistance or sophisticated instruction. We offer a standard product warranty obligating us to repair or replace equipment with manufacturing defects. We maintain a reserve for future warranty costs based on historical experience or, in the absence of historical experience, management estimates. We record a write-down of inventory when the cost basis of any item (including any estimated future costs to complete the manufacturing process) exceeds its net realizable value.

We recognize revenue when all of the following criteria are met:

• Persuasive evidence of an arrangement exists. We operate under a purchase order/contract system for goods sold to customers, and under rental/lease agreements for equipment rentals. These documents evidence that an arrangement exists.

• Delivery has occurred or services have been rendered. For product sales, we do not recognize revenues until delivery has occurred or performance tests are met. For rental revenue, we recognize revenue when earned.

• The seller’s price to the buyer is fixed or determinable. Sales prices are defined in writing in a customer’s purchase order, purchase contract or equipment rental agreement.

• Collectibility is reasonably assured. We evaluate customer credit to ensure collectibility is reasonably assured.

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Occasionally our seismic customers are not able to take immediate delivery of products which were specifically manufactured to the customer’s specifications. These occasions generally occur when customers face logistical issues such as project delays or with their seismic crew deployment. In these instances, our customers have asked us to hold the equipment for a short period of time until they can take physical delivery of the product (referred to as “bill and hold” arrangements). We consider the following criteria for recognizing revenue when delivery has not occurred:

• Whether the risks of ownership have passed to the customer,

• Whether we have obtained a fixed commitment to purchase the goods in written documentation from the customer,

• Whether the customer requested that the transaction be on a bill and hold basis and we received that request in writing,

• Whether there is a fixed schedule for delivery of the product,

• Whether we have any specific performance obligations such that the earning process is not complete,

• Whether the equipment is segregated from our other inventory and not subject to being used to fill other orders, and

• Whether the equipment is complete and ready for shipment.

We do not modify our normal billing and credit terms for these types of sales. As of March 31, 2007, we had no sales recorded under bill and hold arrangements.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS No. 154”), “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted the provisions of SFAS No. 154 as of October 1, 2006. The adoption of SFAS No. 154 did not have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities —Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for first fiscal year beginning after November 15, 2006. We are evaluating the impact that the adoption of SFAS No. 159 will have on our future results of operations and financial position.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The following discussion of our exposure to various market risks contains “forward looking statements” that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of foreign currency rates and interest rates, as well as other factors, actual results could differ materially from those projected in this forward looking information.

We do not have any market risk as to market risk sensitive instruments entered into for trading purposes and have only very limited risk as to arrangements entered into for purposes other than trading purposes. Further, we do not engage in commodity or commodity derivative instrument purchasing or selling transactions.

Foreign Currency and Operations Risk

One of our wholly-owned subsidiaries, OYO-GEO Impulse, is located in the Russian Federation. Therefore, our financial results may be affected by factors such as changes in foreign currency exchange rates, weak economic conditions in the Russian Federation or changes in its political climate. Our consolidated balance sheet at March 31, 2007 reflected approximately $4.9 million of net working capital related to OYO-GEO Impulse. OYO-GEO Impulse both receives its income and pays its expenses primarily in rubles. To the extent that transactions of OYO-GEO Impulse are settled in rubles, a devaluation of the ruble versus the U.S. dollar could reduce any contribution from OYO-GEO Impulse to our consolidated results of operations and total comprehensive income as reported in U.S. dollars. We do not hedge the market risk with respect to our operations in the Russian Federation; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of rubles versus U.S. dollars to the extent such disruptions result in any reduced valuation of OYO-GEO Impulse’s net working capital or future contributions to our consolidated results of operations. At March 31, 2007, the foreign exchange rate of the U.S. dollar to the ruble was 1:26.0. If the U.S. dollar versus ruble exchange rate were to decline by ten percent, our working capital could decline by $0.5 million.

Foreign Currency Intercompany Accounts and Notes Receivable

From time to time, we provide access to capital to our foreign subsidiaries through U.S. dollar denominated interest bearing promissory notes. Such funds are generally used by our foreign subsidiaries to purchase capital assets and for general working capital needs. In addition, we sell products to our foreign subsidiaries in U.S. dollars on trade credit terms. Because these U.S. dollar denominated intercompany debts are accounted for in the local currency of our foreign subsidiaries, any appreciation or devaluation of such foreign currencies against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations. At March 31, 2007, we had outstanding accounts and notes receivable of $3.1 million, $1.3 million and $43,000, from our subsidiaries in the Russian Federation, Canada and the United Kingdom, respectively. At March 31, 2007, the foreign exchange rate of the U.S. dollar to ruble was 1:26.0. If the U.S. dollar versus ruble exchange rate were to decline by ten percent our intercompany notes receivable could decline by $0.3 million. At March 31, 2007, the foreign exchange of the U.S. Dollar to the Canadian Dollar was 1:1.2. If the U.S. dollar versus Canadian Dollar exchange rate were to decline by ten percent our intercompany notes receivable could decline by $0.1 million. Due to the relatively small amount of intercompany receivables due from the United Kingdom changes in the exchange rate would not have a material effect.

Floating Interest Rate Risk

The Credit Agreement and the real estate mortgage agreement for our Pinemont facility each contain a floating interest rate. These floating interest rates subject us to the risk of increased interest costs associated with any upward movements in bank market interest rates. Under the Credit Agreement, our borrowing interest rate is a discounted prime lending rate or a LIBOR based rate, whichever we select. Under the real estate mortgage agreement, our borrowing rate is a LIBOR based rate plus 159 basis points with a minimum rate of 3.8%. As of March 31, 2007, we had borrowings of $4.4 million under the Credit Agreement and had standby letters of credit in the amount of $1.7 million outstanding at a borrowing rate of 6.9%. We also had borrowings of $2.7 million outstanding under our real estate mortgage agreement at a rate of 6.9%. Due to the amount of borrowings outstanding under these facilities,

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including potential borrowings available under the Credit Agreement, any increased interest costs associated with movements in market interest rates could be material to our financial condition, results of operations and/or cash flow. At March 31, 2007, based on our current level of borrowings, a 1.0% increase in interest rates would increase our interest expense annually by approximately $71,000.

Item 4. Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified under the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Nevertheless, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company’s reports.

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the CEO and CFO, as of March 31, 2007 of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Quarterly Report has been made known to them in a timely fashion.

No changes in the Company’s internal controls over financial reporting occurred during the quarterly period ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II—OTHER INFORMATION

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

On February 21, 2007, we held our Annual Meeting of Stockholders (the “Meeting”). At the Meeting, our stockholders approved the election of William H. Moody and Gary D. Owens, as directors, each holding office until the 2010 Annual Meeting of Stockholders or until his successor is duly elected and qualified. The results of the voting follows:

	For	Against	Withheld
William H. Moody	5,297,283	—	60,780
Gary D. Owens	4,924,260	—	433,803

The other directors of the Company whose terms continued after the Annual Meeting are Mssrs. Ruyzo Okuto, Katsuhiko Kobayashi, Thomas L. Davis, Ph.D., Charles H. Still and Michael J. Sheen.

The total voted shares represented by proxy and in person was 5,358,063.

Item 6. Exhibits

The following exhibits are filed with this Quarterly Report on Form 10-Q.

31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.

	OYO GEOSPACE CORPORATION
Date: May 8, 2007	By:	/s/ Gary D. Owens
		Gary D. Owens, Chairman of the Board
		President and Chief Executive Officer
		(duly authorized officer)
Date: May 8, 2007	By:	/s/ Thomas T. McEntire
		Thomas T. McEntire
		Chief Financial Officer
		(principal financial officer)

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