10-Q

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 June 30, 2010

OR

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

for the transition period from              to             

Commission file number 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) (Zip Code)

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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 6,034,208 shares of the Registrant’s Common Stock outstanding as of the close of business on August 2, 2010.

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 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 6.	Exhibits	26

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2010			September 30, 2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	23,842		$	8,571
Trade accounts receivable, net		24,820			13,878
Current portion of notes receivable, net		2,826			10,477
Inventories, net		53,210			57,257
Deferred income tax asset		4,087			3,326
Prepaid expenses and other current assets		1,437			2,233
Total current assets		110,222			95,742
Rental equipment, net		3,235			4,068
Property, plant and equipment, net		34,352			37,105
Patents, net		618			807
Goodwill		1,843			1,843
Non-current deferred income tax asset		855			687
Non-current notes receivable, net		6,705			—
Other assets		973			1,230
Total assets	$	158,803		$	141,482
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	440		$	728
Accounts payable trade		7,223			4,692
Accrued expenses and other current liabilities		7,604			6,954
Deferred revenue		5,340			367
Income tax payable		1,295			159
Total current liabilities		21,902			12,900
Long-term debt, net of current maturities		7,370			8,820
Non-current deferred income tax liabilities		968			1,104
Total liabilities		30,240			22,824
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—			—
Common stock		60			60
Additional paid-in capital		44,410			43,300
Retained earnings		84,526			75,540
Accumulated other comprehensive loss		(433	)		(242	)
Total stockholders’ equity		128,563			118,658
Total liabilities and stockholders’ equity	$	158,803		$	141,482

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						Nine Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Sales	$	35,292		$	20,790		$	92,389		$	70,155
Cost of sales		20,392			13,715			60,039			47,918
Gross profit		14,900			7,075			32,350			22,237
Operating expenses:
Selling, general and administrative		4,284			3,363			11,997			10,483
Research and development		2,842			1,979			6,839			5,789
Bad debt expense (recovery)		84			524			(336	)		435
Total operating expenses		7,210			5,866			18,500			16,707
Gain (loss) on disposal of equipment		—			—			(184	)		7
Income from operations		7,690			1,209			13,666			5,537
Other income (expense):
Interest expense		(51	)		(108	)		(186	)		(519	)
Interest income		76			130			178			766
Foreign exchange gains (losses)		(125	)		104			(21	)		(457	)
Other, net		(3	)		(35	)		(171	)		(98	)
Total other income (expense), net		(103	)		91			(200	)		(308	)
Income before income taxes		7,587			1,300			13,466			5,229
Income tax expense		2,510			293			4,480			1,653
Net income	$	5,077		$	1,007		$	8,986		$	3,576
Basic earnings per share	$	0.84		$	0.17		$	1.49		$	0.60
Diluted earnings per share	$	0.81		$	0.17		$	1.45		$	0.59
Weighted average shares outstanding - Basic		6,032,373			5,946,955			6,024,589			5,940,200
Weighted average shares outstanding - Diluted		6,240,412			6,065,989			6,216,823			6,063,621

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)

	Nine Months Ended June 30, 2010			Nine Months Ended June 30, 2009
Cash flows from operating activities:
Net income	$	8,986		$	3,576
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax expense (benefit)		(1,129	)		210
Depreciation		3,928			3,722
Amortization		202			185
Stock-based compensation expense		270			201
Bad debt expense (recovery)		(336	)		435
Inventory obsolescence reserve		1,623			905
Excess tax benefit from share-based compensation		(238	)		(192	)
Loss on early extinguishment of debt		137			—
(Gain) loss on disposal of equipment		184			(7	)
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable		(9,593	)		16,063
Inventories		1,680			(2,194	)
Prepaid expenses and other assets		782			505
Accounts payable		2,545			(5,238	)
Accrued expenses and other		1,855			(5,298	)
Deferred revenue		4,988			(556	)
Income tax payable		1,140			(1,429	)
Net cash provided by operating activities		17,024			10,888
Cash flows from investing activities:
Proceeds from the sale of property, plant and equipment		11			23
Capital expenditures		(652	)		(1,382	)
Net cash used in investing activities		(641	)		(1,359	)
Cash flows from financing activities:
Change in book overdrafts		—			(35	)
Net borrowings (principal payments) under line of credit		—			(9,978	)
Principal payments on mortgage loans		(1,738	)		(530	)
Penalty for early extinguishment of debt		(137	)		—
Excess tax benefit from share-based compensation		238			192
Proceeds from exercise of stock options		601			365
Net cash used in financing activities		(1,036	)		(9,986	)
Effect of exchange rate changes on cash		(76	)		449
Increase (decrease) in cash and cash equivalents		15,271			(8	)
Cash and cash equivalents, beginning of period		8,571			1,562
Cash and cash equivalents, end of period	$	23,842		$	1,554

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 and its subsidiaries (the “Company”) at September 30, 2009 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 2010 and the consolidated statements of operations for the three and nine months ended June 30, 2010 and 2009, and the consolidated statements of cash flows for the nine months ended June 30, 2010 and 2009 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 nine months ended June 30, 2010 are not necessarily indicative of the operating results for a full year or of future operations.

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 year ended September 30, 2009.

Reclassifications

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company considers 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 these financial statements. The Company continually evaluates its estimates, including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, long-lived assets, intangible assets and deferred income tax assets. The Company bases its estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Cash and Cash Equivalents

The Company considers all highly liquid investments 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. The Company’s subsidiary in the Russian Federation uses an average cost method to value its inventories.

6

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 nine 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 for the Company’s new and unproven products, 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 revenue from the sale of large-scale reservoir characterization products may occur at various stages of production or after delivery of the product, and the collected funds are not refundable to the customer. Most of the Company’s products do not require installation assistance or sophisticated instruction.

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 measures 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 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 delays 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 of the goods have passed to the customer,

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

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

• Whether the customer has a substantial business purpose for ordering the goods on a bill and hold basis,

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

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

• Whether the goods are segregated from their other inventories and not subject to being used to fill other orders, and

• Whether the goods are complete and ready for shipment.

7

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The Company does not modify its normal billing and credit terms for these types of sales. As of June 30, 2010, there were no sales under bill and hold arrangements. As of June 30, 2009, there were sales of $1.7 million 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.

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, 2009)	$	832
Accruals for warranties issued during the period		2,085
Accruals related to pre-existing warranties (including changes in estimates)		—
Settlements made (in cash or in kind) during the period		(2,059	)
Balance at the end of the period (June 30, 2010)	$	858

Financial Instruments

Fair value 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 significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash and cash equivalents, accounts and notes receivable and accounts payable, approximate the fair values of such items as a result of the relative short term nature of such items. The carrying value of long-term debt approximates the fair value as a result of the interest rates reflecting market rates of interest.

Subsequent Events

The Company evaluates events and transactions that occur after the balance sheet date but before the financial statements are issued. The Company evaluated such events and transactions through the date when the financial statements were filed electronically with the Securities and Exchange Commission.

Recent Accounting Pronouncements

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will be effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this guidance and had no material effect on its consolidated financial statements.

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 share and per share data):

	Three Months Ended				Nine Months Ended
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009
Net earnings available to common stockholders	$	5,077	$	1,007	$	8,986	$	3,576
Weighted average number of common shares outstanding - basic		6,032,373		5,946,955		6,024,589		5,940,200
Weighted average number of common share equivalents outstanding related to stock options		208,039		119,034		192,234		123,421
Weighted average number of common shares and common share equivalents outstanding - diluted		6,240,412		6,065,989		6,216,823		6,063,621
Basic earnings per common share	$	0.84	$	0.17	$	1.49	$	0.60
Diluted earnings per common share	$	0.81	$	0.17	$	1.45	$	0.59

Options totaling 20,000 and 159,300 shares of common stock for the three months ended June 30, 2010 and 2009, respectively, and options totaling 20,000 and 159,300 shares of common stock for the nine months ended June 30, 2010 and 2009, respectively, were not included in the computation of diluted 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					Nine Months Ended
	June 30, 2010			June 30, 2009		June 30, 2010			June 30, 2009
Net income	$	5,077		$	1,007	$	8,986		$	3,576
Foreign currency translation adjustments		(541	)		1,241		(191	)		(2,318	)
Total comprehensive income	$	4,536		$	2,248	$	8,795		$	1,258

9

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. Trade Accounts and Notes Receivable

Current trade accounts receivable are reflected in the following table (in thousands):

	June 30, 2010			September 30, 2009
Trade accounts receivable	$	25,257		$	14,726
Allowance for doubtful accounts		(437	)		(848	)
	$	24,820		$	13,878

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 current 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 June 30, 2010 and September 30, 2009, the Company’s current notes receivable was $2.8 million and $10.5 million, respectively. The Company also had notes receivable of $6.7 million and zero classified as long-term at June 30, 2010 and September 30, 2009, respectively. The Company had a reserve for doubtful notes of zero at June 30, 2010 and September 30, 2009. Notes receivable are generally collateralized by the products sold and bear interest at rates ranging up to 7.5% per year.

5. Inventories

Inventories consist of the following (in thousands):

	June 30, 2010			September 30, 2009
Finished goods	$	13,184		$	15,783
Work-in-process		9,986			8,598
Raw materials		36,042			37,489
Obsolescence reserve		(6,002	)		(4,613	)
	$	53,210		$	57,257

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.

During the nine months ended June 30, 2010, the Company transferred $0.4 million of inventories to its rental equipment fleet.

10

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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, data acquisition systems, offshore cables and industrial products. Thermal Solutions products include thermal printers, thermal printheads and dry thermal film and other media. The Company sells these products to a variety of markets, including the screen print, point of sale, signage and textile market sectors. The Company also sells Thermal Solutions products to its seismic customers.

The following table summarizes the Company’s segment information (in thousands):

	Three Months Ended						Nine Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Net sales:
Seismic	$	31,934		$	17,360		$	82,175		$	59,658
Thermal solutions		3,160			3,235			9,610			9,904
Corporate		198			195			604			593
Total	$	35,292		$	20,790		$	92,389		$	70,155
Income (loss) from operations:
Seismic	$	9,748		$	2,706		$	19,362		$	10,337
Thermal solutions		43			169			385			349
Corporate		(2,101	)		(1,666	)		(6,081	)		(5,149	)
Total	$	7,690		$	1,209		$	13,666		$	5,537

7. Credit Agreement

On November 22, 2004, several of the Company’s subsidiaries entered into a credit agreement (the “Original Credit Agreement”) with a bank. The Original Credit Agreement has been amended periodically since 2004, and most recently on April 30, 2009 (as so amended, the “Credit Agreement”). Under the Credit Agreement, the Company’s borrower subsidiaries can borrow up to $25.0 million principally secured by their accounts receivable, inventories and equipment. The Credit Agreement expires on April 30, 2011. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts the Company and its subsidiaries’ ability to pay dividends and contains other covenants customary in agreements of this type. At June 30, 2010, the Company was in compliance with all covenants. The interest rate for borrowings under the Credit Agreement is a LIBOR based rate with a margin spread of 300-400 basis points depending upon the maintenance of certain ratios. At June 30, 2010, the interest rate was 3.3%. At June 30, 2010, there were no borrowings outstanding under the Credit Agreement, standby letters of credit outstanding in the amount of $0.4 million and additional borrowings available of $24.6 million.

11

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8. Income Taxes

The United States statutory tax rate for the periods ended June 30, 2010 and 2009 was 34.0%. The Company’s effective tax rates for the three months and nine months ended June 30, 2010 was 33.1% and 33.3%, respectively. The Company’s effective tax rates for the three months and nine months ended June 30, 2009 was 22.5% and 31.6%, respectively. The higher effective rate for the periods ended June 30, 2010 is due to the expiration of the research and experimentation tax credits. The United States Congress has not extended the provision for research and experimentation credits beyond calendar year 2009; therefore, the Company has not recorded any related tax benefit of such credits beyond its first quarter ended December 31, 2009.

From time to time the Company is the subject of audits by various tax authorities that can result in claims and assessments and additional tax payments, penalties and interest. The United States Internal Revenue Service (“IRS”) is in the process of conducting an audit of the Company’s United States Federal income tax returns for fiscal years 2008 and 2007. Management believes that the outcome of such audit will not have a material effect on the Company’s financial position, results of operations or cash flows.

9. Legal Proceedings

On July 8, 2009, the Company received a complaint filed in the United States District Court in Nevada alleging that the Geospace Seismic Recorder (“GSR”), the Company’s newly developed wireless data acquisition system, infringes upon a patent held by Ascend Geo, LLC (“Ascend”), which, according to Ascend’s website, ceased business operations on July 15, 2010. The Company requested and was granted a change in venue to the United States District Court for the Southern District of Texas in Houston (the “Court”). In addition to monetary damages, Ascend requested a preliminary injunction against future sales by the Company of the GSR nodal system. The Company filed its response with the Court requesting that it deny Ascend’s request for a preliminary injunction and, on November 4, 2009, the Court denied Ascend’s request for a preliminary injunction. The Company strongly believes that the GSR nodal system does not violate Ascend’s patent. The Company also strongly believes that Ascend’s patent is not valid and has petitioned the United States Patent and Trademark Office (“PTO”) to re-examine its validity. On November 12, 2009, the PTO found that substantial new questions of patentability were raised by the petition as to each of the claims of the Ascend patent and issued an office action rejecting each of the claims based on prior art that the Company submitted to the PTO. Based on the PTO’s initial finding of invalidity of Ascend’s patent claims, the Company petitioned the Court to stay the litigation until the PTO can complete its reexamination of Ascend’s patent. The Court accepted the Company’s request on December 11, 2009. On May 20, 2010, after full briefing from both Ascend and the Company, the PTO issued its Action Closing Prosecution (ACP), again finding all claims to be invalid. On June 21, 2010, however, Ascend challenged the findings of the ACP. Within the next several months, the PTO is expected to issue a Right of Appeal Notice, finalizing the PTO proceedings as conducted before the examiner. If Ascend then files a notice of appeal, the reexamination will proceed before the Board of Patent Appeals and Interferences. The Company will continue to defend vigorously its right to build and sell its GSR products and based on developments to date, the Company believes that the matter will be resolved satisfactorily in its favor. The Company further believes that Ascend’s claims are without merit and intends to seek recovery of its attorney fees. At this time, however, the Company is unable to predict the outcome of its dispute regarding Ascend’s patent or Ascend’s claims.

10. Early Extinguishment of Debt

On December 30, 2009, the Company paid off a long-term mortgage note with a principal balance outstanding of $1.3 million. The Company was required to pay an additional fee of $137,000 as a result of the early extinguishment of the mortgage note. Such fee is recorded as a component of other income (expense) in the Company’s consolidated statement of operations.

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, including the accompanying notes, and other detailed information appearing elsewhere in this Quarterly Report on Form 10-Q.

This Quarterly 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. These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be read 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 on Form 10-K for the fiscal year ended September 30, 2009, 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. 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

OYO Geospace Corporation is a Delaware corporation incorporated on September 13, 1997. Unless otherwise specified, the discussion in this Quarterly Report on Form 10-Q refers to OYO Geospace Corporation and its subsidiaries. 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. Demand for our products has been, and will likely continue to be, vulnerable to downturns in the economy and the oil and gas industry in general. During the past three years, there has been substantial volatility in oil and natural gas prices. Please refer to the risks discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 for more information.

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 thermal media products targeted at the screen print, point of sale, signage and textile market sectors. We have been manufacturing thermal imaging products since 1995. We report and evaluate financial information for each of these two segments: Seismic and Thermal Solutions.

Seismic Products

The seismic segment of our business accounts for the 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

A seismic energy source and a seismic data recording system are combined to acquire seismic data. We provide many of the components of seismic data recording systems, including data acquisition systems, geophones, hydrophones, multi-component sensors, seismic leader wire, geophone strings, connectors, seismic telemetry cables and other seismic related products. On land, our customers use our data acquisition systems, geophones, leader wire, cables and connectors to receive and measure seismic reflections resulting from an energy source to data recording units, which store information for processing and analysis. In the marine environment, large ocean-going vessels tow

13

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

During fiscal year 2008, we announced the development of a land-based wireless (or nodal) data acquisition system. Each nodal station operates independently and therefore can be deployed in virtually unlimited channel configurations. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each nodal station operates as an independent data collection system. As a result, our nodal system requires less maintenance, which we believe allows our customers to operate more effectively and efficiently because of its reduced environmental impact, lower weight and ease of operation. Our nodal system is designed into configurations ranging from one to four channels per station. Since its introduction, we have delivered over 27,000 channels of our land-based nodal acquisition system. We also have over 2,000 additional channels available for rent by our customers and we intend to increase our rental fleet to 15,000 total channels in the near future.

In October 2009, we introduced a marine-based nodal data acquisition system. Similar to our land nodal system, the marine nodal system can be deployed in virtually unlimited channel configurations and does not require interconnecting cables between each station. Our deepwater versions of this nodal system can be deployed in depths of up to 3,000 meters.

Our wholly-owned subsidiary in the Russian Federation manufactures international standard geophones, sensors, seismic leader wire, seismic telemetry cables and related seismic products for customers in the Russian Federation and other international seismic marketplaces. Operating in foreign locations involves certain risks as discussed under the heading “Risk Factors – Our Foreign Subsidiaries and Foreign Marketing Efforts Face Additional Risks and Difficulties” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009.

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 this 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 tools, 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.

Emerging Technology Products

Our products continue to develop and expand beyond seismic applications through the utilization of our existing engineering experience and manufacturing capabilities. We 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.

14

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

Thermal Solutions 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 printers include both thermal imagesetters for graphics applications and thermal plotters for seismic applications. In addition, our thermal solutions products include direct-to-screen systems, thermal printheads, dry thermal film, thermal transfer ribbons and other thermal media. Our thermal imaging solutions produce images ranging in size from 12 to 54 inches wide and in resolution from 400 to 1,200 dots per inch. We market our thermal imaging solutions to a variety of industries, including the screen printing, point-of-sale, signage, flexographic and textile markets. We also continue to sell these products to our seismic customers.

The quality of thermal imaging is determined primarily by the interrelationship between a thermal printhead and the thermal media, be it film, ribbon, or any other media. We manufacture 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 private label high-quality dry thermal media for use in our thermal printers and direct-to-screen systems. In addition, we are continuously engaged in efforts to develop new lines of dry thermal film and ribbon in order to improve the image quality of our media for use with our printheads. 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 and media improvements.

Worldwide Economic Slowdown

Demand for many of our products depends primarily on the level of worldwide oil and gas exploration activity. That activity, in turn, depends primarily on prevailing oil and gas prices and availability of seismic data. The 2008 domestic financial crisis arising out of the meltdown of the subprime lending market caused significant distress to many global financial lending institutions, leading to a broader global financial crisis and a tightening of the availability of commercial credit. Recessionary fears, combined with a decline in worldwide demand for energy, caused energy commodity prices to decline substantially from an all-time high of approximately $145 per barrel in July 2008. As expected, these events led to a decline in energy exploration activities in North America and in certain international markets, and we began to see the effects of this decline on our business during the first fiscal quarter of 2009. We saw demand for many of our seismic exploration products decline, including significant declines in our Russian and Canadian seismic exploration markets. Despite signs of an economic recovery earlier this fiscal year, the recent falterings in the European markets have renewed the uncertainty of the worldwide economic situation. We continue to believe that some of our seismic customers may not possess the financial resources ultimately required to survive the prolonged downturn in energy exploration, while others have scaled back their activities until financial markets stabilize further and demand for exploration activities increases.

The uncertainty of these global economic matters and their ultimate impact on energy exploration activities and on our customers’ ability to access credit markets is difficult to forecast, and a decline in the demand for our seismic exploration products is likely to continue for the present time. Due to the sporadic demand for our seismic reservoir products, we have often described this portion of our seismic business as “lumpy.” In this current environment, we expect our seismic business levels will be even more erratic, including potential orders for our new land and marine-based nodal acquisition system. Singular events may result in severe swings in our future revenues in both positive and negative directions. If these economic events continue into the foreseeable future, they could have a material adverse impact on our revenues and profits in future years.

While we are seeing some recovery in the demand for our products, we remain cautious regarding the future and we continue to monitor the impact that these economic conditions may have on our operations. We believe that our current cash balances, cash flow from operations and cash borrowings available under our credit facility will provide sufficient resources to meet our working capital liquidity needs for the next twelve months.

15

Recent Offshore Drilling Operations Disaster

A recent explosion on an offshore drilling rig in the Gulf of Mexico caused substantial loss of life and property and substantial environmental damage to the U.S. coastal areas in the Gulf of Mexico. This event continues to receive considerable publicity and political attention in the United States, and may have a material adverse impact on offshore exploration and production activities in the future. At this time, we are not able to predict the risks these developments may present to the Company and the effect thereof on our business that is related to marine and coastal oil and gas exploration activities.

Incentive Compensation Program

We adopted an incentive compensation program for fiscal year 2010 whereby most employees will be eligible to begin earning incentive compensation if the Company reaches a five percent pretax return on stockholders’ equity, determined as of September 30, 2009. To be eligible to participate in this incentive compensation program, employees must participate in our Core Values Program. Based on our experience in prior years, we expect one hundred percent of our eligible employees to participate in the Core Values Program. The incentive compensation program does not apply to the employees of our Russian subsidiary as such employees participate in a locally administered bonus program. Certain non-executive employees are required to achieve performance goals to earn a significant portion of their total incentive compensation award. Any bonus awards earned under this program in fiscal year 2010 will be paid out to eligible employees after the end of the fiscal year.

Upon reaching the five percent threshold under this proposed program, an incentive compensation accrual will be established equal to 16.7 percent of the amount of any consolidated pretax profits above the five percent pretax return threshold. The maximum aggregate bonus available under the program for fiscal year 2010 is $3.4 million. Under this program, for the nine months ended June 30, 2010 and 2009, we had accrued $1.8 million and zero, respectively, of incentive compensation expense. Should our operating results weaken during the remainder of fiscal year 2010, existing bonus accruals may be reduced or eliminated altogether in accordance with the terms of the incentive compensation program.

Results of Operations

We report and evaluate financial information for two segments: Seismic and Thermal Solutions. As mentioned above, our fiscal year results evidence the economic slowdown and reduced energy exploration activities worldwide. Summary financial data by business segment follows (in thousands):

	Three Months Ended						Nine Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Seismic
Exploration product revenue	$	25,468		$	9,178		$	69,599		$	43,655
Reservoir product and service revenue		4,089			6,557			6,511			10,240
Industrial product revenue		2,377			1,625			6,065			5,763
Total seismic revenues		31,934			17,360			82,175			59,658
Operating income		9,748			2,706			19,362			10,337
Thermal Solutions
Revenue		3,160			3,235			9,610			9,904
Operating income		43			169			385			349
Corporate
Revenue		198			195			604			593
Operating loss		(2,101	)		(1,666	)		(6,081	)		(5,149	)
Consolidated Totals
Revenue		35,292			20,790			92,389			70,155
Operating income		7,690			1,209			13,666			5,537

16

Overview

Three and nine months ended June 30, 2010 compared to three and nine months ended June 30, 2009

Consolidated sales for the three months ended June 30, 2010 increased by $14.5 million, or 69.8%, from the corresponding period of the prior fiscal year. Consolidated sales for the nine months ended June 30, 2010 increased by $22.2 million, or 31.7%, from the corresponding period of the prior fiscal year. These increases primarily reflect increased sales of our seismic products, primarily sales of our land nodal acquisition system.

Consolidated gross profits for the three months ended June 30, 2010 increased by $7.8 million, or 110.6%, from the corresponding period of the prior fiscal year. Consolidated gross profits for the nine months ended June 30, 2010 increased by $10.1 million, or 45.5%, from the corresponding period of the prior fiscal year. The increases in gross profits resulted from increased product sales, improved factory utilization and a favorable seismic product mix. Partially offsetting these gross profit increases were higher charges for product warranty, inventory obsolescence and incentive compensation expenses.

Consolidated operating expenses for the three months ended June 30, 2010 increased by $1.3 million, or 22.9%, from the corresponding period of the prior fiscal year. Consolidated operating expenses for the nine months ended June 30, 2010 increased by $1.8 million, or 10.7%, from the corresponding period of the prior fiscal year. The increased operating expenses primarily resulted from (i) increased expenditures for legal fees for defense against a lawsuit, (ii) increased incentive compensation expenses resulting from improved pretax earnings, and (iii) general expense increases due to higher sales volume. These increases in expenditures were partially offset by reduced bad debt expenses resulting from the improved collection of outstanding receivables.

Other income for the three months ended June 30, 2010 decreased by $0.2 million from the corresponding period of the prior fiscal year primarily due to an increase in foreign exchange losses. Other expense for the nine months ended June 30, 2010 decreased by $0.1 million from the corresponding period of the prior fiscal year due to a reduction in foreign exchange losses and interest expense. Such decreases were partially offset by a reduction of interest income due to a decline in customer notes receivable and from lower interest rates.

The United States statutory tax rate for the periods ended June 30, 2010 and 2009 was 34.0%. The effective tax rates for the three months and nine months ended June 30, 2010 was 33.1% and 33.3%, respectively. The effective tax rates for the three months and nine months ended June 30, 2009 was 22.5% and 31.6%, respectively. The higher effective tax rate for the periods ended June 30, 2010 is due to the expiration of research and experimentation tax credits. The United States Congress has not extended the provision for research and experimentation credits beyond calendar year 2009; therefore, we have not recorded any related tax benefit of such credits beyond our first quarter ended December 31, 2009.

Seismic Products

Net Sales

Sales of our seismic products for the three months ended June 30, 2010 increased by $14.6 million, or 84.0%, from the corresponding period of the prior fiscal year. Sales of our seismic products for the nine months ended June 30, 2010 increased by $22.5 million, or 37.7%, from the corresponding period of the prior fiscal year. The increase in sales for both periods resulted from significantly increased sales of our land nodal acquisition system and sensor products. In addition, for the three months ended June 30, 2010, our marine product sales also increased significantly.

Operating Income

Our operating income associated with sales of our seismic products for the three months ended June 30, 2010 increased by $7.0 million, or 260.2%, from the corresponding period of the prior fiscal year. Our operating income associated with sales of our seismic products for the nine months ended June 30, 2010 increased by $9.0 million, or 87.3%, from the corresponding period of the prior fiscal year. The increase in operating income from our seismic products resulted from (i) improved product sales and product mix, (ii) higher factory utilization resulting from

17

increased manufacturing activities, (iii) improved profit contribution from our subsidiary in the Russian Federation, and (iv) leveraging of fixed operating expenses over a greater volume of revenues. These increases in operating income were partially offset by increased expenses for incentive compensation, product warranty and inventory obsolescence.

Thermal Solutions Products

Net Sales

Sales of our thermal solutions products for the three months ended June 30, 2010 decreased by $75,000, or 2.3%, from the corresponding period of the prior fiscal year. Sales of our thermal solutions products for the nine months ended June 30, 2010 decreased by $0.3 million, or 3.0%, from the corresponding period of the prior fiscal year. We consider these relatively small decreases to be normal and recurring fluctuations in product sales volume and, therefore, not associated with any long-term trend.

Operating Income

Our operating income associated with sales of our thermal solutions products for the three months ended June 30, 2010 decreased $0.1 million, or 74.6%, from the corresponding period of the prior fiscal year. The decrease in our operating income was due to the decrease in sales and an increase in incentive compensation expenses which is generally determined based upon our consolidated operating results rather than individual segment operating results. Our operating income associated with sales of our thermal solutions products for the nine months ended June 30, 2010 increased $36,000, or 10.3%, from the corresponding period of the prior fiscal year. The improvement in operating income resulted from increased production efficiencies and was partially offset by increased inventory obsolescence and incentive compensation expenses.

Liquidity and Capital Resources

At June 30, 2010, we had $23.8 million in cash and cash equivalents. For the nine months ended June 30, 2010, we generated approximately $17.0 million of cash in operating activities. Sources of cash generated in our operating activities resulted from net income of $9.0 million. Additional sources of cash included net non-cash charges of $4.6 million for deferred income tax expense, depreciation, amortization, stock-based compensation, inventory obsolescence and bad debts. Other sources of cash included (i) a $5.0 million increase in deferred revenue resulting from billings to customers in advance of order deliveries, (ii) a $2.5 million increase in accounts payable due to the timing of our vendor payments which can fluctuate quarter-to-quarter, (iii) a $1.9 million increase in accrued expenses and other primarily reflecting increases in our incentive compensation liabilities, (iv) a $1.7 million decrease in inventories, and (v) a $1.1 million increase in income tax payable resulting from increased taxable income. These sources of cash were offset by a $9.6 million increase in trade accounts and notes receivable primarily resulting from increased sales.

In the last 15 months, we have reduced our inventory levels significantly in order to meet declining levels of product demand and to generate cash flows to reduce our outstanding indebtedness. Although our levels of inventory have declined significantly, we continue to be subject to high levels of inventory obsolescence expense since our exposure to obsolete and slow moving inventories continues in the current environment. We are giving substantial attention to the management of our inventories in this area.

For the nine months ended June 30, 2010, we used approximately $0.6 million of cash in investing activities for capital expenditures. We estimate that our total capital expenditures in fiscal year 2010 will be approximately $1.0 million, excluding rental equipment capitalized from our inventories.

For the nine months ended June 30, 2010, we used approximately $1.0 million of cash in financing activities. These uses of cash included $1.7 million of principal payments on our mortgage loans, including a $1.3 million early pay-off of a mortgage, and a $0.1 million payment as a penalty for early extinguishment of debt. These uses of cash were offset by $0.6 million of cash proceeds received from the exercise of stock options and $0.2 million of income tax benefits related to such exercised stock options.

18

On November 22, 2004, several of our subsidiaries entered into a credit agreement (the “Original Credit Agreement”) with a bank. The Original Credit Agreement has been amended periodically since 2004, and most recently on April 30, 2009 (as so amended, the “Credit Agreement”). Under the Credit Agreement, our borrower subsidiaries can borrow up to $25.0 million principally secured by their accounts receivable, inventories and equipment. The Credit Agreement expires on April 30, 2011. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts our and our subsidiaries’ ability to pay dividends and contains other covenants customary in agreements of this type. We believe the most restrictive covenants in the Credit Agreement are (i) the fixed charge coverage ratio of EBITDA to certain charges, and (ii) the cash flow leverage ratio of total borrowings (excluding real estate borrowings) to adjusted EBITDA. We believe these covenants are more restrictive than covenants contained in the Credit Agreement as in effect prior to the April 30, 2009 amendment, and future borrowings available under the Credit Agreement could be limited or completely restricted if future operating results deteriorate. The interest rate for borrowings under the Credit Agreement is a LIBOR based rate with a margin spread of 300-400 basis points depending upon the maintenance of certain ratios. At June 30, 2010, there were no borrowings outstanding under the Credit Agreement, standby letters of credit outstanding in the amount of $0.4 million and additional borrowings available of $24.6 million.

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 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, including the impact from the current economic conditions, which we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Our normal credit terms for trade receivables are 30 days. In certain situations, credit terms for trade receivables may be extended to 60 days or longer and such receivables generally do not require collateral. Additionally, we provide long-term financing in the form of promissory notes when competitive conditions require such financing and, in such cases, we may require collateral. We perform ongoing credit evaluations of our customers’ accounts and notes receivable and allowances are recognized for potential credit losses.

Our long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with the associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash flows, an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.

Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and causes changes to previous estimates of tax liability. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions as well as by the United States Internal Revenue Service. In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonable and foreseeable outcomes related to uncertain tax matters.

We record a write-down of our inventories 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. Our subsidiary in the Russian Federation uses an average cost method to value its inventories.

19

We periodically review the composition of our inventories to determine if market demand, product modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover our investment in such inventories. Management’s assessment is based upon historical product demand, future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or components of our inventory investment will not be realized in our operating activities.

Goodwill represents the excess of the purchase price of purchased businesses over the estimated fair value of the acquired business’ net assets. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. 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 interim impairment tests if a change in circumstances occurs that would indicate that the carrying value of long-lived assets may exceed their fair value amount. Under the fair value framework and due to the lack of quoted prices for identical items or an independent market analysis, we estimate the fair market value based on Level 3 inputs using both a market and income based approach. The goodwill impairment is tested at our Company’s seismic segment level as the goodwill relates to the purchase of several seismic related companies. The impairment test uses a weighted average cost of capital. The growth rate is based on the projected inflation rate. 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 as of September 30, 2009 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 nine 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 the customer requires a significant performance test for our new and unproven products, 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 revenue from the sale of large-scale reservoir characterization products may occur at various stages of production or after delivery of the product, and the collected funds are 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.

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

20

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 the customer has a substantial business purpose for ordering the goods on a bill and hold basis,

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

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

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

• Whether the goods are complete and ready for shipment.

We do not modify our normal billing and credit terms for these types of sales. As of June 30, 2010, we had no sales under bill and hold arrangements. As of June 30, 2009, we had sales of $1.7 million under bill and hold arrangements.

New Accounting Pronouncements

New accounting pronouncements that have been recently issued are included in Financial Note 1, “Significant Accounting Policies,” in the Financial Notes in Item 1 of Part I of this Quarterly Report on Form 10-Q.

21

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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 other than for trading purposes. Further, we do not engage in commodity or commodity derivative instrument purchasing or selling transactions. 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 Item.

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 June 30, 2010 reflected approximately $4.8 million of net working capital related to OYO-GEO Impulse. For third-party transactions, 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 June 30, 2010, the foreign exchange rate of the U.S. dollar to the ruble was 1:31.3. 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

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 June 30, 2010, we had outstanding accounts receivable of $1.2 million and $0.2 million from our subsidiaries in Canada and the Russian Federation, respectively. At June 30, 2010, the foreign exchange rate of the U.S. dollar to the Canadian Dollar was 1:1.05 and the foreign exchange rate of the U.S. dollar to ruble was 1:31.3. If the U.S. dollar exchange rate were to decline by ten percent, our intercompany accounts receivable could decline by $0.1 million in Canada and $16,000 in the Russian Federation.

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 as most recently amended, our borrowing interest rate is a LIBOR based rate plus 300-400 basis points. As of June 30, 2010, we had no borrowings under the Credit Agreement. Under the real estate mortgage agreement, our borrowing rate is a LIBOR based rate plus 150 basis points and as of June 30, 2010 we had $7.8 million outstanding under this agreement at an effective interest rate of 1.9%. Due to the amount of borrowings outstanding under the real estate mortgage agreement and the 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 June 30, 2010, based on our current level of borrowings, a 1.0% increase in interest rates would increase our interest expense annually by approximately $0.1 million.

22

Item 4. Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under 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”). Notwithstanding the foregoing, 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 June 30, 2010 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 were effective as of June 30, 2010.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ending June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

23

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is contained in Financial Note 9, “Legal Proceedings,” in the Financial Notes in Item 1 of Part I of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Item 1A. Risk Factors

We Have a Minimal Disaster Recovery Program at the Pinemont Facility

Due to its proximity to the Texas Gulf Coast, our Pinemont facility is annually subject to the threat of hurricanes and the aftermath that follows. Hurricanes may cause, among other types of damage, the loss of electrical power for extended periods of time. If we lost electrical power at the Pinemont facility, or if a fire or other natural disaster occurred, we would be unable to continue our manufacturing and information technology operations during the power outage because we do not own a generator or any other back-up power source large enough to provide for our power consumption needs. Although we store our back-up data offsite, we do not maintain an alternative facility to run our information technology operations. Additionally, we do not have an alternative manufacturing or operating location in the United States. A significant disruption in our manufacturing and information technology operations could materially and adversely affect our business operations during an extended period of a power outage, fire or other natural disaster.

The Credit Agreement Imposes Restrictions on Our Business

Several of our subsidiaries are borrowers under a credit agreement with a bank. The credit agreement contains covenants and requires maintenance of certain financial ratios and tests, which impose restrictions on our business and on the business of our borrower-subsidiaries. We currently believe that the most restrictive covenants in the credit agreement are (i) the fixed charge coverage ratio of EBITDA to certain charges, and (ii) the cash flow leverage ratio of total borrowings (excluding real estate borrowings) to adjusted EBITDA. Our ability to comply with these restrictions may be affected by events beyond our control, including, but not limited to, prevailing economic, financial and industry conditions and continuing declines in our sales of products. The breach of any of these covenants or restrictions, as well as any failure to make a payment of interest or principal when due, could result in a default under the credit agreement. Such a default would permit our lender to declare amounts borrowed from it to be due and payable, together with accrued and unpaid interest, and the ability to borrow under the credit agreement could be terminated. If we are unable to repay debt to our lender, the lender could proceed against the collateral securing that debt. While we intend to seek alternative sources of cash in such a situation, there is no guarantee that any alternative cash source would be available, or would be available on terms favorable to us.

24

Our Industry Is Characterized By Rapid Technological Development and Product Obsolescence

Our instruments and equipment in both of our business segments are constantly undergoing rapid technological improvement. Our future success depends on our ability to continue to:

• improve our existing product lines,

• address the increasingly sophisticated needs of our customers,

• maintain a reputation for technological leadership,

• maintain market acceptance of our products,

• anticipate changes in technology and industry standards,

• respond to technological developments on a timely basis, and

• develop new markets for our products and capabilities.

Current competitors or new market entrants may develop new technologies, products or standards that could render our products obsolete. We cannot assure you that we will be successful in developing and marketing, on a timely and cost effective basis, product enhancements or new products that respond to technological developments, that are accepted in the marketplace or that comply with new industry standards. Additionally, in anticipation of customer product orders, from time to time we acquire substantial quantities of inventories, which if not sold or integrated into products within a reasonable period of time, could become obsolete. In such cases, we would be required to impair the value of such inventories on our balance sheet.

25

Item 6. Exhibits

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

3.1(a)	Restated Certificate of Incorporation of the Company.
3.2(a)	Restated Bylaws of the Company.
3.3(b)	Amendment No. 1 to OYO Geospace Corporation Amended and Restated Bylaws.
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.

(a) Incorporated by reference to the Company’s Registration Statement on Form S-1 filed September 30, 1997 (Registration No. 333-36727).

(b) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed August 3, 2007.

26

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: August 6, 2010	By:	/s/ Gary D. Owens
		Gary D. Owens, Chairman of the Board,
		President and Chief Executive Officer
		(duly authorized officer)
Date: August 6, 2010	By:	/s/ Thomas T. McEntire
		Thomas T. McEntire
		Chief Financial Officer and Secretary
		(principal financial officer)

27

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Gary D. Owens, certify that:

1. I have reviewed this quarterly report on Form 10-Q of OYO Geospace Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

August 6, 2010
	/s/ Gary D. Owens
	Name:	Gary D. Owens
	Title:	Chairman of the Board, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Thomas T. McEntire, certify that:

1. I have reviewed this quarterly report on Form 10-Q of OYO Geospace Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

e) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

f) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

g) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

h) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

August 6, 2010
	/s/ Thomas T. McEntire
	Name:	Thomas T. McEntire
	Title:	Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

Informational Addendum to Report on Form 10-Q

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chairman of the Board, President and Chief Executive Officer of OYO Geospace Corporation does hereby certify as follows:

Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-Q, the undersigned hereby certifies that this Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of OYO Geospace Corporation.

/s/ Gary D. Owens
Name:	Gary D. Owens
Title:	Chairman of the Board, President and Chief Executive Officer
August 6, 2010

EX-32.2

Exhibit 32.2

Informational Addendum to Report on Form 10-Q

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chief Financial Officer and Secretary of OYO Geospace Corporation does hereby certify as follows:

Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-Q, the undersigned hereby certifies that this Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of OYO Geospace Corporation.

/s/ Thomas T. McEntire
Name:	Thomas T. McEntire
Title:	Chief Financial Officer and Secretary
August 6, 2010