<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-K

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

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the Fiscal Year Ended September 30, 2001

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

                       Commission file number 001-13601

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

                           OYO GEOSPACE CORPORATION
            (Exact Name of Registrant as Specified in Its Charter)


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

                        12750 South Kirkwood, Suite 200
                             Stafford, Texas 77477
                   (Address of Principal Executive Offices)

                                (281) 494-8282
             (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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   There were 5,538,380 shares of the Registrant's Common Stock outstanding as
of the close of business on December 12, 2001. The aggregate market value of
the Registrant's Common Stock held by non-affiliates was approximately $26
million (based upon the closing price of $10.80 on December 7, 2001, as
reported by the NASDAQ Stock Market, Inc.).

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

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the definitive proxy statement for the Registrant's 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
report.

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

<PAGE>

                                    PART I

Item 1. Business

Company Overview

   We design and manufacture instruments and equipment used in the acquisition
and processing of seismic data. We have been in the seismic instrument and
equipment business since 1980, marketing our products primarily to the oil and
gas industry worldwide. We also design and manufacture thermal imaging
equipment and distribute dry thermal film products to the commercial graphics
industry. We have been serving the commercial graphics industry since 1995.

   In February 2001, OYO Geospace Corporation (the "Company") acquired the
operating assets and business of EcoPRO Imaging Corporation ("EcoPRO") from
Labelon Corporation ("Labelon"). This acquisition expanded our worldwide
distribution of products to the commercial graphics industry. As a result of
this expansion, we are reporting information for two segments: Seismic and
Commercial Graphics.

  Seismic Industry

   Geoscientists use seismic data to map potential or existing oil and gas
bearing formations and the geologic structures that surround them. Seismic data
is used primarily in connection with the exploration, development and
production of oil and gas.

   Seismic data acquisition is conducted on land by combining a seismic energy
source and a data recording system. The energy source imparts seismic waves
into the earth, reflections of which are received and measured by geophones and
hydrophones. Electrical signals generated by the geophones and hydrophones are
simultaneously transmitted through leader wire, geophone and hydrophone string
connectors and telemetric cable to data collection units, which store
information for processing and analysis. Seismic thermal imaging products are
output devices used in the field or office to create a graphic representation
of the seismic data after it has been acquired.

   Marine seismic data acquisition is conducted primarily by large ocean-going
vessels that tow long seismic cables known as "streamers". Usually, the energy
source in marine seismic data acquisition is an airgun, and the reflected
seismic waves are received and measured by hydrophones, which are an integral
part of the streamers. The streamers simultaneously transmit the electrical
impulses back to the vessel via telemetric cable included within the streamers,
and the seismic data is recorded in much the same manner as it is on land.

   An estimated one to two-thirds of the reserves found with every oil and gas
discovery will be left behind in the reservoir, not recoverable economically or
at times even identified. Reservoir characterization and management programs,
in which the reservoir is carefully imaged and monitored throughout the life of
the field by seismic instruments and equipment, are now seen as vital tools for
improving production recovery rates. Seismic surveys repeated over selected
time intervals show dynamic changes within the reservoir and can be used to
monitor the effects of production.

   While orders for our products can vary substantially from quarter to
quarter, reservoir characterization projects, especially deepwater projects,
require the use of more equipment over a longer period of time than required by
conventional surface seismic systems. Revenue recognition in accordance with
generally accepted accounting principles for these large-scale projects has the
potential to result in substantial fluctuations in quarterly performance. These
variations will impact our operating results and cash flow, manufacturing
capability and expense levels in any given quarter.

   The seismic industry suffered a substantial downturn in fiscal year 1999,
which adversely impacted our operations in fiscal year 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".

                                      2

<PAGE>

  Commercial Graphics Industry

   We developed our commercial graphics business segment over time as we
leveraged our thermal imaging product technology, originally designed for
seismic data processing applications, into new markets. With minor product
modifications, we were successful in adapting these products for use in the
commercial graphics industry.

   Our commercial graphics business segment manufactures and sells thermal
imaging equipment and distributes dry thermal film primarily to the screen
print, point of sale, signage and textile market sectors. Our thermal imaging
equipment is capable of producing data images ranging in size from 12 to 54
inches wide. This business segment has some sales to customers in the seismic
industry.

   We recently expanded this segment by acquiring EcoPRO, a dry thermal film
distribution business, and by altering the marketing focus of our European
subsidiary. The growth and expansion of our commercial graphics business has
caused us to begin reporting this segment separately.

  International Business Development Initiative

   Effective November 8, 2001, we restructured our participation in a Russian
joint venture formed more than ten years ago with Geophyspribor Ufa Production
Association, Bank Vostock and Chori Co., Ltd. As part of the restructuring, we
increased our equity ownership in the joint venture from 44% to 85%. The future
operating results of the reorganized entity, now known as OYO-GEO Impulse
International LLC ("OYO-Geo Impulse"), will be consolidated with those of the
Company. Geophyspribor Ufa Production Association and Chori Co., Ltd. will
continue as minority shareholders of the restructured entity.

   In exchange for the additional equity ownership, we forgave a debt of $1.2
million owed to us by OYO-GEO Impulse. At the time of the restructuring, our
basis in the receivable and related equity investment were $0 as such items
were written-off in 1994.

   Based in Ufa, Bashkortostan, Russia, OYO-GEO Impulse has been in operation
since 1990 manufacturing sensors for the Russian seismic marketplace. Its
recent annual revenues are in excess of $3.0 million. OYO-GEO Impulse owns a
facility in Ufa containing 41,000 square feet and employs approximately 285
people. Our seismic manufacturing subsidiary in Houston will oversee an
expansion of OYO-GEO Impulse's operations to produce international-standard
sensors and additional products that will broaden its market scope.

Products and Product Development

  Seismic Products

   Our 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, thermal imaging products, marine
seismic cable retrieval devices and small data acquisition systems targeted at
niche markets. Our seismic products are compatible with most major seismic data
acquisition systems currently in use. We believe that our seismic products are
among the most technologically advanced instruments and equipment available for
seismic data acquisition.

   Our products used in marine seismic data acquisition include our patented
marine seismic cable retrieval devices. Occasionally, streamers are severed and
become disconnected from the vessel as a result of inclement weather, vessel
traffic or human or technological error. Our seismic cable retrieval devices,
which are attached to the streamers, contain air bags that are designed to
inflate automatically at a given depth, bringing the severed cable to the
surface. This can save the seismic contractor significant time and money over
the alternative of losing the seismic cable. We are also developing seismic
streamer "birds", which are rudderlike or finlike devices that attach to the
streamer which help maintain the streamer at a certain desired depth as it is
towed through the water.

                                      3

<PAGE>

   Recent product developments include the HDSeis(TM), a suite of borehole and
reservoir characterization products and services. Our HDSeis(TM) System is a
high definition seismic data acquisition system with flexible architecture that
can be configured as a borehole seismic system or as a subsurface system for
land or marine reservoir-monitoring projects.

   The scalable architecture of the HDSeis(TM) System enables custom designed
system configuration for applications ranging from low-channel engineering and
environmental-scale surveys requiring a minimum number of recording channels to
high-channel surveys required to efficiently conduct permanent deepwater
reservoir imaging and monitoring. Modular architecture allows virtually
unlimited channel expansion with global positioning systems and fiber-optic
synchronization. In addition, multi-system synchronization features make the
HDSeis(TM) well suited for multi-well or multi-site acquisition, simultaneous
surface and downhole acquisition and continuous reservoir monitoring projects.

   Reservoir characterization requires special purpose or custom designed
systems in which portability becomes less critical and functional reliability
assumes greater importance to assure successful operations in inaccessible
locations over a considerable period of time. Additionally, reservoirs located
in deepwater or hostile environments require special instrumentation and new
techniques for life-of-field performance.

   Reservoir characterization also requires high-bandwidth, high-resolution
seismic data for engineering project planning and management. Seismic data
acquired at reservoir level, through seismic sources and acoustic receivers
within wellbores, has a bandwidth of several kilohertz, which is capable of
yielding the requisite high-resolution images.

   We believe our HDSeis(TM) system and tools, designed for cost-effective
deployment and lifetime performance, will make borehole and seabed seismic
acquisition a cost effective, reliable resolution to the challenges of
reservoir characterization and monitoring.

   Other new 3-D seismic product developments include introduction of an
omnidirectional geophone for use in reservoir monitoring; a new compact marine
three-component or four-component gimbaled sensor unit; as well as new
special-purpose connectors, connector arrays and cases.

   We have received orders and indications from customers to deliver deepwater
reservoir characterization systems. We expect to deliver this equipment during
the spring and summer of 2002. We will not recognize revenue until the
equipment is accepted by the customer. Pending completion of the projects,
progress payments will be classified as deferred revenue and project costs will
be recorded as work-in-progress inventory.

   We are also working to diversify our existing seismic product lines and
adapt our manufacturing capabilities for uses in industries other than the oil
and gas industry.

  Commercial Graphics Products

   We have adapted our thermal imaging technology, which we originally
developed for the seismic industry, for commercial applications in the
newsprint, silkscreen and corrugated printing industries. Our thermal imaging
equipment is capable of producing data images ranging in size from 12 to 54
inches wide. We believe that our wide format thermal printers, which use dry
thermal film technology developed in conjunction with a film manufacturer, are
a cost-effective alternative to conventional equipment and imaging solutions.

   We expect to continue our research and development activities to expand the
markets for our thermal imaging products and increase the image clarity of our
thermal imaging equipment and dry thermal film.

Competition

   The principal competitors in our seismic business segment for geophones,
hydrophones, geophone string connectors, leader wire and telemetry cable are
Input/Output, Inc. and Mark Products, a division of Sercel. We

                                      4

<PAGE>

believe that we are one of the world's largest manufacturers and distributors
of these products. Furthermore, an entity in China manufactures an older model
geophone having the same design and specifications as our GS-20 DX geophone. In
addition to these competitors, certain manufacturers of marine streamers also
manufacture hydrophones for their own use.

   We believe that the principal competitive factors in the seismic instruments
and equipment market are technological superiority, product durability and
reliability and customer service and support. Since price and product delivery
are also important considerations for customers, pricing terms may become more
significant during an industry downturn. These factors can be offset by a
customer's preference for standardization. In general, particular customers
prefer to standardize geophones and hydrophones, particularly if they are used
by a single seismic crew or multiple crews that can support each other. This
makes it more difficult for a geophone or hydrophone manufacturer to gain
market share from other such manufacturers.

   A key competitive factor for seismic instruments and equipment is durability
under harsh field conditions. Instruments and equipment must not only meet
rigorous technical specifications regarding signal integrity and sensitivity,
but must also be extremely rugged and durable to withstand the rigors of field
use, often in harsh environments.

   With respect to our marine seismic data products, we know of no other
company that manufactures a product similar to our patented seismic streamer
retrieval device. Our primary competitor in the manufacture of birds is
Input/Output, Inc.

   Our primary competitors for downhole high definition seismic data
acquisition services are Paulson Geophysical and Tomoseis.

   We believe that the primary competitors in our commercial graphics business
segment are Ricoh, Xante, Gerber Scientific, iSys Group, Cypress Tech. and
Atlantek Inc.

Suppliers

   A Japanese manufacturer unaffiliated with us is currently the only supplier
of wide format thermal printheads that we use to manufacture our wide format
thermal imager equipment. We often return significant quantities of these
products to the manufacturer for repair, testing and quality assurance review.
We believe we maintain an adequate inventory of these printheads to continue
production for two to three months.

   A private corporation headquartered in New York is currently the primary
supplier of dry thermal film used by our customers in the thermal imaging
equipment we manufacture (the "Primary Film Supplier"). We also have a
secondary supplier of dry thermal film headquartered in Europe. We know of no
other supplier of dry thermal film for our thermal imaging equipment. While
alternate suppliers might be able to provide dry thermal film, such film has
not historically performed as well in our thermal imaging equipment.

   We are presently evaluating and working on an opportunity to loan up to
approximately $2.0 million to our Primary Film Supplier. Such loan will be on a
secured, second lien basis (behind its bank) for a term of up to three years.
The proceeds of the loan are intended to be used by the Primary Film Supplier
to fund its working capital needs, thereby enabling it to continue development
and production, and its supply to us of dry thermal film for distribution to
our customers. We have no assurance that the pending transaction with the
Primary Film Supplier will close or that, if it does close, it will assure us a
continued supply of dry thermal film for the foreseeable future.

   If the Japanese manufacturer were to discontinue supplying these printheads
or was unable or unwilling to supply printheads in sufficient quantities to
meet our requirements, or if our Primary Film Supplier was to

                                      5

<PAGE>

discontinue supplying dry thermal film or was unable or unwilling to supply dry
thermal film in sufficient quantities to meet our requirements, our ability to
compete in the thermal imaging marketplace could be severely damaged, which
could adversely affect our financial performance.

   We are not presently experiencing any significant supply or quality control
problems with our suppliers. However, unforeseen problems, if they develop,
could have a significant effect on our ability to meet future production and
sales commitments.

Product Manufacturing

   Our manufacturing and product assembly operations consist of machining or
molding the necessary component parts, configuring these parts along with
components received from various vendors and assembling a final product. Upon
completion, we test the final products to the functional and environmental
extremes of product specifications and inspect the products for quality
assurance. We normally manufacture and ship based on customer orders;
therefore, we typically maintain no significant inventory of finished goods.

Markets and Customers

   Our principal seismic customers are contractors and major independent and
government-owned oil and gas companies that either operate their own seismic
crews or specify seismic instrument and equipment preferences to contractors.
Our commercial graphics customers primarily consist of specialized resellers
that focus on the newsprint, silkscreen and corrugated box printing industries.

Intellectual Property

   We seek to protect our intellectual property by means of patents,
trademarks, trade secrets and other measures. Although we do not consider any
single patent essential to our success, we consider our patent regarding our
marine seismic cable retrieval devices to be of significant value to us. This
patent is scheduled to expire in 2012.

Research and Development

   We expect to incur significant future research and development expenditures
aimed at the development of additional seismic data acquisition products and
services used for high definition reservoir characterization in both land and
marine environments.

   For an estimation of company sponsored research and development expenditures
over the past five years, see Item 6, Selected Consolidated Financial Data,
contained in Part II to this Report on Form 10-K.

Employees

   As of September 30, 2001, we employed approximately 512 people on a
full-time basis, of which approximately 470 were employed in the United States.
We have never experienced a work stoppage and consider our relationship with
our employees to be satisfactory. None of our employees are unionized.

   For information as to the number of employees at the Ufa, Russia facility we
operate through our subsidiary, OYO-Geo Impulse, see the section entitled
"Business-Company Overview-International Business Development Initiative" in
this Report on Form 10-K.

Financial Information by Geographic Area

   For a discussion of financial information by geographic area, see Note 17 to
the Consolidated Financial Statements contained in this Report on Form 10-K.

                                      6

<PAGE>

Item 2. Properties

   As of September 30, 2001 our operations included the following locations:

                                        Approximate
         Location         Owned/Leased Square Footage            Use
 --------                 ------------ -------------- -------------------------
 Houston, Texas              Owned         78,000           Manufacturing
 Houston, Texas              Leased        58,000           Manufacturing
 Houston, Texas              Leased        36,000           Manufacturing
 Houston, Texas              Leased        34,000           Manufacturing
 Houston, Texas              Owned         18,000           Manufacturing
 Houston, Texas              Leased        7,000            Manufacturing
 Calgary, Alberta, Canada    Owned         21,000         Sales and service
 Luton, Bedfordshire,        Owned         8,000          Sales and service
   England
 Stafford, Texas             Owned         20,000     Headquarters and research
                                                            and development

   For information as to the Ufa, Russia facility we operate through our
subsidiary, OYO-Geo Impulse, see the section entitled "Business-Company
Overview-International Business Development Initiative" in this Report on Form
10-K.

   We believe that our facilities are adequate for our current and immediately
projected needs.

Item 3. Legal Proceedings

   We are not a party to, and none of our properties are subject to, any
material pending legal proceedings.

Item 4. Submission of Matters to Vote of Security Holders

   None.

                                      7

<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

   Our common stock is traded on the Nasdaq National Market under the symbol
"OYOG". On November 30, 2001, there were approximately 75 holders of record of
our common stock.

   The following table presents the range of high and low bid quotations for
our common stock during the two fiscal years ended September 30, 2001, as
reported by The NASDAQ Stock Market, Inc.

<TABLE>
<CAPTION>
                                                  Low    High
                                                 ------ ------
                  <S>                            <C>    <C>
                  Year Ended September 30, 2001:
                     Fourth Quarter............. $12.30 $22.94
                  Third Quarter.................  19.75  25.75
                  Second Quarter................  20.88  25.75
                  First Quarter.................  17.00  24.00
                  Year Ended September 30, 2000:
                  Fourth Quarter................ $15.63 $25.00
                  Third Quarter.................  14.38  23.00
                  Second Quarter................  10.25  20.50
                  First Quarter.................  10.25  14.88
</TABLE>
   Historically, we have not paid dividends, and we do not intend to pay cash
dividends on our common stock in the foreseeable future. We presently intend to
retain earnings for use in our business, with any future decision to pay cash
dividends dependent upon our growth, profitability, financial condition and
other factors the Board of Directors may deem relevant. Our existing line of
credit also has covenants which materially limit our ability to pay dividends.
For more complete discussion of our existing line of credit, see the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources" contained in this Report
on Form 10-K.

                                      8

<PAGE>

Item 6. Selected Consolidated Financial Data

   The following table sets forth certain selected historical financial data of
the Company on a consolidated basis. The selected consolidated financial data
was derived from our consolidated financial statements. The selected
consolidated financial data should be read in conjunction with our consolidated
financial statements appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                           Year Ended September 30,
                                        ------------------------------------------------------------
                                           2001        2000        1999        1998          1997
                                        ----------  ----------  ----------  ----------    ----------
                                              (in thousands, except share and per share amounts)
<S>                                     <C>         <C>         <C>         <C>           <C>
Statement of Operations Data:
Sales.................................. $   63,618  $   53,474  $   42,031  $   65,823    $   41,049
Cost of sales..........................     42,957      39,042      25,536      38,425        24,239
                                        ----------  ----------  ----------  ----------    ----------
Gross profit...........................     20,661      14,432      16,495      27,398        16,810
Operating expenses:....................
   Selling, general and administrative.     12,528      10,090       9,682      11,837(1)      3,856(1)
   Research and development............      6,277       6,146       6,246       5,621         2,392
                                        ----------  ----------  ----------  ----------    ----------
       Total operating expenses........     18,805      16,236      15,928      17,458         6,248
                                        ----------  ----------  ----------  ----------    ----------
Income (loss) from operations..........      1,856      (1,804)        567       9,940        10,562
Other income (expense), net............       (226)         41          84         326            63
                                        ----------  ----------  ----------  ----------    ----------
Income (loss) before income taxes......      1,630      (1,763)        651      10,266        10,625
Income tax expense (benefit)...........        292        (572)       (187)      3,592         4,003
                                        ----------  ----------  ----------  ----------    ----------
Net income (loss)...................... $    1,338  $   (1,191) $      838  $    6,674    $    6,622
                                        ==========  ==========  ==========  ==========    ==========
Basic earnings (loss) per share........ $     0.24  $    (0.22) $     0.16  $     1.32    $     1.66
                                        ==========  ==========  ==========  ==========    ==========
Diluted earnings (loss) per share...... $     0.24  $    (0.22) $     0.15  $     1.29    $     1.66
                                        ==========  ==========  ==========  ==========    ==========
Weighted average shares outstanding--
  Basic................................  5,489,251   5,431,901   5,384,530   5,072,262     4,000,000
Weighted average share outstanding--
  Diluted..............................  5,598,597   5,431,901   5,449,404   5,166,756     4,000,000
Other Financial Data:
Depreciation and amortization.......... $    4,444  $    4,014  $    4,319  $    2,803    $    1,470
Capital expenditures...................      4,909       6,004       3,656      11,953         6,396
</TABLE>
<TABLE>
<CAPTION>
                                         As of September 30,
                               ---------------------------------------
                                2001    2000    1999    1998    1997
                               ------- ------- ------- ------- -------
                                           (in thousands)
          <S>                  <C>     <C>     <C>     <C>     <C>
          Balance Sheet Data:
          Working capital..... $28,451 $28,888 $32,339 $26,850 $16,140
          Total assets........  73,088  65,108  63,419  63,288  35,078
          Short-term debt.....   1,033     198     169      38   1,500
          Long-term debt......   3,772   3,984   4,182     956      --
          Stockholders' equity  52,791  50,709  51,398  49,383  25,100
</TABLE>
--------
(1) Includes $4.8 million in the fiscal year ended September 30, 1997,
    reflecting a recovery of losses on notes receivable from Grant Geophysical,
    Inc. that had been fully reserved in prior years. During the fiscal year
    ended September 30, 1998, we received $0.2 million of additional recoveries
    on trade accounts receivable with Grant Geophysical, Inc. that had been
    fully reserved in prior years.

                                      9

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

   The following is management's discussion and analysis of the major elements
of our consolidated financial statements. You should read this discussion and
analysis together with our consolidated financial statements and accompanying
notes and other detailed information appearing elsewhere in this Form 10-K. The
discussion of our financial condition and results of operations includes
various forward-looking statements about our markets, the demand for our
products and services and our future results. These statements are based on
assumptions that we consider to be reasonable, but that could prove to be
incorrect. For more information regarding our assumptions, you should refer to
the section entitled "Forward-Looking Statements and Risks" contained in this
Report on Form 10-K.

Industry Overview

   We design and manufacture instruments and equipment used in the acquisition
and processing of seismic data. We have been in the seismic instrument and
equipment business since 1980, marketing our products primarily to the oil and
gas industry worldwide. We also design and manufacture thermal imaging
equipment and distribute dry thermal film products to the commercial graphics
industry. We have been serving the commercial graphics industry since 1995.

  Seismic

   Geoscientists use seismic data to map potential or existing oil and gas
bearing formations and the geologic structures that surround them. Seismic data
is used primarily in connection with the exploration, development and
production of oil and gas.

   Seismic data acquisition is conducted on land by combining a seismic energy
source and a data recording system. The energy source imparts seismic waves
into the earth, reflections of which are received and measured by geophones and
hydrophones. Electrical signals generated by the geophones and hydrophones are
simultaneously transmitted through leader wire, geophone and hydrophone string
connectors and telemetric cable to data collection units, which store
information for processing and analysis. Seismic thermal imaging products are
output devices used in the field or office to create a graphic representation
of the seismic data after it has been acquired.

   Marine seismic data acquisition is conducted primarily by large ocean-going
vessels that tow long seismic cables known as "streamers". Usually, the energy
source in marine seismic data acquisition is an airgun, and the reflected
seismic waves are received and measured by hydrophones, which are an integral
part of the streamers. The streamers simultaneously transmit the electrical
impulses back to the vessel via telemetric cable included within the streamers,
and the seismic data is recorded in much the same manner as it is on land.

   An estimated one to two-thirds of the reserves found with every oil and gas
discovery will be left behind in the reservoir, not recoverable economically or
at times even identified. Reservoir characterization and management programs,
in which the reservoir is carefully imaged and monitored throughout the life of
the field, by seismic instruments and equipment, are now seen as vitals tool
for improving production recovery rates. Seismic surveys repeated over selected
time intervals show dynamic changes within the reservoir and can be used to
monitor the effects of production.

   We expect to incur significant future research and development expenditures
aimed at the development of additional seismic acquisition products and
services used for high definition reservoir characterization for use in both
land and marine environments.

   While orders for our products can vary substantially from quarter to
quarter, reservoir characterization projects, especially deepwater projects,
require the use of more equipment over a longer period of time than required by
conventional surface seismic systems. Revenue recognition in accordance with
generally accepted

                                      10

<PAGE>

accounting principles for these large-scale projects has the potential to
result in substantial fluctuations in quarterly performance. These variations
will impact our operating results and cash flow, manufacturing capability and
expense levels in any given quarter.

   We have received a large order and strong indications of interest for
additional orders from customers to deliver deepwater reservoir
characterization systems. Such orders and indications have a combined sales
price of approximately $24 million. The scheduled delivery for these orders and
indications is the spring and early summer of 2002. To date, these orders and
indications have not been formalized into written definitive contracts. In the
case of the large order, we have been operating on the assumption that our
agreements are reflected in a letter of intent and numerous subsequent
exchanges of communication, and we have received a substantial progress payment
on the order. Because we have not formalized this order into a single,
definitive written contract, we face the risk that any disputes arising out of
the order will be resolved in a manner and with a reference to terms that we
did not agree to and which are unfavorable to us. We are not aware of any
disputes or the basis for any dispute at this time.

   Because of the scale and nature of these projects, there may be delays in
their implementation and uncertainties about their final course. As a result,
we are unable at present to predict the impact of such projects on our business
and financial results and condition. We continue to believe, however, that our
reservoir characterization systems, including the systems related to this
matter, are important new technologies in our industry and will be important to
our success in the future.

   At September 30, 2001, we have capitalized inventory work-in-process costs
of $7.2 million in connection with these orders and indications. We have
received a $4.9 million progress payment from the customer in connection with
the large order, which payment is classified as deferred revenues on our
balance sheet.

   The terms of the large order require the customer to make periodic cash
payments to us during various phases of the project. Significant payments,
which we expect to receive after installation of the system in the summer of
2002 are potentially refundable to the customer if the system significantly
fails to perform its intended function. Generally accepted accounting
principles require us to recognize revenues only upon the customer's acceptance
of the system. As a result, if the system performs its intended function for
the agreed-upon term, a significant amount of revenues from this order will be
deferred to future accounting periods. If the system significantly fails to
perform its intended function, however, we may forfeit the refundable cash
payments specified above.

  Commercial Graphics

   We developed our commercial graphics business segment over time as we
leveraged our thermal imaging product technology, originally designed for
seismic data processing applications, into new markets. With minor product
modifications, we were successful in adapting these products for use in the
commercial graphics industry.

   Our commercial graphics business segment manufactures and sells thermal
imaging products and distributes dry thermal film primarily to the screen
print, point of sale, signage and textile market sectors. Our thermal imaging
equipment is capable of producing data images ranging in size from 12 to 54
inches wide. This business segment has some sales to customers in the seismic
industry.

   We recently expanded this segment by acquiring EcoPRO, a dry thermal film
distribution business, and by altering the marketing focus of our European
subsidiary.

                                      11

<PAGE>

Results of Operations

   In February 2001, we acquired the operating assets and business of EcoPRO
from Labelon, a supplier of dry thermal film to the Company. This acquisition
expanded our worldwide distribution of products to the commercial graphics
industry. As a result of this expansion, we are reporting information for two
segments: Seismic and Commercial Graphics.

   Summary financial data by business segment follows (in thousands):


<TABLE>
<CAPTION>
                                              Years Ended
                               ----------------------------------------
                               September 30, September 30, September 30,
                                   2001          2000          1999
                               ------------- ------------- -------------
       <S>                     <C>           <C>           <C>
       Seismic
       Revenue................    $50,061       $39,161       $27,532
       Operating income.......      5,381           543         1,947
       Commercial Graphics
       Revenue................     13,557        14,313        14,499
       Operating income.......         27           770         1,684
       Corporate
       Revenue................         --            --            --
       Operating (loss).......     (3,552)       (3,117)       (3,064)
       Consolidated Totals
       Revenue................     63,618        53,474        42,031
       Operating income (loss)      1,856        (1,804)          567
</TABLE>

Overview

  Fiscal Year 2001 Compared to Fiscal Year 2000.

   Consolidated sales for fiscal year 2001 increased $10.1 million, or 19.0%
from fiscal year 2000. The increase in sales was primarily due to an increase
in demand for our seismic products.

   Consolidated gross profits for fiscal year 2001 increased by $6.2 million,
or 43.2% from fiscal year 2000. The higher gross profits were realized from
both our seismic and commercial graphics business segments. Compared to the
prior year period, gross profits improved primarily because the prior year
period reflects the impact of a highly competitive bid on a large land-based
seismic equipment order. Furthermore, current year sales contain a higher mix
of marine-based seismic products, which historically have higher gross profit
margins.

   Consolidated operating expenses for fiscal year 2001 increased $2.6 million,
or 15.8% from fiscal year 2000. The increase primarily resulted from increased
costs associated with new personnel, sales and marketing efforts, information
technology upgrades and costs associated with the EcoPRO acquisition.

   Our effective tax rate for fiscal year 2001 was a provision of 17.9%
compared to a benefit of 32.4% for fiscal year 2000. The tax rate of the
current year includes a tax benefit of $0.2 million due to the resolution of
contingent tax matters as well as other adjustments relating to prior years.
Excluding these benefits, our effective tax rate would be a provision of 34.1%
in fiscal year 2001.

  Fiscal Year 2000 Compared to Fiscal Year 1999.

   Consolidated sales for fiscal year 2000 increased $11.4 million, or 27.2%
from fiscal year 1999, primarily as a result of increased demand for our
land-based seismic products. This increase was partially offset by a decrease
in sales of our marine-based seismic products.

                                      12

<PAGE>

   Consolidated gross profits for fiscal year 2000 decreased by $2.1 million,
or 12.5% from fiscal year 1999. Compared to the prior year period, gross
profits were lower primarily because the current year period reflects the
impact of a highly competitive bid on a large land-based seismic equipment
order combined with lower sales of our marine-based seismic products which
historically have higher gross profit margins.

   Consolidated operating expenses for fiscal year 2000 increased $0.3 million,
or 1.9% from the fiscal year 1999.

   Our effective tax rate for fiscal year 2000 was a benefit of 32.4% compared
to benefit of 28.7% for fiscal year 1999. Excluding the impact of tax benefits,
our effective tax rate would have been a provision of 19.0% in fiscal year 1999.

Seismic

   Our 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, thermal imaging products, marine
seismic cable retrieval devices and small data acquisition systems targeted at
niche markets.

  Fiscal Year 2001 Compared to Fiscal Year 2000.

  Revenue

   Sales of our seismic products for fiscal year 2001 increased $10.9 million,
or 27.8% from fiscal year 2000. The increases in seismic product sales
primarily resulted from the increase in sales of both our land-based and
marine-based products due to increasing worldwide oil and gas exploration
activities.

  Operating Income

   Operating income for fiscal year 2001 increased $4.8 from fiscal year 2000.
Operating income increased as a percentage of total sales to 10.7% in fiscal
year 2001 from 1.4% in fiscal year 2000. The increase in operating income
primarily resulted from increased gross profits associated with increased
sales. During the comparable period of the prior year, a highly competitive bid
on a large land-based seismic equipment order resulted in lower gross profits
and operating income. The improved gross profits in fiscal year 2001 were
partially offset by higher selling, general and administrative expenses.
  Fiscal Year 2000 Compared to Fiscal Year 1999.

  Revenue

   Sales of our seismic products for fiscal year 2000 increased $11.6 million,
or 42.2% from fiscal year 1999. The increases in seismic product sales
primarily resulted from the increase in sales of both our land-based and
marine-based products due to increasing worldwide oil and gas exploration
activities.

  Operating Income

   Operating income for fiscal year 2000 decreased $1.4 million, or 72.1% from
fiscal year 1999. Operating income decreased as a percentage of total sales in
fiscal year 2000 to 1.4% from 7.1% in fiscal year 1999. The decrease in
operating income primarily resulted from a highly competitive bid on a large
land-based seismic equipment order that resulted in lower gross profits.

Commercial Graphics

   Our commercial graphics business segment manufactures and sells thermal
imaging equipment and distributes dry thermal film primarily to the screen
print, point of sale, signage and textile market sectors. This business segment
has some sales to customers in the seismic industry.

                                      13

<PAGE>

  Fiscal Year 2001 Compared to Fiscal Year 2000.

  Revenue

   Sales of our commercial graphics products for fiscal year 2001 decreased
$0.8 million, or 5.3% from fiscal year 2000. The decrease in sales is primarily
a result of a decline in thermal imaging equipment sales, although these sales
were partially offset by increased sales of our dry thermal film products
resulting from the EcoPRO acquisition.

  Operating Income

   Operating income for fiscal year 2001 decreased $0.7 million, or 96.5%, from
fiscal year 2000. Operating income decreased as a percentage of total sales in
fiscal year 2001 to 0.2% from 5.4% in fiscal year 2000. The decrease in
operating income primarily resulted from a decline in thermal imaging equipment
sales.

  Fiscal Year 2000 Compared to Fiscal Year 1999.

  Revenue

   Sales of our commercial graphics products for fiscal year 2000 decreased
$0.2 million, or 1.3% from fiscal year 1999. The decrease in sales was due to a
decline in thermal imaging equipment sales offset by an increase in sales of
dry thermal film.

  Operating Income

   Operating income for fiscal year 2000 decreased $0.9 million, or 54.3% from
fiscal year 1999. Operating income decreased as a percentage of total sales to
5.4% from 11.6% in fiscal year 1999. The decrease in operating income primarily
resulted from a decline in thermal imaging equipment sales.

International Business Development, Acquisitions and Corporate Restructuring

   Effective November 8, 2001, we restructured our participation in a Russian
joint venture formed more than ten years ago with Geophyspribor Ufa Production
Association, Bank Vostock and Chori Co., Ltd. As part of the restructuring, we
increased our equity ownership in the joint venture from 44% to 85%. The future
operating results of the reorganized entity, now known as OYO-GEO Impulse, will
be consolidated with those of the Company. Geophyspribor Ufa Production
Association and Chori Co., Ltd. will continue as minority shareholders of the
restructured entity.

   In exchange for the additional equity ownership, we forgave a debt of $1.2
million owed to us by OYO-GEO Impulse. At the time of the restructuring, our
basis in the receivable and related equity investment were $0 as such items
were written-off in 1994.

   Based in Ufa, Bashkortostan, Russia, OYO-GEO Impulse has been in operation
since 1990 manufacturing sensors for the Russian seismic marketplace. Recent
annual revenues are in excess of $3.0 million. OYO-GEO Impulse owns a facility
in Ufa containing 41,000 square feet and employs approximately 285 people. Our
seismic manufacturing subsidiary in Houston will oversee an expansion of
OYO-GEO Impulse's operations to produce international-standard sensors and
additional products that will broaden its market scope.

   In February 2001, we acquired the operating assets and business of EcoPRO
from Labelon for $1.9 million of cash. The EcoPRO business distributes EcoPRO
brand name thermal imagers and dry thermal film. The operations of EcoPRO have
been combined with our existing commercial graphics operations and have enabled
us to significantly reduce our costs associated with acquiring thermal plotters
and film, thereby significantly increasing our income from our commercial
graphics operations. The EcoPRO business contributed $1.6 million in sales and
$0.6 million of operating income in fiscal year 2001.

                                      14

<PAGE>

   Effective with the beginning of fiscal year 2001, we changed the legal
entity structure of our operating subsidiaries by converting them into limited
liability companies and limited partnerships. We did not change the ultimate
ownership structure of our operating subsidiaries, nor did we change the form
of legal entity of OYO Geospace Corporation, which continues to be a Delaware
corporation. We completed this entity restructuring as part of our overall
strategy to minimize our income taxes.

   In June 1999, we merged the manufacturing facilities of our seismic
equipment businesses. This restructuring allowed us to address our excess
capacity issues in the down market by reducing our workforce. This
restructuring, together with additional cost-saving measures, resulted in
manufacturing and operating expense cost savings in the second half of fiscal
year 1999 as compared to the same period in fiscal year 1998.

   On November 30, 1998, we acquired substantially all of the assets of LTI,
Inc. and its Canadian subsidiary (together, "LTI") for approximately $1.8
million. In connection with that acquisition, we issued 55,659 shares of our
common stock valued at $0.6 million and paid approximately $1.3 million of
cash. The operations of LTI included the design and manufacture of land and
marine seismic connectors, which we combined with our existing seismic
manufacturing operations.

Liquidity and Capital Resources

   At September 30, 2001, we had approximately $0.9 million in cash and cash
equivalents. For the fiscal year ended September 30, 2001, we generated
approximately $2.6 million of cash and cash equivalents from operating
activities, principally resulting from our net income, adjusted for non-cash
expenses such as depreciation and amortization, and increases in accrued
expenses and deferred revenue. These sources of cash were partially offset by
increases in trade accounts and notes receivable, inventories and decreases in
accounts payable.

   For the fiscal year ended September 30, 2001, we used approximately $6.5
million of cash and cash equivalents in investing activities, consisting of
capital expenditures of approximately $4.9 million and business acquisitions of
$1.9 million, offset by proceeds of $0.3 million from the sale of fixed assets.
We estimate that our capital expenditures in fiscal fiscal 2002 will range
between $6.0 to $8.0 million, which we expect to fund through operating cash
flow and borrowings under our credit facility as needed.

   Financing activities for the fiscal year ended September 30, 2001 generated
$1.0 of cash, reflecting $0.4 million received from the exercise of stock
options and net borrowings of $0.8 million under the credit facility, offset by
the repayment of long-term debt $0.2 million.

   At September 30, 2000, we had approximately $4.0 million in cash and cash
equivalents. For the fiscal year ended September 30, 2000, we generated
approximately $4.8 million of cash and cash equivalents from operating
activities, principally resulting from our net income, adjusted for non-cash
expenses such as depreciation and amortization, and increases in accounts
payable. These sources of cash were partially offset by increases in trade
accounts and notes receivable and prepaid expenses.

   For the fiscal year ended September 30, 2000, we used approximately $5.9
million of cash and cash equivalents in investing activities, consisting of
capital expenditures of approximately $6.0 million, partially offset by
approximately $0.1 million of proceeds from the sale of property and equipment.

   Financing activities for the fiscal year ended September 30, 2000 generated
$24,000 of cash, reflecting $193,000 received from the exercise of stock
options and borrowings of $1.4 million under a credit facility, offset by the
repayment of long-term debt of $1.6 million.

   At September 30, 1999, we had $5.3 million in cash and cash equivalents. For
the fiscal year ended September 30, 1999, we generated $3.0 million of cash and
cash equivalents from operating activities, principally resulting from our net
income, adjusted for non-cash expenses and decreases in accounts receivable.
These sources of cash were partially offset by decreases in accounts payable
and accrued expenses.

                                      15

<PAGE>

   For the fiscal year ended September 30, 1999, we used approximately $3.3
million of cash and cash equivalents in investing activities, consisting of
capital expenditures of approximately $3.7 million and a business acquisition
of approximately $1.3 million, partially offset by $1.6 million of proceeds
from the sale of property and equipment.

   Financing activities for the fiscal year ended September 30, 1999 generated
approximately $1.5 million of cash, principally resulting from a $3.5 million
increase in long-term mortgage notes payable, offset by the repayment of
long-term debt, principally the repayment of approximately $1.9 million of
long-term debt assumed in connection with the LTI asset acquisition.

   We have a working capital line of credit pursuant to which we can borrow up
to $10.0 million secured by our accounts receivable and inventory (the "Credit
Agreement"). The Credit Agreement expires in February 2002. Borrowings under
the Credit Agreement are subject to borrowing base restrictions based on (i)
consolidated net income plus consolidated interest expense, income taxes,
depreciation and amortization and (ii) levels of eligible accounts receivable
and inventories. The Credit Agreement limits additional indebtedness, requires
the maintenance of certain financial amounts and contains other covenants
customary in agreements of this type. As of September 30, 2001 there were
borrowings of $0.8 million outstanding under the Credit Agreement, and
additional borrowings available under the Credit Agreement of $6.9 million.
Subsequent to September 30, 2001, borrowings under the Credit Agreement have
reached $8.0 million. Such additional borrowings resulted from the repayment of
intercompany advances to foreign subsidiaries, issuance of trade notes
receivable, the incurrence of costs to develop deepwater reservoir
characterization systems, and the funding of general working capital needs. The
borrowing interest rate at September 30, 2001 was 6.0%. We are seeking to
extend the credit facility with our existing lender and expect to do so, but
have no assurances that we will be able to do so.

   We are presently evaluating and working on an opportunity to loan up to
approximately $2.0 million to our Primary Film Supplier. Such loan will be on a
secured, second lien basis (behind its bank) for a term up to three years. The
proceeds of the loan are intended to be used by our Primary Film Supplier to
fund its working capital needs, thereby enabling it to continue the development
and production, and its supply to us, of dry thermal film for distribution to
our customers. We have no assurance that the pending transaction with the
Primary Film Supplier will close or that, if it does close, it will assure us a
continued supply of dry thermal film for the foreseeable future.

   We believe that the combination of existing cash reserves, cash flows from
operations and borrowing availability under our existing credit facility or
borrowing availability under a new credit facility, should provide us
sufficient capital resources and liquidity to fund the pending loan to our
Primary Film Supplier and our planned operations through fiscal year 2002.
However, there can be no assurance that we will be able to successfully extend
our existing credit facility or that such sources of capital will be sufficient
to support our capital requirements in the long-term, and we may be required to
issue additional debt or equity securities in the future to meet our capital
requirements. There can be no assurance we would be able to issue additional
equity or debt securities in the future on terms that are acceptable to the
Company or at all.

Adoption of New Accounting Pronouncements

   Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS
No. 137 and SFAS No. 138, was issued by the Financial Accounting Standards
Board in June 1998. SFAS 133 requires us to record all derivatives on the
balance sheet at fair value. Changes in derivative fair values will either be
recognized in earnings as offsets to the changes in fair value of related
hedged assets, liabilities and firm commitments or for forecasted transactions,
deferred and recorded as a component of accumulated other comprehensive income
until the hedged transactions occur and are recognized in earnings. We purchase
printheads from OYO Corporation whereby such purchases are denominated in
Japanese Yen. We routinely attempt to hedge our currency exposure on these
purchases by entering into foreign currency forward contracts with a bank. The
purpose of entering into these forward hedge

                                      16

<PAGE>

contracts is to eliminate variability of cash flows associated with foreign
currency exposure risk on amounts payable in Japanese Yen. Under SFAS No. 133
and related interpretations, our forward contracts with the bank are considered
derivatives. SFAS No. 133, which is effective for our fiscal year 2001,
requires that we record these foreign currency forward contracts on the balance
sheet and mark them to fair value at each reporting date. Resulting gains and
losses are reflected in income and were not material for the fiscal year ended
September 30, 2001.

Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed annually for impairment; reviews may be more frequent if impairment is
indicated. 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 intend to adopt SFAS 142 effective October 1, 2002. The total
amount of goodwill, net of amortization, at September 30, 2001 was $2.0
million. Goodwill amortization was $0.2 million for the fiscal year ended
September 30, 2001.

Forward-Looking Statements and Risks

   Certain of the statements we make in this document and in documents
incorporated by reference herein, including those made under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," are forward-looking statements for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Such statements
include projections of our expectations regarding our future capital
expenditures, product lines, growth of product markets and other statements
that relate to future events or circumstances. These statements are subject to
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to differ materially from the
future results, performance or achievements expressed or implied by such
forward-looking statements, including the risks and factors described below.
You are cautioned to consider the following factors and risks in connection
with evaluating any such forward-looking statements or otherwise evaluating an
investment in our company.

  Our New Products May Not Achieve Market Acceptance.

   In recent years, we have incurred significant expenditures to fund our
research and development efforts and we intend to continue those expenditures
in the future. However, research and development is by its nature speculative,
and we cannot assure you that these expenditures will result in the development
of new products or services or that any new products and services we have
developed recently or may develop in the future will be commercially marketable
or profitable to us.

   In particular, we have incurred substantial expenditures to develop our
recently introduced HDSeis(TM) product line for borehole and reservoir
characterization applications. For a discussion of particular factors and risks
relating to projects in the reservoir characterization area, see the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Industry Overview" in this Report on Form 10-K. We
cannot assure you that we will realize our expectations regarding market
acceptance and revenues from these products and services.

  A Decline in Industry Conditions Could Affect our Projected Results.

   Any unexpected material changes in oil and gas prices or other market trends
that would impact seismic exploration activity would likely affect the
forward-looking information contained in this document. Our results for fiscal
year 2000 were materially and adversely affected by the downturn in the
industry that began in fiscal year 1999. Although our results for fiscal year
2001 showed an improvement over fiscal year 2000 due to increases in oil and
gas prices, the oil and gas industry is extremely volatile and subject to
change based on political and economic factors outside our control as evidenced
by recent decreases in oil and gas prices.

                                      17

<PAGE>

   Our estimates as to future results and industry trends described in this
document are based on assumptions regarding the future level of seismic
exploration activity and its effect on the demand and pricing of our products
and services. In analyzing the market and its impact on us, we have made the
following assumptions for fiscal year 2002:

  .  Oil and gas prices will, on average, be weaker than fiscal year 2001. As a
     result, seismic exploration activity will decrease.

  .  Demand for seismic instruments and equipment will decline from fiscal year
     2001 levels.

  .  Demand for our new high definition reservoir characterization products and
     services will increase as those products and services become known to the
     industry and as the need for reservoir characterization technology
     increases.

  .  Deep-water marine seismic activity will remain constrained.

  .  Demand for our products used in the commercial graphics industry will
     increase with continued market acceptance and new product introductions.

  .  Pricing for many of our products will continue to be subject to pricing
     pressures due to seismic industry consolidations and competition as the
     seismic industry enters another economic downturn.

   We have based these assumptions on various macro-economic factors, and
actual market conditions could vary materially from those assumed.

  We May Experience Fluctuations in Quarterly Results of Operations.

   Historically, the rate of new orders for our products has varied
substantially from quarter to quarter. Moreover, we typically operate, and
expect to continue to operate, on the basis of orders in hand for our products
before we commence substantial manufacturing "runs"; hence, the completion of
orders, particularly large orders for deepwater reservoir characterization
projects, can significantly impact the operating results and cash flow for any
quarter, and results of operations for any one quarter may not be indicative of
results of operations for future quarters.

  Our Credit Risks Could Increase as our Customers Continue to Face Difficult
  Economic Circumstances.

   We believe and have assumed that our allowance for bad debts at September
30, 2001 is adequate in light of known circumstances. However, we cannot assure
you that sufficient aggregate amounts of uncollectible receivables and bad debt
write-offs will not have a material adverse effect on our future results of
operations. Many of our customers have suffered from lower revenues and
experienced liquidity challenges resulting from the economic difficulties
throughout our industry. We have in the past incurred significant write-offs in
our accounts receivable due to customer credit problems. We have found it
necessary from time to time to extend trade credit to long-term customers and
others where some risks of nonpayment or late payment exist. Given recent
industry conditions, some of our customers have experienced a liquidity
difficulty, which increases those credit risks. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources", "Business--Markets and Customers" and Notes 1 and 4 to the
Consolidated Financial Statements contained in this Report on Form 10-K.

  Demand for Our Products is Volatile.

   Demand for 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. Historically, the markets for oil and gas have
been volatile, and those markets are likely to continue to be volatile. Oil and
gas prices are subject to wide fluctuation in response to relatively minor
changes in the supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond our control. These factors
include the level of

                                      18

<PAGE>

consumer demand, weather conditions, domestic and foreign governmental
regulations, price and availability of alternative fuels, political conditions
in the Middle East and other significant oil-producing regions, foreign supply
of oil and gas, price of foreign imports and overall economic conditions.
Continued low demand for our products could materially and adversely affect our
results of operations and liquidity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Industry Overview".

  We Have a Relatively Small Public Float, and Our Stock Price May be Volatile.

   We have approximately 2.4 million shares outstanding held by nonaffiliates.
This small float results in a relatively illiquid market for our common stock.
Our average daily trading volume during this past year has been around 5,000
shares. Our small float and daily trading volumes may result in greater
volatility of our stock price.

  Our Industry is Characterized by Rapid Technological Evolution and Product
  Obsolescence.

   Our instruments and equipment 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;

  .  anticipate changes in technology and industry standards; and

  .  respond to technological developments on a timely basis.

   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 industry standards.

  We Operate in Highly Competitive Markets.

   The markets for our products are highly competitive. Many of our existing
and potential competitors have substantially greater marketing, financial and
technical resources than we do. Additionally, two competitors in our seismic
business segment currently offer a broader range of instruments and equipment
for sale and market this equipment as a "packaged" data acquisition system. We
do not now offer for sale such a complete "packaged" data acquisition system.
Further, certain of our competitors offer financing arrangements to customers
on terms that we may not be able to match. In addition, new competitors may
enter the market and competition could intensify.

   We cannot assure you that sales of our products will continue at current
volumes or prices if current competitors or new market entrants introduce new
products with better features, performance, price or other characteristics than
our products. Competitive pressures or other factors also may result in
significant price competition that could have a material adverse effect on our
results of operations.

  We Have a Limited Market.

   In our seismic business segment, we market our products to contractors and
large, independent and government-owned oil and gas companies. We estimate
that, based on published industry sources, fewer than 100 seismic contracting
companies are currently operating worldwide (excluding those operating in
Russia and the former Soviet Union, India, the People's Republic of China and
certain Eastern European countries, where

                                      19

<PAGE>

seismic data acquisition activity is difficult to verify). We estimate that
fewer than ten seismic contractors are engaged in marine seismic exploration.
In November 2001, two of our largest seismic customers (Petrolera-Geo Services
ASA and Veritas DGC Inc.) announced plans to merge. Due to these market
factors, a relatively small number of customers have accounted for most of our
sales. The loss of a small number of these customers could materially and
adversely impact our sales. See "Business--Markets and Customers".

  We Cannot Be Certain of Patent Protection of Our Products.

   We have applied for and hold certain patents relating to our seismic data
acquisition and other products. We cannot assure you that our patents will
prove enforceable, that any patents will be issued for which we have applied or
that competitors will not develop functionally similar technology outside the
protection of any patents we have or may obtain.

  Our Foreign Marketing Efforts Face Additional Risks and Difficulties.

   Net sales outside the United States accounted for approximately 57% of our
net sales during fiscal year 2001. See Note 17 to our financial statements.
Additionally, our United States subsidiaries engage in significant export
sales. Substantially all of our sales from the United States are made in U.S.
dollars, but from time to time we may make sales in foreign currencies and may,
therefore, be subject to foreign currency fluctuations on our sales. In
addition, net assets reflected on the balance sheet of our Russian, Canadian
and U.K. subsidiaries are subject to currency fluctuations. Significant foreign
currency fluctuations could adversely impact our results of operations.

   Foreign sales are subject to special risks inherent in doing business
outside of the United States, including the risk of war, terrorist activities,
civil disturbances, embargo and government activities, all of which may disrupt
markets. Foreign sales are also generally subject to the risk of compliance
with additional laws, including tariff regulations and import and export
restrictions. Sales in certain foreign countries require prior United States
government approval in the form of an export license. We cannot assure you that
we will not experience difficulties in connection with future foreign sales.

  We Rely on Key Suppliers for Significant Product Components.

   A Japanese manufacturer unaffiliated with us is currently the only supplier
of wide format thermal printheads that we use to manufacture our wide format
thermal imager equipment. We often return significant quantities of these
products to the manufacturer for repair, testing and quality assurance review.
We believe we maintain an adequate inventory of these printheads to continue
production for two to three months.

   A private corporation headquartered in New York is currently the primary
supplier of dry thermal film used by our customers in the thermal imaging
equipment we manufacture. We also have a secondary supplier of dry thermal film
headquartered in Europe. We know of no other supplier of dry thermal film for
our thermal imaging equipment. While alternate suppliers might be able to
provide dry thermal film, such film has not historically performed as well in
our thermal imaging equipment.

   We are presently evaluating and working on an opportunity to loan up to
approximately $2.0 million to our Primary Film Supplier. Such loan will be on a
secured, second lien basis (behind its bank) for a term up to three years. The
proceeds of the loan are intended to be used by the Primary Film Supplier to
fund its working capital needs, thereby enabling it to continue the development
and production, and its supply to us of dry thermal film for distribution to
our customers. We have no assurance that the pending transaction with the
Primary Film Supplier will close or that, if it does close, it will assure us a
continued supply of dry thermal film for the foreseeable future.

   If the Japanese manufacturer were to discontinue supplying these printheads
or was unable or unwilling to supply printheads in sufficient quantities to
meet our requirements, or if our Primary Film Supplier was to discontinue
supplying dry thermal film or was unable or unwilling to supply dry thermal
film in sufficient quantities to meet our requirements, our ability to compete
in the thermal imaging marketplace could be severely damaged, which could
adversely affect our financial performance.

                                      20

<PAGE>

  We Are Subject to Control by a Principal Stockholder.

   OYO Corporation, a Japanese corporation, owns indirectly in the aggregate
approximately 51.7% of our common stock. Accordingly, OYO Corporation, through
its wholly owned subsidiary OYO Corporation U.S.A, is able to elect all of our
directors and to control our management, operations and affairs. We currently
have, and may continue to have, a variety of contractual relationships with OYO
Corporation and its affiliates.

  Our Success Depends Upon A Limited Number of Key Personnel.

   Our success depends on attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
professionals. If we fail to continue to attract and retain such professionals,
our ability to compete in the industry could be adversely effected. In
addition, our success depends to a significant extent upon the abilities and
efforts of several members of our senior management.

  Recent Terrorist Attacks on the U.S. Together With the Recent Downturn in the
  U.S. Economy May Adversely Affect our Business.

   While we are not yet able to evaluate fully the effect of the recent
terrorist attacks on the U.S., which appear to have coincided with or
contributed to a general downturn in the U.S. economy, both such matters could
adversely affect our business in ways that we cannot yet identify. However,
both may adversely affect the demand for oil and gas generally and therefore,
the demand for our services to the oil and gas industry and related service
industry. They could also affect adversely the demand for consumer products,
which could in turn adversely affect our commercial graphics business. To the
extent these factors adversely affect other seismic companies in the industry,
we could see an oversupply of products and services and downward pressure on
pricing for seismic products and services that would affect us adversely.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

   The following discussion of our exposure to various market risks contains
"forward looking statements" that involve risks and uncertainties. These
projected results have been prepared utilizing certain assumptions considered
reasonable in light of information currently available to us. Nevertheless,
because of the inherent unpredictability of foreign currency rates, as well as
other factors, actual results could differ materially from those projected in
this forward looking information. For a description of our significant
accounting policies associated with these activities, see Note 1 to the
Consolidated Financial Statements.

  Foreign Currency Exchange Rate Risk.

   We purchase printheads manufactured in Japan from OYO Corporation in
Japanese Yen. We routinely attempt to hedge our currency exposure on these
purchases by entering into foreign currency forward contracts with a bank. The
purpose of entering into these forward hedge contracts is to eliminate all
variability of cash flows associated with foreign currency exposure risk on
amounts payable in Japanese Yen. Because both the settlement dates and notional
amounts on the forward contracts are typically identical to the settlement
dates and payable balances, respectively, we consider these forward contracts
to be highly effective in that they eliminate variability of cash flows on
payables denominated in Yen.

Item 8. Financial Statements and Supplementary Data

   Our consolidated financial statements, including the reports thereon, the
notes thereto and supplementary data begin at page F-1 of this Form 10-K and
are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

   None.

                                      21

<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

   The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2002 Annual Meeting of
Stockholders under the captions "Election of Directors", "Executive Officers
and Compensation" and "Compliance With Section 16(A) of The Securities Exchange
Act of 1934" and is incorporated herein by reference.

Item 11. Executive Compensation

   The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2002 Annual Meeting of
Stockholders under the caption "Executive Officers and Compensation" and is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2002 Annual Meeting of
Stockholders under the caption "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

   The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2002 Annual Meeting of
Stockholders under the caption "Certain Relationships and Transactions" and is
incorporated herein by reference.

                                      22

<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a) Financial Statements and Financial Statement Schedules

   The financial statements and financial statement schedules listed on the
accompanying Index to Financial Statements (see page F-1) are filed as part of
this Form 10-K.

   (b) Reports on Form 8-K

   None.

                                      23

<PAGE>

(c) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number   Description of Documents
------   ------------------------
<C>      <S>

 3.1(a)  Restated Certificate of Incorporation of the Registrant.

 3.2(a)  Restated Bylaws of the Registrant.

10.1(a)  Employment Agreement dated as of August 1, 1997 between the Company and Gary D. Owens.

10.2(a)  Employment Agreement dated as of August 1, 1997 between the Company and Michael J. Sheen.

10.3(c)  OYO Geospace Corporation 1997 Key Employee Stock Option Plan.

10.4(d)  Amendment No. 1 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
         February 2, 1998.

10.5(d)  Amendment No. 2 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
         November 16, 1998.

10.6(c)  OYO Geospace Corporation 1997 Non-Employee Director Plan.

10.7(a)  Printhead Purchase Agreement dated November 10, 1995 between the Company and OYO
         Corporation.

10.8(a)  Master Sales Agreement dated November 10, 1995 between the Company and OYO Corporation.

10.9(e)  Form of Director Indemnification Agreement.

10.10(b) Promissory Note, dated as of June 23, 1998, made by the Company payable to Ameritas Life
         Insurance Corp.

10.11(f) Asset Purchase Agreement, dated February 8, 2001, between the Company and EcoPRO Imaging
         Corporation.

10.12(f) Business Loan Agreement, dated February 16, 2001, made by and between the Company and
         Southwest Bank of Texas, N.A.

10.13(f) Promissory Note, dated February 16, 2001, made by and between the Company and Southwest Bank
         of Texas, N.A.

21.1     Subsidiaries of the Registrant.

23.1     Consent of Independent Accountants
</TABLE>
--------
(a) Incorporated by reference to the Registrant's Registration Statement on
    Form S-1 filed September 30, 1997 (Registration No. 333-36727).
(b) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
    for the quarterly period ended June 30, 1998 (File No. 001-13601).
(c) Incorporated by reference to Amendment No. 1 to the Registrant's
    Registration Statement on Form S-1 filed November 5, 1997 (Registration No.
    333-36727).
(d) Incorporated by reference to Registrant's Annual Report on Form 10-K for
    the year ended September 30, 1998 (File No. 001-13601).
(e) Incorporated by reference to Amendment No. 2 to the Registrant's
    Registration Statement on Form S-1 filed November 18, 1997 (Registration
    No. 333-36727).
(f) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
    for the quarterly period ended March 31, 2001 (File No. 001-13601).

                                      24

<PAGE>

                                  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

                                          By:
                                                    /s/   GARY D. OWENS
                                             Gary D. Owens, Chairman of the
                                                           Board
                                             President and Chief Executive
                                                          Officer

                                                     December 12, 2001

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

           Signature                    Title                   Date
           ---------                    -----                   ----

       /S/ GARY D. OWENS    Chairman of the Board         December 12, 2001
    -----------------------  President and Chief
         Gary D. Owens       Executive Officer (Principal
                              Executive Officer)

    /S/ THOMAS T. MCENTIRE  Chief Financial Officer       December 12, 2001
    -----------------------  (Principal Financial and
      Thomas T. McEntire     Accounting Officer)

        /S/ SATORU OHYA     Director                      December 12, 2001
    -----------------------
          Satoru Ohya

    /S/ KATSUHIKO KOBAYASHI Director                      December 12, 2001
    -----------------------
      Katsuhiko Kobayashi

    /S/ ERNEST M. HALL, JR. Director                      December 12, 2001
    -----------------------
      Ernest M. Hall, Jr.

     /S/ MICHAEL J. SHEEN   Director                      December 12, 2001
    -----------------------
       Michael J. Sheen

      /S/ THOMAS L. DAVIS   Director                      December 12, 2001
    -----------------------
        Thomas L. Davis

     /S/ CHARLES H. STILL   Director                      December 12, 2001
    -----------------------
       Charles H. Still



                                      25

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                         <C>
Report of Independent Accountants..........................................................  F-2
Consolidated Balance Sheets as of September 30, 2001 and 2000..............................  F-3
Consolidated Statements of Operations for the Years Ended September 30, 2001, 2000 and 1999  F-4
Consolidated Statement of Stockholders' Equity for the Years Ended September 30, 2001, 2000
 and 1999..................................................................................  F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 2001, 2000 and 1999  F-6
Notes to Consolidated Financial Statements.................................................  F-7
Report of Independent Accountants on Financial Statement Schedule.......................... F-24
Schedule II--Valuation and Qualifying Accounts............................................. F-25
</TABLE>


                                      F-1

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of OYO Geospace Corporation

   In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of OYO
Geospace Corporation and subsidiaries at September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

                                          /S/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
November 9, 2001


                                      F-2

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                     (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                        As of September 30,
                                                                                        ------------------
                                                                                          2001       2000
                                        ASSETS                                          -------    -------
<S>                                                                                     <C>        <C>
Current assets:
   Cash and cash equivalents........................................................... $   882    $ 3,989
   Trade accounts and notes receivable, net of allowance of $470 and $353..............  11,539      8,509
   Inventories.........................................................................  28,737     22,095
   Deferred income tax.................................................................   1,152      1,320
   Prepaid expenses and other..........................................................   1,299      1,778
                                                                                        -------    -------
       Total current assets............................................................  43,609     37,691
Rental equipment, net..................................................................   2,075      1,846
Property, plant and equipment, net.....................................................  20,307     19,550
Patent, net of accumulated amortization of $979 and $716...............................   2,767      3,031
Goodwill, net of accumulated amortization of $756 and $590.............................   2,008      2,173
Deferred income tax....................................................................     340        675
Other assets...........................................................................   1,982        142
                                                                                        -------    -------
       Total assets.................................................................... $73,088    $65,108
                                                                                        =======    =======
<CAPTION>

                         LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                     <C>        <C>
Current liabilities:
   Notes payable and current maturities of long-term debt.............................. $ 1,033    $   198
   Accounts payable:...................................................................
     Trade.............................................................................   4,711      5,405
     Related parties...................................................................     273        289
   Accrued expenses and other..........................................................   4,047      2,679
   Deferred revenue....................................................................   4,859         --
   Income tax payable..................................................................     235        232
                                                                                        -------    -------
       Total current liabilities.......................................................  15,158      8,803
Long-term debt.........................................................................   3,772      3,984
Deferred income tax....................................................................   1,367      1,612
                                                                                        -------    -------
       Total liabilities...............................................................  20,297     14,399
                                                                                        -------    -------
Stockholders' equity:
   Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding......      --         --
   Common stock, $.01 par value, 20,000,000 shares authorized, 5,538,580 and 5,512,713
     shares issued and oustanding......................................................      55         55
   Additional paid-in capital..........................................................  30,530     30,088
   Retained earnings...................................................................  23,213     21,875
   Accumulated other comprehensive loss................................................    (865)      (679)
   Unearned compensation-restricted stock awards.......................................    (142)      (630)
                                                                                        -------    -------
       Total stockholders' equity......................................................  52,791     50,709
                                                                                        -------    -------
       Total liabilities and stockholders' equity...................................... $73,088    $65,108
                                                                                        =======    =======
</TABLE>

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

                                      F-3

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

              (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                      Year Ended September 30,
                                                 ----------------------------------
                                                    2001        2000        1999
                                                 ----------  ----------  ----------
<S>                                              <C>         <C>         <C>
Sales........................................... $   63,618  $   53,474  $   42,031
Cost of sales...................................     42,957      39,042      25,536
                                                 ----------  ----------  ----------
Gross profit....................................     20,661      14,432      16,495
Operating expenses:
   Selling, general and administrative expenses.     12,528      10,090       9,682
   Research and development expenses............      6,277       6,146       6,246
                                                 ----------  ----------  ----------
       Total operating expenses.................     18,805      16,236      15,928
                                                 ----------  ----------  ----------
Income (loss) from operations...................      1,856      (1,804)        567
                                                 ----------  ----------  ----------
Other income (expense):
   Interest expense.............................       (380)       (324)       (336)
   Interest income..............................        255         269         257
   Other, net...................................       (101)         96         163
                                                 ----------  ----------  ----------
       Total other income (expense), net........       (226)         41          84
                                                 ----------  ----------  ----------
Income (loss) before income taxes...............      1,630      (1,763)        651
Income tax expense (benefit)....................        292        (572)       (187)
                                                 ----------  ----------  ----------
Net income (loss)............................... $    1,338  $   (1,191) $      838
                                                 ==========  ==========  ==========
Earnings (loss) per common share:
   Basic........................................ $     0.24  $    (0.22) $     0.16
                                                 ==========  ==========  ==========
   Diluted...................................... $     0.24  $    (0.22) $     0.15
                                                 ==========  ==========  ==========
Weighted average shares outstanding:
   Basic........................................  5,489,251   5,431,901   5,384,530
                                                 ==========  ==========  ==========
   Diluted......................................  5,598,597   5,431,901   5,449,404
                                                 ==========  ==========  ==========
</TABLE>



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

                                      F-4

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

             For the years ended September 30, 2001, 2000 and 1999
                     (In thousands, except share amounts)

<TABLE>
<CAPTION>


                                                                                   Accumulated    Unearned
                                              Common Stock    Additional              Other     Compensation-
                                            -----------------  Paid-In   Retained Comprehensive  Restricted
                                             Shares    Amount  Capital   Earnings Income (Loss) Stock Awards   Total
                                            ---------  ------ ---------- -------- ------------- ------------- -------
<S>                                         <C>        <C>    <C>        <C>      <C>           <C>           <C>
Balance at September 30, 1998.............. 5,439,030   $54    $29,280   $22,228      $(509)       $(1,670)   $49,383
Comprehensive income:......................
  Net income...............................        --    --         --       838         --             --        838
  Foreign currency translation Adjustments.        --    --         --        --         53             --         53
                                                                                                              -------
  Total comprehensive income...............                                                                       891
Issuance of common stock pursuant to
 restricted stock awards...................     3,000    --         24        --         --            (24)        --
Issuance of common stock pursuant to
 Director Plan.............................     3,670    --         25        --         --             --         25
Issuance of common stock in acquisition of
 business..................................    55,659     1        585        --         --             --        586
Unearned compensation Amortization.........        --    --         --        --         --            513        513
                                            ---------   ---    -------   -------      -----        -------    -------
Balance at September 30, 1999.............. 5,501,359    55     29,914    23,066       (456)        (1,181)    51,398
Comprehensive income:
  Net loss.................................        --    --         --    (1,191)        --             --     (1,191)
  Foreign currency translation Adjustments.        --    --         --        --       (223)            --       (223)
                                                                                                              -------
  Total comprehensive loss.................                                                                    (1,414)
Issuance of common stock pursuant to
 Director Plan.............................     1,654    --         25        --         --             --         25
Termination of restricted stock grants.....    (5,000)   --        (70)       --         --             70         --
Issuance of common stock pursuant to
 exercise of options.......................    14,700    --        219        --         --             --        219
Unearned compensation Amortization.........        --    --         --        --         --            481        481
                                            ---------   ---    -------   -------      -----        -------    -------
Balance at September 30, 2000.............. 5,512,713    55     30,088    21,875       (679)          (630)    50,709
Comprehensive income:
  Net income...............................        --    --         --     1,338         --             --      1,338
  Foreign currency translation Adjustments.        --    --         --        --       (186)            --       (186)
                                                                                                              -------
  Total comprehensive income...............                                                                     1,152
Issuance of common stock pursuant to
 restricted stock awards...................       500    --          8        --         --             (8)        --
Issuance of common stock pursuant to
 Director Plan.............................       992    --         25        --         --             --         25
Termination of restricted stock grants.....    (2,725)   --        (45)       --         --             45         --
Issuance of common stock pursuant to
 exercise of options.......................    27,100    --        454        --         --             --        454
Unearned compensation Amortization.........        --    --         --        --         --            451        451
                                            ---------   ---    -------   -------      -----        -------    -------
Balance at September 30, 2001.............. 5,538,580   $55    $30,530   $23,213      $(865)       $  (142)   $52,791
                                            =========   ===    =======   =======      =====        =======    =======
</TABLE>

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

                                      F-5

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (In thousands)

<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                                 --------------------------
                                                                                   2001     2000     1999
                                                                                 --------  -------  -------
<S>                                                                              <C>       <C>      <C>
Cash flows from operating activities:
   Net income (loss)............................................................ $  1,338  $(1,191) $   838
   Adjustments to reconcile net income (loss) to net cash provided by operating
     activities:
       Deferred income tax expense..............................................      258      281      368
       Depreciation, amortization and stock-based compensation..................    4,444    4,014    4,319
       (Gain) loss on disposal of property, plant and equipment.................       (1)      90     (125)
       Bad debt expense.........................................................      214      190      488
       Effects of changes in operating assets and liabilities:
          Trade accounts and notes receivable...................................   (3,217)    (929)   4,375
          Inventories...........................................................   (6,550)    (154)    (533)
          Prepaid expenses and other assets.....................................      478     (384)     251
          Accounts payable......................................................     (926)   2,902   (3,518)
          Accrued expenses and other............................................    6,227       97   (3,233)
          Income tax payable....................................................      346      (87)    (188)
                                                                                 --------  -------  -------
              Net cash provided by operating activities.........................    2,611    4,829    3,042
                                                                                 --------  -------  -------
Cash flows from investing activities:
   Proceeds from the sales of property, plant and equipment.....................      286       83    1,625
   Capital expenditures.........................................................   (4,909)  (6,004)  (3,656)
   Business acquisitions, net of cash acquired..................................   (1,925)      --   (1,259)
                                                                                 --------  -------  -------
              Net cash used in investing activities.............................   (6,548)  (5,921)  (3,290)
                                                                                 --------  -------  -------
Cash flows from financing activities:
   Increase in notes payable to banks...........................................   30,840    1,431    9,500
   Principal payments on notes payable to banks.................................  (30,217)  (1,600)  (8,036)
   Proceeds from exercise of stock options......................................      393      193       --
                                                                                 --------  -------  -------
              Net cash provided by financing activities.........................    1,016       24    1,464
                                                                                 --------  -------  -------
Effect of exchange rate changes on cash.........................................     (186)    (223)      94
                                                                                 --------  -------  -------
Increase (decrease) in cash and cash equivalents................................   (3,107)  (1,291)   1,310
Cash and cash equivalents, beginning of period..................................    3,989    5,280    3,970
                                                                                 --------  -------  -------
Cash and cash equivalents, end of period........................................ $    882  $ 3,989  $ 5,280
                                                                                 ========  =======  =======
</TABLE>

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

                                      F-6

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              (In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies:

  The Company

   OYO Geospace Corporation ("OYO") designs, manufactures and distributes
instruments and equipment used primarily in the acquisition and processing of
seismic data for the oil and gas industry. OYO also manufactures and
distributes to distributors in the commercial graphics industry. As of
September 30, 2001, OYO Corporation U.S.A. ("OYO USA" or "Parent") owned
approximately 51.7% of OYO's common stock. OYO USA is a wholly owned subsidiary
of OYO Corporation, a Japanese corporation ("OYO Japan").

   OYO and its subsidiaries are referred to collectively as the "Company". The
significant accounting policies followed by the Company are summarized below.

  Basis of Presentation

   The accompanying financial statements present the consolidated financial
position, results of operations and cash flows of the Company in accordance
with generally accepted accounting principles. Significant intercompany
balances and transactions have been eliminated.

  Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  Cash and Cash Equivalents

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

  Concentrations of Credit Risk

   The Company maintains its cash in bank deposit accounts that, at times,
exceed federally insured limits. Management believes that the financial
strength of the financial institutions that hold such deposits minimizes the
credit risk of such deposits.

   The Company sells products to customers throughout the United States and
various foreign countries. The Company's normal credit terms for trade
receivables are 30 days. In certain situations, credit terms may be extended to
60 days or longer. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for its trade receivables.
Additionally, the Company provides long-term financing in the form of
promissory notes when competitive conditions require such financing. In such
cases, the Company may require collateral. Allowances are maintained for
potential credit losses.

  Inventories

   Inventories are stated at the lower of cost (as determined by the first-in,
first-out method) or market. A single company is the sole supplier of a key
component of the Company's wide-body thermal plotters. A single company is the
primary supplier of dry thermal film used in the Company's thermal imagers.

                                      F-7

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Property, Plant and Equipment and Rental Equipment

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

<TABLE>
<CAPTION>
                               Years
-                              -----
<S>                            <C>
Rental equipment..............  3-5
Property, plant and equipment:
   Machinery and equipment.... 3-15
   Buildings..................   25
   Other...................... 5-10
</TABLE>

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

  Revenue Recognition

   Revenue is primarily derived from the sale, and short-term rental under
operating lease, of seismic instruments and equipment. Revenue is recognized
when the products are shipped and title and risk of loss have passed to the
customer or when rentals occur. Short-term rentals comprised less than 10% of
revenues for fiscal 2001, 2000 and 1999. Revenue from services is recognized
when such services are rendered. The Company has embarked on a long-term
project to develop a deepwater seabed seismic array. The Company recognizes
revenue when such long-term projects are completed and placed in-service;
therefore, progress payments are classified as deferred revenue.

  Foreign Currency Gains and Losses

   The assets and liabilities of foreign subsidiaries have been translated into
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations have been translated using the average exchange rates
during the year. Resulting translation adjustments have been recorded as a
component of accumulated other comprehensive loss in stockholders' equity.
Foreign currency transaction gains and losses are included in the results of
operations as they occur.

  Income Taxes

   The Company follows the liability method of accounting for income taxes
whereby deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company provides a
valuation allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.

  Research and Development Costs

   Research and development costs are expensed as incurred.

  Patent

   A patent acquired in a business acquisition is being amortized using the
straight-line method over the estimated life of 15 years.

                                      F-8

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Goodwill

   Goodwill represents the excess of the purchase price of purchased businesses
over the estimated fair value of the acquired business' net assets. Goodwill is
amortized using the straight-line method over 15 years. The Company reviews the
carrying value of goodwill and other long-lived assets to determine whether
there has been an impairment since the date of acquisition by comparing the
book value of those assets to the anticipated future undiscounted cash flows of
those businesses or transactions which gave rise to the assets. If such
undiscounted cash flows are less than the book value of the assets, such assets
are written down to fair value.

  Product Warranties

   The Company sells products under warranties generally ranging from one to
three years. The estimated future cost under existing warranties has been
provided for in the accompanying financial statements.

  Stock-Based Compensation

   The Company measures compensation expense related to stock-based employee
compensation plans using the intrinsic value method as prescribed in Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees". Accordingly, compensation cost for stock-based awards is measured
as the excess, if any, of the fair market value of the Company's stock at the
date of grant over the exercise price of the award. Compensation cost
determined at the grant date is recognized as expense over the related vesting
period.

  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 judgement 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,
accounts payable and long-term debt, approximate the fair values of such items.

  Derivatives

   Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS
No. 137 and SFAS No. 138, was issued by the Financial Accounting Standards
Board in June 1998. SFAS 133 requires the Company to record all derivatives on
the balance sheet at fair value. Changes in derivative fair values will either
be recognized in earnings as offsets to the changes in fair value of related
hedged assets, liabilities and firm commitments or for forecasted transactions,
deferred and recorded as a component of accumulated other comprehensive income
until the hedged transactions occur and are recognized in earnings. The Company
purchases printheads from OYO Japan whereby such purchases are denominated in
Japanese Yen. The Company routinely attempts to hedge its currency exposure on
these purchases by entering into foreign currency forward contracts with a
bank. The purpose of entering into these forward hedge contracts is to
eliminate variability of cash flows associated with foreign currency exposure
risk on amounts payable in Japanese Yen. Under SFAS No. 133 and related
interpretations, the Company's forward contracts with the bank are considered
derivatives. SFAS No. 133, which is effective for the Company's fiscal year
2001, requires that the Company record these foreign currency forward contracts
on the balance sheet and mark them to fair value at each reporting date.
Resulting gains and losses are reflected in income and were not material for
the fiscal year ended September 30, 2001.

                                      F-9

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Reclassification

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

  Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed annually for impairment; reviews may be more frequent if impairment is
indicated. Intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives; however, no maximum life
applies. The Company will adopt the provisions of SFAS 142 effective October 1,
2002. The total amount of goodwill, net of amortization, at September 30, 2001
was $2.0 million.

2. Acquisitions:

   On February 8, 2001, the Company acquired the operating assets and business
of EcoPRO Imaging Corporation ("EcoPRO") from Labelon Corporation ("Labelon")
for $1.9 million. Furthermore, the Company entered into a three-year global dry
thermal film and distribution alliance with Labelon, the prior owner of EcoPRO.

   On November 30, 1998, the Company acquired substantially all of the assets
of LTI, Inc. and its Canadian subsidiary (together, "LTI") for approximately
$1.8 million. In connection with that acquisition, the Company issued 55,659
shares of its common stock valued at $0.6 million and paid approximately $1.3
million of cash. The operations of LTI included the design and manufacture of
land and marine seismic connectors, which were combined with the Company's
existing seismic connector manufacturing operations.

   The allocation of the purchase price, including related direct costs, and a
reconciliation of the purchase price to the cash used for business acquisitions
is as follows (in thousands):

<TABLE>
<CAPTION>
                                                         EcoPRO    LTI
                                                         ------  -------
<S>                                                      <C>     <C>
Fair values of assets and liabilities:
   Net current assets................................... $  501  $ 1,907
   Property, plant and equipment........................     --      483
   Goodwill.............................................     --    1,348
   Deferred purchasing benefits.........................  1,640       --
   Accounts payable.....................................   (216)      --
   Long-term debt.......................................     --   (1,893)
                                                         ------  -------
       Total allocated purchase price...................  1,925    1,845
Less noncash consideration--common stock issued.........     --     (586)
                                                         ------  -------
Cash used for business acquisition, net of cash acquired $1,925  $ 1,259
                                                         ======  =======
</TABLE>

   The consolidated results of operations of the Company include the results of
acquired businesses from the dates of acquisition. The revenues and net income
of acquired businesses prior to the acquisition dates were not material to the
Company's consolidated results of operations and, therefore, no proforma
results of operations as if the acquisitions had occurred at the beginning of
the respective years has been presented.

                                     F-10

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Inventories:

   Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                 As of September 30,
                 -------------------
                   2001      2000
                  -------   -------
<S>              <C>       <C>
Finished goods.. $ 3,649   $ 2,900
Work-in-progress   9,653     2,708
Raw materials...  15,435    16,487
                  -------   -------
                 $28,737   $22,095
                  =======   =======
</TABLE>

   The Company has received a large order and strong indications of interest
for additional orders from customers to deliver deepwater reservoir
characterization systems. Such orders and indications have a combined sales
price of approximately $24 million. The scheduled delivery for these orders and
indications is the spring and early summer of 2002. To date, these orders and
indications have not been formalized into written definitive contracts. In the
case of the large order, the Company has been operating on the assumption that
its agreements are reflected in a letter of intent and numerous subsequent
exchanges of communication, and has received a substantial progress payment on
the order. Because the Company has not formalized this order into a single,
definitive written contract, it faces the risk that any disputes arising out of
the order will be resolved in a manner and with a reference to terms that it
did not agree to and which are unfavorable to the Company. The Company is not
aware of any disputes or basis for any dispute at this time.

   Because of the scale and nature of these projects, there may be delays in
their implementation and uncertainties about their final course. As a result,
the Company is unable at present to predict the impact of such projects on its
business and financial results and condition. The Company continues to believe,
however, that its reservoir characterization systems, including the systems
related to this matter, are important new technologies in its industry and will
be important to its success in the future.

   At September 30, 2001, the Company capitalized inventory work-in-process
costs of $7.2 million in connection with these orders and indications. The
Company received a $4.9 million progress payment from the customer in
connection with the large order, which payment is classified as deferred
revenues on its balance sheet.

   The terms of the large order require the customer to make periodic cash
payments to the Company during various phases of the project. Significant
payments, which the Company expects to receive after installation of the system
in the summer of 2002 are potentially refundable to the customer if the system
significantly fails to perform its intended function. Generally accepted
accounting principles require the Company to recognize revenues only upon the
customer's acceptance of the system. As a result, if the system performs its
intended function for the agreed-upon term, a significant amount of revenues
from this order will be deferred to future accounting periods. If the system
significantly fails to perform its intended function, however, the Company may
forfeit the refundable cash payments specified above.

4. Notes Receivable:

   At September 30, 2001 and 2000, the Company had outstanding notes receivable
from customers in the amount of $2.8 million and $0.6 million, respectively. At
September 30, 2001, $2.4 million is included in current trade accounts and
notes receivable and $0.4 million is included in other assets. The notes
receivable outstanding at September 30, 2001, bear interest at rates up to
11.5% and are collectible in monthly installments through December 2002. At
September 30, 2001 and 2000, the reported amount of notes receivable was net of
an allowance for doubtful accounts of zero and $36,000, respectively.

                                     F-11

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Rental Equipment:

   Rental equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                               As of September 30,
                               ------------------
                                 2001       2000
                               -------    -------
<S>                            <C>        <C>
Geophones and related products $ 6,445    $ 5,562
Less accumulated depreciation.  (4,370)    (3,716)
                               -------    -------
                               $ 2,075    $ 1,846
                               =======    =======
</TABLE>

6. Property, Plant and Equipment:

   Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                         As of September 30,
                         ------------------
                           2001      2000
                         --------   -------
<S>                      <C>        <C>
Land.................... $  1,877   $ 2,123
Buildings...............    8,550     8,545
Machinery and equipment.   15,214    11,817
Furniture and fixtures..    1,729     1,707
Transportation equipment      185       182
Tools and molds.........    1,703     1,671
Leasehold improvements..    1,054       860
Construction in progress    1,659     2,142
                         --------   -------
                           31,971    29,047
Accumulated depreciation  (11,664)   (9,497)
                         --------   -------
                         $ 20,307   $19,550
                         ========   =======
</TABLE>

   Depreciation expense was $3.6 million, $3.1 million and $3.4 million,
respectively, in fiscal years 2001, 2000 and 1999.

7. Other Assets:

   In connection with the acquisition of EcoPRO, the Company received deferred
purchasing benefits valued at approximately $1.6 million. These deferred
purchasing benefits primarily represent discounts on future film purchases from
Labelon. The Company recognizes these benefits as it and other film
distributors purchase dry thermal film from Labelon. The balance of the
deferred purchasing benefits at September 30, 2001 was $1.4 million.

                                     F-12

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Notes Payable and Long-Term Debt:

   Notes payable and long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                     As of
                                                                                 September 30,
                                                                                ---------------
                                                                                 2001     2000
                                                                                -------  ------
<S>                                                                             <C>      <C>
Mortgage note payable, due in monthly installments of $31 with interest at 7.0%
  through January 2014, collateralized by certain land and building............ $ 3,112  $3,266
Mortgage note payable, due in monthly installments of $9 with interest at 7.6%
  through July 2013, collateralized by certain land and building...............     872     916
Working capital line of credit.................................................     821      --
                                                                                -------  ------
                                                                                  4,805   4,182
Less current portion...........................................................  (1,033)   (198)
                                                                                -------  ------
                                                                                $ 3,772  $3,984
                                                                                =======  ======
</TABLE>

   The Company has a working capital line of credit under which it is able to
borrow up to $10.0 million secured by accounts receivable and inventory (the
"Credit Agreement"). The Credit Agreement expires in February 2002. Borrowings
under the Credit Agreement are subject to borrowing base restrictions based on
(i) consolidated net income plus consolidated interest expense, income taxes,
depreciation and amortization and (ii) levels of eligible accounts receivable
and inventories. The Credit Agreement limits additional indebtedness, requires
the maintenance of certain financial amounts and contains other covenants
customary in agreements of this type. As of September 30, 2001 there were
borrowings of $0.8 million outstanding under the Credit Agreement, and
additional borrowings available under the Credit Agreement of $6.9 million.
Subsequent to September 30, 2001, borrowings under the Credit Agreement have
reached $8.0 million. Such additional borrowings resulted from the repayment of
intercompany advances to foreign subsidiaries, issuance of trade notes
receivable, the incurrence of costs to develop a deepwater reservoir
characterizations system, and the funding of general working capital needs. The
borrowing interest rate at September 30, 2001 was 6.0%. The Company is seeking
to extend the credit facility with the existing lender and expects to do so,
but has no assurances that it will be able to do so.

   The Company's long-term debt will mature as follows (in thousands):

<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S>           <C>
 2002........ $1,033
 2003........    228
 2004........    244
 2005........    263
 2006........    282
 Thereafter..  2,755
              ------
              $4,805
              ======
</TABLE>

                                     F-13

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Accrued Expenses and Other:

   Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                As of
                            September 30,
                            -------------
                             2001   2000
                            ------ ------
<S>                         <C>    <C>
Employee bonuses........... $  683 $   89
Product warranty...........    390    342
Compensated absences.......    590    489
Legal and professional fees    295    376
Payroll....................    220    211
Property taxes.............    626    552
Accrued medical claims.....    236     --
Other......................  1,007    620
                            ------ ------
Accrued expenses and other. $4,047 $2,679
                            ====== ======
</TABLE>

   The Company is self-insured for certain losses related to employee medical
claims. The Company has purchased stop-loss coverage in order to limit its
exposure to any significant levels of employee medical claims. Self-insured
losses are accrued based on the Company's estimates of aggregate liability for
uninsured claims incurred using certain actuarial assumptions followed in the
insurance industry and the Company's historical experience.

10. Employee Benefits:

   The Company's employees are participants in the OYO Geospace Corporation
Employee's 401(k) Retirement Plan (the "Plan"), which covers substantially all
eligible employees in the United States. The Plan is a qualified salary
reduction plan in which all eligible participants may elect to have a
percentage of their compensation contributed to the Plan, subject to certain
guidelines issued by the Internal Revenue Service. The Company's share of
discretionary matching contributions was approximately $0.3 million in each of
fiscal years 2001, 2000 and 1999.

11. Stockholders' Equity:

   In September 1997, the board of directors approved the 1997 Key Employee
Stock Option Plan, as amended, (the "Employee Plan") and reserved an aggregate
of 875,000 shares for issuance thereunder. In November 1997, the board of
directors and stockholders approved the Company's 1997 Non-Employee Director
Plan (the "Director Plan") and reserved an aggregate of 75,000 shares for
issuance thereunder. At September 30, 2001 the shares available for grant under
the Employee Plan and Director Plan were 232,900 and 29,974, respectively.

   Under the Employee Plan, the Company is authorized to issue nonqualified and
incentive stock options to purchase common stock and restricted stock awards of
common stock to key employees of the Company. Options have a term not to exceed
ten years, with the exception of incentive stock options granted to employees
owning ten percent or more of the outstanding shares of common stock, which
have a term not to exceed five years. The exercise price of any option may not
be less than the fair market value of the common stock on the date of grant. In
the case of incentive stock options granted to an employee owning ten percent
or more of the outstanding shares of common stock, the exercise price of such
option may not be less than 110% of the fair

                                     F-14

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

market value of the common stock on the date of grant. Options vest over a
four-year period commencing on the date of grant in 25% annual increments.
Under the Employee Plan, the Company may issue shares of restricted stock to
employees for no payment by the employee or for a payment below the fair market
value on the date of grant. The restricted stock is subject to certain
restrictions described in the Employee Plan, with no restrictions continuing
for more than ten years from the date of the award.

   The Company established the Director Plan, pursuant to which options to
purchase shares of common stock are granted annually to non-employee directors
and pursuant to which one-half of the annual fees paid for the services of such
non-employee directors is paid in shares of common stock based on the fair
market value thereof at the date of grant. Options granted under the Director
Plan have a term of ten years. The exercise price of each option granted is the
fair market value of the common stock on the date of grant. Options vest over a
one-year period commencing on the date of grant.

   Effective November 5, 1999, the board of directors approved the OYO Geospace
Corporation 1999 Broad-Based Option Plan (the "Broad-Based Plan") and reserved
an aggregate of 50,000 shares for issuance thereunder. Under the Broad-Based
Plan, the Company is authorized to issue to all employees (except executive
officers and employee directors) nonqualified stock options to purchase common
stock of the Company. These options have a term not to exceed ten years. The
exercise price of any broad-based option may not be less than the fair market
value of the common stock on the date of grant. These options vest over a
one-year period commencing on the date of grant. There were 4,900 options
available for grant under this plan at September 30, 2001.

   A summary of the activity with respect to stock options is as follows:

<TABLE>
<CAPTION>
                                           Weighted
                                           Average
                                           Exercise
                                  Shares    Price
                                  -------  --------
<S>                               <C>      <C>
Outstanding at October 1, 1998... 307,000   $16.04
   Granted....................... 105,900    10.66
   Exercised.....................      --       --
   Forfeited..................... (21,750)   17.10
   Expired.......................      --       --
                                  -------
Outstanding at September 30, 1999 391,150    14.56
   Granted....................... 152,600    14.45
   Exercised..................... (14,700)   13.11
   Forfeited..................... (29,000)   13.43
   Expired....................... (10,350)   14.66
                                  -------
Outstanding at September 30, 2000 489,700    14.64
   Granted....................... 118,600    18.96
   Exercised..................... (27,000)   14.49
   Forfeited..................... (22,775)   17.96
   Expired.......................      --       --
                                  -------
Outstanding at September 30, 2001 558,525    15.43
                                  =======
</TABLE>

                                     F-15

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following table summarizes information about stock options outstanding
and exercisable at September 30, 2001:

<TABLE>
<CAPTION>
                                  Options Outstanding            Options Exercisable
                        --------------------------------------- ----------------------
                                Weighted Average    Weighted               Weighted
                                   Remaining        Average                Average
Range of Exercise Price Shares  Term (in years)  Exercise Price Shares  Exercise Price
----------------------- ------- ---------------- -------------- ------- --------------
<S>                     <C>     <C>              <C>            <C>     <C>
   $ 6.81 to $13.49....  77,350       7.63           $ 9.53      46,150     $ 9.60
   $13.50 to $20.00.... 447,475       7.38            15.69     217,950      15.12
   $20.01 to $27.63....  33,700       7.98            25.51      15,300      26.97
                        -------                                 -------
                        558,525       7.45            15.43     279,400      14.86
                        =======                                 =======
</TABLE>

   The Company granted 500 shares, zero shares and 3,000 shares of restricted
stock during fiscal years 2001, 2000 and 1999, respectively. The Company issued
992 shares, 1,654 shares and 3,670 shares of common stock to directors during
fiscal years 2001, 2000 and 1999, respectively as partial compensation for
services. The annual director compensation was $25,000 each of fiscal years
2001, 2000 and 1999.

   The amortization of unearned compensation related to stock-based employee
compensation included in the results of operations was $0.5 million for each of
fiscal years 2001, 2000 and 1999, pursuant to the provisions of APB 25.
Unearned compensation included in stockholders' equity related to unlapsed
restrictions on grants of restricted stock was approximately $0.1 million and
$0.6 million as of September 30, 2001 and 2000, respectively.

   Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") requires that stock-based awards be
measured and recognized at fair value. Adoption of the cost recognition
provisions of SFAS 123 with respect to stock-based awards to employees is
optional and the Company decided not to elect those provisions. As a result,
the Company continues to apply APB 25 and related interpretations in accounting
for the measurement and recognition of its employee stock-based awards.
However, the Company is required to provide pro forma disclosure as if the cost
recognition provisions of SFAS 123 had been adopted. Under SFAS 123,
compensation cost is measured at the grant date based on the fair value of the
awards and is recognized over the service period, which is usually the vesting
period. The fair value of options granted during the fiscal years ended
September 30, 2001, 2000 and 1999 were estimated using the Black-Scholes
option-pricing model with a dividend yield of zero for each of the three years.
This estimation assumed risk-free interest rates of 5.6%, 6.0% and 5.0%; and
expected volatility of 43%, 38% and 38%; with an expected option term of 5
years for 2001, 2000, 1999, respectively.

   The per share weighted average fair values of stock-based award grants were
as follows:

<TABLE>
<CAPTION>
                        Year Ended September 30,
                        ------------------------
                          2001    2000    1999
                         ------  ------  ------
<S>                     <C>      <C>     <C>
Options................ $ 8.60   $ 6.34  $ 4.51
Restricted stock.......  16.00       --   10.69
Director's common stock  25.25    15.13    6.81
</TABLE>

                                     F-16

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The pro forma disclosures as if the Company had adopted the cost recognition
requirements of SFAS 123 are presented below (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                          Year Ended September 30,
                                          ------------------------
                                           2001      2000    1999
                                          ------   -------  -----
<S>                                       <C>      <C>      <C>
Net income (loss):
   As reported........................... $1,338   $(1,191) $ 838
   Pro forma.............................    387    (1,883)   327
Basic earnings (loss) per common share:
   As reported........................... $ 0.24   $ (0.22) $0.16
   Pro forma.............................   0.07     (0.35)  0.06
Diluted earnings (loss) per common share:
   As reported........................... $ 0.24   $ (0.22) $0.15
   Pro forma.............................   0.07     (0.35)  0.06
</TABLE>

   The effects of applying SFAS 123 in the above pro forma disclosure are not
indicative of future amounts since the Company anticipates making awards in the
future under the Employee and Director Plans.

12. Income Taxes:

   Components of income before income taxes were as follows (in thousands):

<TABLE>
<CAPTION>
              Year Ended September 30,
              ------------------------
                2001      2000   1999
               ------   -------  ----
<S>           <C>       <C>      <C>
United States $1,290    $(2,716) $448
Foreign......    340        953   203
               ------   -------  ----
              $1,630    $(1,763) $651
               ======   =======  ====
</TABLE>

   The provision (benefit) for income taxes consisted of the following (in
thousands):

<TABLE>
<CAPTION>
            Year Ended September 30,
            -----------------------
            2001       2000    1999
            ----     -------  -----
<S>         <C>      <C>      <C>
Current:
   Federal. $ 85     $(1,075) $(560)
   Foreign.  (54)        116      5
   State...    3         106     --
            ----     -------  -----
              34        (853)  (555)
            ----     -------  -----
Deferred:
   Federal.   11          28    279
   Foreign.  247         228     89
   State...   --          25     --
            ----     -------  -----
             258         281    368
            ----     -------  -----
            $292     $  (572) $(187)
            ====     =======  =====
</TABLE>

                                     F-17

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The differences between the effective tax rate reflected in the total
provision (benefit) for income taxes and the statutory federal tax rate of 34%
were as follows (in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended September 30,
                                                        ----------------------
                                                        2001    2000     1999
                                                        -----  ------   ------
<S>                                                     <C>    <C>      <C>
Provision for U.S. federal income tax at statutory rate $ 555  $ (598)  $  221
Effect of foreign income taxes.........................    78      21       25
Tax benefit from use of foreign sales corporation......  (172)    (59)    (159)
State income taxes, net of federal income tax benefit..     2      94       --
Nondeductible expenses.................................    66      45       38
Resolution of prior years' tax matters.................  (264)    (75)    (312)
Other, net.............................................    27      --       --
                                                        -----  ------   ------
                                                        $ 292  $ (572)  $ (187)
                                                        =====  ======   ======
                                                         17.9%  (32.5)%  (28.7)%
                                                        =====  ======   ======
</TABLE>

   Deferred income taxes under the liability method reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred income tax asset were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                           As of September 30,
                                                           ------------------
                                                             2001       2000
                                                           -------    -------
<S>                                                        <C>        <C>
Deferred income tax assets:
   Allowance for doubtful accounts........................ $   136    $   110
   Inventory..............................................     683        911
   AMT carryforward.......................................      87        175
   Accrued product warranty...............................     133        123
   Accrued compensated absences...........................     201        176
   Net foreign operating loss carryforwards and deferrals.     252        500
                                                           -------    -------
                                                             1,492      1,995
Deferred income tax liabilities:
   Property, plant and equipment and other................  (1,367)    (1,612)
                                                           -------    -------
Net deferred income tax asset............................. $   125    $   383
                                                           =======    =======
</TABLE>

   Deferred income taxes are reported as follows in the accompanying
consolidated balance sheet (in thousands):

<TABLE>
<CAPTION>
                                     As of September 30,
                                     ------------------
                                       2001       2000
                                     -------    -------
<S>                                  <C>        <C>
Current deferred income tax asset... $ 1,152    $ 1,320
Noncurrent deferred income tax asset     340        675
Noncurrent deferred tax liability...  (1,367)    (1,612)
                                     -------    -------
                                     $   125    $   383
                                     =======    =======
</TABLE>

                                     F-18

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical taxable income record, and
the expectation that the deductible temporary differences will reverse during
periods in which the Company generates net taxable income or during periods in
which losses can be carried back to offset prior year taxes, management
believes that the Company will realize the benefit of the net deferred income
tax asset after consideration of the valuation allowance.

   As of September 30, 2001, the Company had foreign net operating loss
carryforwards of approximately $4,000 and deferred tax assets of approximately
$248,000.

   The financial reporting bases of investments in foreign subsidiaries exceed
their tax basis. A deferred tax liability is not recorded for this temporary
difference because the investment is essentially permanent. A reversal of the
Company's plans to permanently invest in the operations would cause the excess
to become taxable. At September 30, 2001 and 2000, the temporary difference
related to undistributed earnings for which no deferred taxes have been
provided was approximately $2.4 million and $2.2 million, respectively.

13. Earnings Per Common Share:

   Basic earnings per share are computed by dividing net earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is determined on the assumption
that outstanding dilutive stock options have been exercised and the aggregate
proceeds as defined were used to reacquire common stock using the average price
of such common stock for the period.

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

<TABLE>
<CAPTION>
                                                                      Year Ended September 30,
-                                                                 ---------------------------------
                                                                     2001       2000        1999
                                                                  ---------- ----------  ----------
<S>                                                               <C>        <C>         <C>
Net earnings (loss) available to common stockholders............. $    1,338 $   (1,191) $      838
                                                                  ========== ==========  ==========
Weighted average common shares and common share equivalents:.....
   Common shares.................................................  5,489,251  5,431,901   5,384,530
   Common share equivalents......................................    109,346         --      64,874
                                                                  ---------- ----------  ----------
Total weighted average common shares and common share equivalents  5,598,597  5,431,901   5,449,404
                                                                  ========== ==========  ==========
Basic earnings (loss) per common share........................... $     0.24 $    (0.22) $     0.16
                                                                  ========== ==========  ==========
Diluted earnings (loss) per common share......................... $     0.24 $    (0.22) $     0.15
                                                                  ========== ==========  ==========
</TABLE>

   Options on 33,700, 100,300 and 328,550 shares of common stock in fiscal
years 2001, 2000 and 1999, respectively, were not included in the calculation
of weighted average shares for diluted earnings per share because their effects
were antidilutive.

                                     F-19

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Related Party Transactions:

   Sales to OYO Japan and other affiliated companies were approximately $0.2
million, $0.3 million and $0.3 million during fiscal years 2001, 2000 and 1999,
respectively. Purchases of inventory and equipment from OYO Japan were
approximately $1.7 million, $4.2 million and $2.7 million during fiscal years
2001, 2000 and 1999, respectively.

15. Commitments and Contingencies:

  Operating Leases

   The Company leases certain office space and equipment under noncancelable
operating leases. The approximate future minimum rental commitments under
noncancelable operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S>           <C>
    2002..... $  690
    2003.....    470
    2004.....     95
              ------
              $1,255
              ======
</TABLE>

   Rent expense was approximately $0.6 million, $0.5 million, and $0.5 million
for fiscal years 2001, 2000 and 1999, respectively.

  Legal Proceedings

   From time to time the Company is a party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary
course of its business. The Company is not aware of any current or pending
litigation or proceedings that could have a material adverse effect on the
Company's results of operations, cash flows or financial condition.

16. Supplemental Cash Flow Information:

   Supplemental cash flow information was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   Year Ended
                                                                 September 30,
                                                               ------------------
                                                                2001    2000 1999
                                                               -------  ---- ----
<S>                                                            <C>      <C>  <C>
Cash paid (refund received) for:
   Interest................................................... $   378  $305 $332
   Income taxes...............................................  (1,148)  360  143
Noncash investing and financing activities:
   Common stock issued in business acquisitions...............      --    --  586
   Common stock issued pursuant to Employee and Director Plan.      25    25   49
</TABLE>

                                     F-20

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

17. Segment and Geographic Information:

   The acquisition of EcoPRO in February 2001 expanded the Company's worldwide
distribution of products for the commercial graphics industry. As a result, the
Company has begun reporting information for two business segments: Seismic and
Commercial Graphics. In April 2001, the Company announced a reorganization of
its European subsidiary; thereby shifting the marketing emphasis from its
seismic products to the growing acceptance of its commercial graphics products.
As a result, the Company now includes this subsidiary within its Commercial
Graphics business segment. The Commercial Graphics business segment primarily
sells products for the commercial graphics industry; however, it also has some
minor sales of seismic products.

   The Company's seismic product lines currently consist of geophones and
hydrophones, including multi-component geophones and hydrophones, seismic
leader wire, geophone string connectors, seismic telemetry cable, high
definition reservoir characterization products and services, marine seismic
cable retrieval devices and small data acquisition systems targeted at niche
markets. Commercial graphics products include thermal imaging equipment and dry
thermal film. The following tables summarize the Company's segment information:

<TABLE>
<CAPTION>
                                Year Ended September 30,
                               -------------------------
                                2001     2000     1999
                               -------  -------  -------
<S>                            <C>      <C>      <C>
Net sales:
   Seismic.................... $50,061  $39,161  $27,532
   Commercial Graphics........  13,557   14,313   14,499
                               -------  -------  -------
       Total..................  63,618   53,474   42,031
                               -------  -------  -------
Income (loss) from operations:
   Seismic....................   5,381      543    1,947
   Commercial Graphics........      27      770    1,684
   Corporate..................  (3,552)  (3,117)  (3,064)
                               -------  -------  -------
       Total..................   1,856   (1,804)     567
                               -------  -------  -------
Total assets:
   Seismic....................  56,968   44,644
   Commercial Graphics........  11,059   11,820
   Corporate..................   5,061    8,644
                               -------  -------
       Total.................. $73,088  $65,108
                               =======  =======
</TABLE>

   The Company has operations in the United States, Canada and United Kingdom.
Summaries of net sales by geographic area for fiscal years 2001, 2000 and 1999
are as follows (in thousands):

<TABLE>
<CAPTION>
                                       Year Ended September 30,
                                       ------------------------
                                         2001    2000    1999
                                       -------  ------- -------
<S>                                    <C>      <C>     <C>
Asia (excluding Japan and Middle East) $10,005  $ 1,593 $ 3,515
Canada................................  11,697   15,030   3,339
Europe................................  11,768   12,341  14,171
Japan.................................     948      722     470
Middle East...........................     605    5,971     103
United States.........................  27,507   16,739  19,452
Other.................................   1,088    1,078     981
                                       -------  ------- -------
                                       $63,618  $53,474 $42,031
                                       =======  ======= =======
</TABLE>

                                     F-21

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Net sales are attributed to countries based on the ultimate destination of
the product sold, if known. If the ultimate destination is not known, sales are
attributed to countries based on the geographic location of the initial
shipment. Sales information for the Company's U.S. domestic and foreign
subsidiaries is as follows (in thousands):

<TABLE>
<CAPTION>
                Year Ended September 30,
               -------------------------
                2001     2000     1999
               -------  -------  -------
<S>            <C>      <C>      <C>
United States. $62,348  $51,740  $40,662
Canada........   6,715    7,512    1,738
United Kingdom   2,583    2,254    2,804
Eliminations..  (8,028)  (8,032)  (3,173)
               -------  -------  -------
               $63,618  $53,474  $42,031
               =======  =======  =======
</TABLE>

   Long-lived assets were as follows (in thousands):

<TABLE>
<CAPTION>
               As of September 30,
               -------------------
                 2001      2000
                -------   -------
<S>            <C>       <C>
United States. $25,630   $23,809
Canada........   2,950     3,049
United Kingdom     519       559
                -------   -------
               $29,099   $27,417
                =======   =======
</TABLE>

   The Company had no individual customers comprising more than 10% of annual
sales for fiscal year 2001 or fiscal year 1999. The Company had two customers
with individual sales of 15% and 13%, respectively, of total annual sales for
fiscal year 2000.

18. Subsequent Events:

   Effective November 8, 2001 the Company restructured its participation in a
Russian joint venture formed more than ten years ago with Geophyspribor Ufa
Production Association, Bank Vostock and Chori Co., Ltd. As part of the
restructuring, the Company increased its equity ownership in the joint venture
from 44% to 85%. The future operating results of the reorganized entity, now
known as OYO-GEO Impulse International LLC, will be consolidated with those the
Company. Geophyspribor Ufa Production Association and Chori Co., Ltd. will
continue as minority shareholders of the restructured entity.

   In exchange for the additional equity ownership, the Company forgave a debt
of $1.2 million owed to it by OYO-GEO Impulse. At the time of the
restructuring, the Company's basis in the receivable and related equity
investment were $0 as such items were written-off in 1994.

   Based in Ufa, Bashkortostan, Russia OYO-GEO Impulse has been in operation
since 1990 manufacturing sensors for the Russian seismic marketplace. OYO-GEO
Impulse owns a facility in Ufa containing 41,000 square feet and employs
approximately 285 people.

                                     F-22

<PAGE>

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

19. Selected Quarterly Information (Unaudited):

   The following table represents summarized data for each of the quarters in
fiscal year 2001 and 2000 (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                 2001
                                  ----------------------------------
                                  Fourth    Third   Second    First
                                  Quarter  Quarter  Quarter  Quarter
                                  -------  -------  -------  -------
<S>                               <C>      <C>      <C>      <C>
Sales............................ $15,913  $15,810  $16,928  $14,967
Gross profit.....................   4,669    5,606    5,527    4,859
Income (loss) from operations....     (69)     701      816      408
Other income (expense), net......     (85)     (63)     (56)     (22)
Net income (loss)................    (118)     628      557      271
Basic earnings (loss) per share.. $ (0.02) $  0.11  $  0.10  $  0.05
                                  =======  =======  =======  =======
Diluted earnings (loss) per share $ (0.02) $  0.11  $  0.10  $  0.05
                                  =======  =======  =======  =======
<CAPTION>
                                                 2000
                                  ----------------------------------
                                  Fourth    Third   Second    First
                                  Quarter  Quarter  Quarter  Quarter
                                  -------  -------  -------  -------
<S>                               <C>      <C>      <C>      <C>
Sales............................ $12,781  $12,935  $14,963  $12,795
Gross profit.....................   3,577    2,085    4,388    4,382
Income (loss) from operations....    (595)  (2,283)     459      615
Other income (expense), net......      99     (140)      53       29
Net income.......................    (397)  (1,622)     409      419
Basic earnings (loss) per share.. $ (0.07) $ (0.30) $  0.08  $  0.08
                                  =======  =======  =======  =======
Diluted earnings (loss) per share $ (0.07) $ (0.30) $  0.07  $  0.08
                                  =======  =======  =======  =======
</TABLE>

                                     F-23

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of OYO Geospace Corporation:

   Our audits of the consolidated financial statements referred to in our
report dated November 9, 2001 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 14(a)(2)
of this Form 10-K. In our opinion, the financial statement schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.

                                          /S/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
November 9, 2001

                                     F-24

<PAGE>

                                  SCHEDULE II

                   OYO GEOSPACE CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                                (In Thousands)

<TABLE>
<CAPTION>
                                                             Charged
                                                Balance at  (Credited)  Charged             Balance at
                                                Beginning    to Costs   to Other              End of
                                                of Period  and Expenses  Assets  Deductions   Period
                                                ---------- ------------ -------- ---------- ----------
<S>                                             <C>        <C>          <C>      <C>        <C>
Year ended September 30, 2001
Allowance for doubtful accounts on accounts and
  notes receivable.............................    $353        $214       $--      $ (97)      $470
Year ended September 30, 2000
Allowance for doubtful accounts on accounts and
  notes receivable.............................     580         190        --       (417)       353
Year ended September 30, 1999
Allowance for doubtful accounts on accounts and
  notes receivable.............................     503         488        --       (411)       580
</TABLE>

                                     F-25