10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

¨ 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: 0-6511

O. I. CORPORATION

(Exact name of registrant as specified in its charter)

OKLAHOMA	73-0728053
State of Incorporation	I.R.S. Employer
	Identification No.
P.O. Box 9010
151 Graham Road
College Station, Texas	77842-9010
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (979) 690-1711

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  þ    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.

Large accelerated filer ¨     Accelerated filer ¨     Non-accelerated filer þ

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

As of August 2, 2007, there were 2,920,824 shares of the issuer’s common stock, $.10 par value, outstanding.

Caution Regarding Forward-Looking Information; Risk Factors

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of United States securities laws, including the United States Private Securities Litigation Reform Act of 1995. From time to time, our public filings, press releases and other communications will contain forward-looking statements. Forward-looking information is often, but not always identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”, “target”, “project”, “may”, “will”, “should”, “could”, “estimate”, “predict” or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this quarterly report on Form 10-Q include, but are not limited to, statements with respect to expectations of our prospects, future revenues, earnings, activities and technical results.

Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, us concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this quarterly report on Form 10-Q are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.

Our public filings are available at www.oico.com and on EDGAR at www.sec.gov.

Please see “Part I, Item 1A—Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2006 as well as Part II, Item IA—“Risk Factors” of this quarterly report on Form 10-Q, for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such factors, nor to assess the impact such factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

O.I. CORPORATION

Condensed Consolidated Balance Sheets

(In thousands, except par value)

	June 30, 2007			Dec. 31, 2006
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,234		$	2,665
Accounts receivable-trade, net of allowance for doubtful accounts of $353 and $299, respectively		5,524			5,960
Investment in sales-type leases, current portion		218			213
Investments, at market		7,941			11,062
Inventories, net		4,760			5,014
Current deferred income tax assets		1,012			1,012
Other current assets		455			191
Total current assets		24,144			26,117
Property, plant, and equipment, net		3,468			3,279
Investment in sales-type leases, net of current		202			143
Long-term deferred income tax assets		613			605
Intangible assets, net		386			341
Other assets		29			27
Total assets	$	28,842		$	30,512
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, trade	$	1,240		$	1,859
Accrued liabilities		3,290			4,040
Total current liabilities		4,530			5,899
Long-term liabilities		365			—
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.10 par value, 3,000 shares authorized, no shares issued and outstanding
Common stock, $0.10 par value, 10,000 shares authorized, 4,103 shares issued, 2,921 and 2,868 outstanding, respectively		410			410
Additional paid-in capital		5,084			4,965
Treasury stock, 1,182 and 1,236 shares, respectively, at cost		(5,698	)		(5,707	)
Retained earnings		24,185			24,963
Accumulated other comprehensive (loss), net		(34	)		(18	)
Total stockholders’ equity		23,947			24,613
Total liabilities and stockholders’ equity	$	28,842		$	30,512

See notes to unaudited condensed consolidated financial statements

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O.I. CORPORATION

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007			2006
Net revenues:
Products	$	5,625		$	5,295		$	12,117		$	11,771
Services		906			1,320			1,756			2,653
		6,531			6,615			13,873			14,424
Cost of revenues:
Products		2,931			2,760			6,155			5,944
Services		402			696			790			1,358
		3,333			3,456			6,945			7,302
Gross Profit		3,198			3,159			6,928			7,122
Selling, general & administrative expenses		2,092			2,270			5,754			4,725
Research and development expenses		872			686			1,803			1,428
Operating income/(loss)		234			203			(629	)		969
Other income, net		151			171			550			294
Income/(loss) before income taxes		385			374			(79	)		1,263
Provision/(benefit) for income taxes		83			176			(20	)		443
Net income/(loss)	$	302		$	198		$	(59	)	$	820
Other comprehensive (loss), net of tax:
Unrealized (losses) on Investments		(41	)		(92	)		(16	)		(80	)
Comprehensive income/(loss)	$	261		$	106		$	(75	)	$	740
Earnings/(loss) per share:
Basic	$	0.10		$	0.07		$	(0.02	)	$	0.29
Diluted	$	0.10		$	0.07		$	(0.02	)	$	0.28
Shares used in computing earnings per share:
Basic		2,896			2,846			2,879			2,853
Diluted		2,976			2,923			2,879			2,934
Cash dividends declared per share of common stock	$	0.05		$	0.05		$	0.10		$	0.10

See notes to unaudited condensed consolidated financial statements

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O.I. CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income	$	(59	)	$	820
Depreciation & amortization		285			289
Deferred income taxes		—			(81	)
Stock based compensation		52			45
(Gain)/loss on disposition of property, plant, & equipment		(214	)		12
Tax benefit from stock option exercise		(—	)		(27	)
Change in working capital		(1,175	)		(59	)
Net cash flows (used in)/provided by operating activities		(1,111	)		999
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments		(3,441	)		(5,190	)
Maturity of investments		6,639			5,447
Purchase of property, plant & equipment		(489	)		(398	)
Proceeds from sale of property, plant & equipment		225			10
Change in other assets		(42	)		(48	)
Net cash flows provided by/(used in) investing activities		2,892			(179	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock pursuant to exercise of employee stock options and employee stock purchase plan		243			110
Purchase of Treasury Stock		(167	)		(67	)
Payment of cash dividends on common stock		(288	)		(144	)
Tax benefit from stock option exercise		—			27
Net cash flows (used in) financing activities		(212	)		(74	)
Net increase in cash and cash equivalents		1,569			746
Cash and cash equivalents, at beginning of period		2,665			1,727
Cash and cash equivalents, at end of period	$	4,234		$	2,473

See notes to unaudited condensed consolidated financial statements

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O.I. CORPORATION and SUBSIDIARY

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation.

O.I. Corporation (the “Company”, “we”, or “our”), an Oklahoma corporation, was organized in 1963. The Company designs, manufactures, markets, and services analytical, monitoring and sample preparation products, components, and systems used to detect, measure, and analyze chemical compounds.

The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited by an independent accountant. The consolidated financial statements include the accounts of the Company and its subsidiary. All inter-company transactions and balances have been eliminated in the financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting.

The Company believes that the disclosures are adequate to prevent the information from being misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2006. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

2. Inventories, net.

Inventories, net, which include material, labor, and manufacturing overhead, are stated at the lower of first-in, first-out cost or market (in thousands):

	June 30, 2007			Dec. 31, 2006
Raw materials	$	4,695		$	4,612
Work-in-process		197			807
Finished goods		912			594
Reserves		(1,044	)		(999	)
	$	4,760		$	5,014

3. Comprehensive (Loss)/Income.

Other comprehensive (loss)/income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholders’ equity. The Company’s components of comprehensive (loss)/income are net income and unrealized gains and losses on available-for-sale investments, net of related deferred income taxes.

4. (Loss)/Earnings Per Share.

Basic EPS is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the exercise proceeds using the average market price of the Company’s common stock for each of the periods presented. Stock options are the only dilutive potential common shares the Company has outstanding.

For the three months ended June 30, 2007, 80,488 incremental shares from the assumed exercise of dilutive options were added to the weighted average shares used to calculate diluted earnings per share. For the six months ended June 30, 2007, the Company’s potentially dilutive options of 90,653 were not used in the calculation of diluted earnings since the effect of potentially dilutive securities in computing a loss per share was anti-dilutive.

5. Stock-Based Compensation.

On January 1, 2006, we adopted the provisions of Statement 123 (revised 2004) (Statement 123(R)), “Share-Based Payment”, which revises Statement 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion 25, Accounting for Stock Issued to Employees. In accordance with Statement 123(R), our financial statements recognize expense related to our stock-based compensation awards that were granted after January 1, 2006, or that were unvested as of January 1, 2006, based on their grant-date fair value.

6

Our pre-tax compensation cost for stock-based compensation for the three months ended June 30, 2007 and 2006 was $26,000 and $28,000 ($16,000 and $17,000 after tax effects), respectively. Our pre-tax compensation cost for stock-based compensation was $52,000 and $45,000 ($31,000 and $27,000 after tax effects) for the six months ended June 30, 2007 and 2006, respectively.

Statement 123(R) requires that cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) be classified as financing cash flows. For the six months ended June 30, 2007, there was no excess tax benefit. The excess tax benefit for the same period of the prior year was $27,000.

During the six months ended June 30, 2007, 70,000 shares of incentive stock options were granted under the 2003 Incentive Compensation Plan. We also granted 10,000 non-qualified stock options to members of the board of directors under the 2003 Incentive Compensation Plan during the six months ended June 30, 2007. In the same period of the prior year, 8,000 shares of non-qualified options were granted to members of the board of directors under the 2003 Incentive Compensation Plan. The weighted average fair value of the options granted in 2007 was calculated using the following assumptions:

	Non-Employee Director Non- Qualified Stock Options	Employee Incentive Stock Options
Risk free interest rate	4.75%	4.75%
Expected dividend yield	1.63%	1.46%-1.75%
Expected life	3.00 years	3.00 to 5.00 years
Expected volatility	37.00%	37.00%

Other information

As of June 30, 2007, we had $552,000 of total unrecognized compensation cost related to non-vested awards granted under our various share-based plans, which we expect to recognize over a 4-year period.

We received cash from options exercised for the six months ended June 30, 2007 and 2006 of $234,000 and $98,000, respectively. The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.

The Company’s practice has been to issue shares for option exercises out of treasury stock as provided under the terms of the 2003 Incentive Compensation Plan. We believe our treasury stock holdings are sufficient to satisfy any exercises in 2007.

6. Income Taxes.

The effective tax rates for the second quarter of 2007 and 2006 were 22 percent and 47 percent, respectively. The lower tax rate in 2007 was due to lower estimated income because of the 1^st quarter loss, favorable deductions and credits received, such as the Domestic Production Activity Deduction and research and development credits.

The Company and its subsidiary file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Effective January 1, 2007, the Company adopted FIN No. 48, “Accounting for Uncertainty in Income Taxes.” In accordance with FIN No. 48, the Company recognized a cumulative-effect adjustment of $431,000 as of January 1, 2007, increasing its current and long term liabilities for unrecognized tax benefits, interest, and penalties and reducing the balance of Retained earnings.

At January 1, 2007, the Company had $431,000 in unrecognized tax benefits, the recognition of which would have an affect of $373,000 on the effective tax rate. Included in the balance of unrecognized tax benefits at January 1, 2007, is $8,000 related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits comprised of items related to expiring statutes in state jurisdictions.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in SG&A expenses. At January 1, 2007, the Company had accrued $57,000 and $1,000 for the potential payment of interest and penalties, respectively.

As of January 1, 2007, the Company is subject to U.S. Federal income tax examinations for the tax years 2001 through 2006. In addition, the Company is subject to state and local income tax examinations for the tax years 2001 through 2006, with certain exceptions.

There were no significant changes to any of these amounts during the first two quarters of 2007.

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

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto. This discussion also contains forward-looking statements. Please see the “Caution Regarding Forward-Looking Information; Risk Factors” above.

COMPANY OVERVIEW

O. I. Corporation, referred to as “the Company”, “OI”, “we”, “our” or “us”, was organized in 1963 in accordance with the Business Corporation Act of the State of Oklahoma as Clinical Development Corporation, a builder of medical and research laboratories. In 1969, we moved from Oklahoma City, Oklahoma to College Station, Texas and changed our name to Oceanography International Corporation. To better reflect current business operations, we again changed our name to O.I. Corporation in July 1980, and in January 1989 we began doing business as OI Analytical.

At OI, we provide innovative products for chemical monitoring and analysis. Our products perform detection, analysis, measurement, and monitoring applications in a wide variety of industries including food, beverage, pharmaceutical, semiconductor, power generation, chemical, petrochemical and security. Headquartered in College Station, Texas, we sell our products throughout the world utilizing a direct sales force as well as a network of independent sales representatives and distributors.

RECENT DEVELOPMENTS

Modified Dutch Auction Self-Tender

On June 11, 2007, we announced our intention to initiate a Modified Dutch Auction Self-Tender Offer to purchase up to 300,000 shares of our common stock at a range of $13.00 to $14.75 per share. We will need approximately $4.425 million to purchase 300,000 shares, assuming the price paid per share is the maximum of $14.75 per share. The 300,000 shares we intend to purchase in the offer represent approximately 10.3% of our outstanding shares of common stock. The modified Dutch Auction Self-Tender is designed to return capital to shareholders and increase shareholder value over the long-term. This tender offer was originally scheduled to expire on July 24, 2007, but we have extended the offer to August 6, 2007. Please see our Tender Offer Statement on Schedule TO, as filed with the Securities and Exchange Commission, for information relating to our Modified Dutch Auction Self-Tender Offer.

Management Changes

On June 8, 2007, we announced the appointment of J. Bruce Lancaster as Chief Executive Officer and Dr. Don Segers as President and Chief Operating Officer. Mr. Lancaster also continues to serve as our Chief Financial Officer. Upon this announcement, Dr. Richard Chapman relinquished his role as the unpaid, acting Chief Executive Officer of OI.

RESULTS OF OPERATIONS

	Three Months Ended June 30				Increase/ (Decrease)			Six Months Ended June 30				Increase/ (Decrease)
	2007		2006					2007		2006
Net revenues:
Products	$	5,625	$	5,295	$	330		$	12,117	$	11,771	$	346
Services		906		1,320		(414	)		1,756		2,653		(897	)
		6,531		6,615		(84	)		13,873		14,424		(551	)

Revenues. Consolidated net revenues for the three months ended June 30, 2007, decreased $84,000, or 1.3%, to $6,531,000, compared to $6,615,000 for the same period of the prior year, as increased product sales were more than offset by reduced service revenues.

Product revenues increased $330,000, or 6.2%, during the second quarter compared to the same period in 2006. Sales of MINICAMS^® were up 17% from last year due primarily to shipments associated with completion of a U.S. Army contract. In addition, we experienced sales growth in our Total Organic Carbon (TOC) analyzer as well as Gas Chromatography (GC) components and systems product lines. The sales growth in these product lines was attributable to strength in domestic sales, which we believe is attributable to our aggressive pursuit of new customers in the independent laboratory market as well as with states and municipalities. Our revenues from international sales increased slightly during the second quarter, primarily due to increased GC product line sales into Europe.

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Quarterly revenues from services decreased $414,000, or 31.4%, compared to the same period in 2006. In the second quarter of 2006, we generated billings of approximately $474,000 under the Wyle Contract. We completed this contract during 2006 and our 2007 revenues under the Wyle contract have been minimal, consisting of service and support. Billings under our U.S. Army contract should increase during the third quarter, but we anticipate continued lower service revenues in comparison to last year.

For the six months ended June 30, 2007, net revenues decreased $551,000, or 3.8%, compared to the same period in 2006. Our product revenues increased $346,000, or 2.9%, primarily because of a 31% increase in shipments of our MINICAMS^® air monitors. This increase was partially offset by lower sales in our other product lines because of weak domestic demand during the first quarter. International sales are virtually unchanged from last year.

Service revenues for the first half of 2007 decreased $897,000, or 33.8%, compared to same period last year. During 2006, we had billings of approximately $882,000 under the Wyle Contract. As noted above, we completed this contract during 2006 and our 2007 revenues under the Wyle contract have been minimal, consisting of service and support.

We believe that the immediate outlook for the domestic environmental instrument market remains weak. To enhance our future sales opportunities, we have 1) strengthened our sales team with the July 2007 hiring of an experienced Vice President of Sales to lead our sales and marketing programs, 2) increased our efforts to serve customers outside of our traditional environmental lab market including independent labs, states, municipalities and petrochemical companies and 3) continued to invest in R&D programs to develop unique technologies with long-term growth potential. We plan to continue development of our international sales and marketing capabilities where we believe growth opportunities exist in a number of areas. On a longer-term basis, we expect that new products and renewed emphasis on water testing for safety and security will provide growth opportunities. However, we anticipate that short-term sales growth will be weak due to the recent consolidation in the environmental testing industry.

	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007			2006
Cost of revenues:	$		%	$		%	$		%	$		%
Products	$	2,931	52.1	$	2,760	52.1	$	6,155	50.8	$	5,944	50.5
Services		402	44.4		696	52.7		790	45.0		1,358	51.2
		3,333	51.0		3,456	52.2		6,945	50.1		7,302	50.6
Gross Profit		3,198	49.0		3,159	47.8		6,928	49.9		7,122	49.4

Gross Profit.

On a percentage of sales basis, gross profit for the three months ended June 30, 2007, totaled 49.0% compared to 47.8% for the same period of the prior year. Our improved margin was primarily due to the prior period including higher revenue related to the services performed in connection with the Wyle contract that had a lower margin. Margins on product sales were virtually unchanged from last year as a percentage of sales.

Although gross profit declined $194,000 due to lower sales through the first six months of 2007 compared to 2006, our gross profit margin increased to 49.9% of revenues, up 0.5% from last year. This improvement resulted from a lower composition of service costs because of the completion of the Wyle contract as discussed above.

	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007			2006
	$		%	$		%	$		%	$		%
Selling, general & administrative expenses	$	2,092	32.0	$	2,270	34.3	$	5,754	41.5	$	4,725	32.8
Research and development expenses		872	13.4		686	10.4		1,803	13.0		1,428	9.9

Selling, general, and administrative.

SG&A expenses for the three months ended June 30, 2007, decreased $178,000, or 7.8% compared to the same period in 2006. The decrease in SG&A expenses resulted primarily from a negotiated reduction in legal and consulting expenses associated with the stock option investigation originally recorded in the first quarter. In addition, we experienced lower legal fees in comparison to the second quarter of 2006 when we incurred significant legal fees related to the Aviv Amirav patent infringement claim settled during the fourth quarter of 2006. SG&A expenses declined to 32% of sales during the second quarter compared to 34% for the same period of the prior year.

Our SG&A expenses for the six months ended June 30, 2007, increased $1,029,000, or 21.8%, compared to 2006, primarily due to higher legal, consulting and related costs associated with the stock option investigation concluded during the first quarter of 2007. We believe SG&A expenses in upcoming quarters should return to a level more consistent with historical experience.

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Research and development.

Our R&D expenses for the three months ended June 30, 2007, increased $186,000, or 27%, compared to the second quarter of 2006 and represented 13.4% of revenues in 2007 compared to 10.4% of revenues last year. During the second quarter of 2006, expenses relating to the work under the Wyle Contract were accounted for as service cost of sales and not R&D expenses, lowering our reported R&D expense. Certain R&D staff resources assigned to work on the Wyle Contract during 2006 have been assigned to internal company R&D projects during 2007. As work progresses on the U.S. Army contract to develop an on-line, inexpensive Total Organic Carbon detector, we expect to again assign certain R&D staff resources to this project, which may result in reduced R&D expenses during the second half of 2007. However, we anticipate continued significant expenditures in this area in support of our mass spectrometer based on a special CCD for ion detection and other projects.

For the six months ended June 30, 2007, R&D expenses increased $375,000, or 26.3%, in comparison to the same period of last year. R&D expense represented 13.0% of revenues, compared to 9.9% of revenues for 2006. This increase is primarily attributable to the classification of expenses incurred in connection with the Wyle contract as discussed in the analysis above.

	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007					2006
	$		%	$		%	$			%		$		%
Operating income/(loss)	$	234	3.6	$	203	3.1	$	(629	)	(4.5	)	$	969	6.7
Other income, net		151	2.3		171	2.6		550		4.0			294	2.0
Income/(loss) before income taxes		385	5.6		374	5.7		(79	)	(0.6	)		1,263	8.8
Provision/(benefit) for income taxes		83	1.3		176	2.7		(20	)	(0.1	)		443	3.1
Net income/(loss)	$	302	4.6	$	198	3.0	$	(59	)	(0.4	)	$	820	5.7

Operating Income.

Operating income totaled $234,000 for the three months ended June 30, 2007, up $31,000 from same period in 2006, primarily due to increased gross profit margins, and decreased SG&A expenses partially offset by higher R&D costs. We generated an operating loss of $629,000 during the first half of 2007, compared to operating income of $969,000 for the same period in 2006. This decline in earnings was primarily attributable to increased SG&A expenses related to the first quarter 2007 stock option investigation, lower sales and increased R&D expenses.

Other Income, net.

Because of lower yields on short-term and fixed income investments, other income decreased $20,000, to $151,000 for the three months ended June 30, 2007, compared to the same period of the prior year. Other income for the six months ended June 30, 2007, increased $256,000, compared to the same period of the prior year, due to the gain recorded on the sale of .40 acres of our College Station, Texas property during the first quarter. This land was acquired by the City of College Station through eminent domain for the widening of an adjacent highway.

Provision for income taxes.

Second quarter income tax expense decreased $93,000 compared to the same period of 2006, with our effective tax rate declining to 22% compared to 47% for the same period last year. Our lower effective tax rate for 2007 results from the expected impact of the Domestic Production Activity Deduction, or DPAD, and the R&D tax credit on our lower projected 2007 taxable income. Because of our lower earnings, the provision for income taxes decreased $463,000 for the six months ended June 30, 2007, to a benefit of $20,000, compared to a provision of $443,000 for the same period of the prior year.

Net Income.

Net income for the three months ended June 30, 2007, totaled $302,000, an increase of $104,000 from the same period in the prior year, due largely to reduced SG&A expense and a lower effective tax rate, partially offset by higher R&D expenses. Our net loss for the six months ended June 30, 2007, totaled $59,000, compared to net income of $820,000 for the same period of the prior year. The decrease in net income during 2007 was primarily due to increased SG&A and R&D expenses and lower revenues, partially offset by a lower taxes and an increase in other income.

Liquidity and Capital Resources

Net cash flow used in operating activities for the six months ended June 30, 2007, totaled $1,111,000, compared to net cash flow provided by operating activities of $999,000 for the same period of the prior year. The decrease in cash flow from operating activities in the six months ended June 30, 2007, resulted from

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reduced earnings and working capital funding requirements. The bulk of our working capital funding during 2007 consisted of tax payments, payments of other year-end accrued liabilities and routine accounts payable disbursements.

During 2007, net cash flow provided by investing activities totaled $2,892,000 through the first half of the year, compared to net cash used in investing activities of $179,000 for the same period of 2006. The increase in cash provided by investing activities was primarily due to an increase in the maturity of investments and a decrease in the purchase of investments as well as proceeds from the condemnation of .40 acres of our College Station, Texas property. Purchases of property, plant and equipment increased to $489,000, up $91,000 from last year. Disbursements related to our new ERP computer system represented the bulk of our purchases during 2007, with additional funds used for the purchase of equipment for our College Station facility. We have no material commitments for capital expenditures as of June 30, 2007.

Net cash flow used in financing activities for the six months ended June 30, 2007, totaled $211,000, compared to $74,000 for the same period of the prior year. Increased stock repurchases and cash dividends paid were offset by higher proceeds from the issuance of employee stock options.

Cash, cash equivalents and short-term investments totaled $12,175,000 as of June 30, 2007, compared to $13,727,000 as of December 31, 2006. As noted in the recent developments discussion above, we have announced plans to purchase 300,000 shares of our stock through a Modified Dutch Auction Self-Tender. If fully subscribed, we will need up to $4,425,000 to repurchase these shares. Though our cash position is down from year-end due in part to the stock option investigation conducted during the first quarter, we believe our liquidity and expected cash flows from operations are more than sufficient to meet expected working capital, capital expenditure, stock repurchase and R&D requirements for both the short-term and long-term.

We invest a portion of our excess funds generated from operations in short-term securities, including money market funds, treasury bills, and a portion in preferred stocks. Our primary plan for the use of cash is continuing significant research and development efforts to introduce new products. Other possible uses of cash could include future acquisitions of businesses or product lines that fit with our strategy for growth. We may also engage in discussions with third parties to acquire new products or businesses or to form joint ventures.

Our Board of Directors declared a cash dividend on May 8, 2007, of $0.05 per common share that was payable on May 30, 2007, to shareholders of record at the close of business on May 15, 2007. The quarterly dividend was declared in connection with the Board’s decision in 2006 to establish an annual cash dividend of $0.20 per share, payable at $0.05 per quarter. The payment of future cash dividends under the policy is subject to the approval of our Board of Directors.

Aggregate Contractual Obligations

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 years		3-5 years		More than 5 years
Operating Leases	$	121,000	$	95,000	$	26,000		-0-		-0-
Other Obligations2		343,000		8,000		335,000		-0-		-0-
Purchase Obligations 1		2,273,000		2,273,000		-0-		-0-		-0-
Total	$	2,737,000	$	2,376,000	$	361,000	$	-0-	$	-0-

¹ Open purchase orders primarily for raw materials, component parts, and other supplies that the Company uses to manufacture its products.

² Other Obligations includes uncertain tax liabilities recorded under FIN No. 48, “Accounting for Uncertainty in Income Taxes.”

We conduct certain operations in leased facilities under an operating lease expiring on November 30, 2007. Future minimum rental payments under this lease are $80,000 for 2007.

Critical Accounting Policies

Please reference Part I-Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates and the market value of our investments (including auction-rate securities). In the normal course of business, we employ established policies and procedures to manage our exposure to changes in the market value of our investments.

The fair value of our investments in debt and equity securities at June 30, 2007, and December 31, 2006, was approximately $7,941,000 and $11,062,000, respectively. The year-to-date unrealized loss in the fair value of those investments is approximately $16,000, primarily due to recent decreases in the value of various preferred

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stock holdings. Our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio by investing in multiple types of investment grade securities. Our investment portfolio is primarily invested in highly-liquid, short-term investments including treasury bills, money market funds and corporate bonds, with certain funds also invested in preferred stock. We believe that our investment policy is conservative, both in terms of the average maturity of investments that we allow and in terms of the credit quality of the investments we hold. Although changes in interest rates may affect the fair value of the investment portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold. There were no realized gains or losses on sales of such investments during the six months ended June 30, 2007. In the same period of the prior year we realized losses of approximately $23,000.

Item 4.    Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that the information we are required to disclose in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the period of April 1, 2007 to June 30, 2007, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer/CFO, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer/CFO has concluded that, as of June 30, 2007, our disclosure controls and procedures are effective. Subsequent to the date of his evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls.

Our management, including the Chief Executive Officer/CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Part II- Other Information

Item 1.    Legal Proceedings

In the normal course of our business, we are subject to legal proceedings brought against us. There have been no material developments to the legal proceedings described in Part I, Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the year-ended December 31, 2006, and there are no new reportable legal proceedings for the quarter ended June 30, 2007.

Item 1A.    Risk Factors

In addition to the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2006, we have determined that the following additional risk factors are applicable:

During the first quarter of 2007, William W. Botts, our President and CEO for the past twenty-one years, resigned. In addition, three Directors resigned from our Board. We believe our remaining Directors and management team are experienced and well-qualified to build on OI’s past success. However, we can provide no assurance that this transition in management and governance will not have a negative impact on our future performance.

The matters relating to the investigation by the Special Committee of our Board of Directors into our stock option granting and exercise practices may result in future litigation or regulatory inquiries that could harm our financial condition and results of operations.

On January 22, 2007, we announced that, at the request of our Board of Directors and William W. Botts, our then President and Chief Executive Officer, we were conducting a voluntary internal review of our historical stock option grants, stock option exercises and related option and compensation procedures and certain accounting matters. This review was performed at the direction of a Special Committee of our Board of Directors that was comprised of three independent directors, each of whom joined the Board in 2006. The Special Committee was given complete authority and all powers necessary to conduct this review. The Special Committee also engaged outside legal counsel and other outside consultants to assist it in performing its duties.

During the investigation, the Special Committee reviewed all stock option grants from 1985 through 2006, encompassing approximately 469 stock option grants granting 1,329,700 stock options to employees and non-employee directors on 48 different grant dates. The Special Committee also investigated all stock option exercises from 1997 to 2001 in which the exercise price was paid through the tender of our common stock. The Special Committee’s legal and accounting advisors identified, preserved, collected and reviewed over 17,000 documents and conducted 14 interviews of current and former employees and members of our Board of Directors.

On March 23, 2007, we announced the principal findings of the Special Committee of its Board of Directors relating to this investigation, a summary of which can be found in our Current Report on Form 8-K filed March 23, 2007.

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This review of our historical stock option granting practices required us to incur substantial expenses for legal, accounting and other professional services, and served as a distraction to management. Our historical stock option granting, stock option exercise and related option and compensation procedures practices have exposed us to greater risks associated with litigation and regulatory proceedings. There can be no guarantee that any such litigation or regulatory reviews will reach the same conclusions as that of the Special Committee. The conduct and resolution of these matters could be time consuming, expensive and distracting from the conduct of our business.

We voluntarily contacted the United States Securities and Exchange Commission, or “the SEC”, regarding the Special Committee’s investigation and have shared the results of the Special Committee investigation with the SEC. We have cooperated and intend to continue to cooperate with the SEC regarding this matter.

While we believe that we have made appropriate judgments and taken appropriate remedial action regarding the results of the investigation, the SEC may disagree with our actions and conclusions and there is a risk that any SEC inquiry could lead to circumstances in which we may have to further restate our prior financial statements, or otherwise take actions not currently contemplated. Any such circumstances could also lead to delays in filing our subsequent SEC reports and possible delisting of our stock from The Nasdaq Global Market. Furthermore, the results of the investigation and the actions taken by us in connection with the investigation may make us the target of litigation by our shareholders. If we are subject to adverse findings in any of these other matters, we could be required to pay damages or penalties or have other remedies imposed upon us which could harm our business, financial condition, results of operations and cash flows.

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

Issuer Repurchases of Equity Securities

The following table provides information about our purchases of equity securities that are registered by us pursuant to section 12 of the Exchange Act during the quarter ended June 30, 2007.

2007	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
2006 Plan(1)
April 1-April 30	18,852	$	12.18	12,526	65,165
May 1-May 31	8,330	$	12.80	1,501	63,664
June 1-June 30	0	$	0.00	0	63,664
Total	27,182			14,027

(1) In August 2006, a plan was approved to repurchase up to 100,000 shares of OI common stock with no specified expiration date.

Item 3.    Defaults Upon Senior Securities

None.

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

Our annual meeting of shareholders was held on May 21, 2007, at 11:00 a.m. at O.I. Corporation headquarters, 151 Graham Road, College Station, Texas, for the purposes of considering and voting upon the following matters: (i) the election of directors to serve until the 2008 Annual Meeting or until their successors are elected or appointed; and (ii) the ratification of independent registered public accountants.

The following nominees were elected as members of the Board for the ensuing year or until their successors are elected or appointed: Raymond E. Cabillot, Richard W. K. Chapman, Kenneth M. Dodd, Robert L. Moore, and Leo B. Womack.

The table below shows the matters that were voted upon at the meeting, and states the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each matter:

Proposal No. 1 - Election of Directors	For	Withheld	Abstentions	Broker Non-votes
Raymond E. Cabillot	1,948,615	61,852	0	0
Richard W. K. Chapman	1,961,115	49,352	0	0
Kenneth M. Dodd	1,959,597	50,870	0	0
Robert L. Moore	1,957,715	52,752	0	0
Leo B. Womack	1,960,115	50,352	0	0

Proposal No. 2 - Ratification of Accountants	For	Against	Abstentions	Broker Non-votes
Grant Thornton LLP	1,988,455	21,083	929	0

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Item 5.    Other Information

None.

Item 6.    Exhibits

31	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted 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.

	O. I. CORPORATION
	(Registrant)
Date: August 14, 2007	BY:	/s/ J. Bruce Lancaster
		J. Bruce Lancaster
		Chief Executive Officer/CFO (Principal Executive Officer)

15

EXHIBIT INDEX

EXHIBIT NUMBER	EXHIBIT TITLE
31	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-31

Exhibit 31

CERTIFICATIONS

I, J. Bruce Lancaster, certify that:

1. I have reviewed this quarterly report on Form 10-Q of O.I. 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 quarterly 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 quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have:

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

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

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 control over financial reporting.

Date: August 14, 2007	/s/ J. Bruce Lancaster
	J. Bruce Lancaster, Chief Executive Officer and Principal Financial Officer
	(Principal Executive Officer)

EX-32

EXHIBIT 32

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of O.I. Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Bruce Lancaster, Chief Executive Officer/CFO certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ J. Bruce Lancaster

Name:    J. Bruce Lancaster

Title:     Chief Executive Officer and Principal Financial Officer

Date:     August 14, 2007

This certification is made solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and not for any other purpose.

A signed original of this written statement required by Section 906 has been provided to O.I. Corporation and will be retained by O.I. Corporation and furnished to the Securities and Exchange Commission or its staff upon request.