##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

OR



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

Commission file number 001-13601

OYO GEOSPACE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)



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

7007 Pinemont Drive

Houston, Texas 77040-6601

(Address of Principal Executive Offices)

(713) 986-4444

(Registrants telephone number, including area code)

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

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

Large accelerated filer   ̈                    Accelerated filer  x                    Non-accelerated filer   ̈

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

There were 5,907,408 shares of the
Registrants Common Stock outstanding as of the close of business on February 4, 2008.











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##### Table of Contents

Table of Contents



|                              |  |                                                                                       |  |           
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------
|                              |  |                                                                                       |  | PageNumber
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements                                                                  |  | 3         
|                              |  |                                                                                      
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12        
|                              |  |                                                                                      
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 20        
|                              |  |                                                                                      
|Item 4.                       |  | Controls and Procedures                                                               |  | 21        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 6.                       |  | Exhibits                                                                              |  | 22        



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

OYO GEOSPACE CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                       |  |                   |         |                    |   |        
|------------------------------------------------------ |  | ----------------- | ------- | ------------------ | - | -------
|                                                       |  | December 31, 2007 |         | September 30, 2007
|                                                       |  | (unaudited)       |         |                   
|ASSETS                                                 |  |                   |         |                    |   |        
|Current assets:                                        |  |                   |         |                    |   |        
|Cash and cash equivalents                              |  | $                 | 2,560   |                    | $ | 3,013  
|Trade accounts receivable, net                         |  |                   | 21,606  |                    |   | 18,510 
|Notes receivable, net                                  |  |                   | 5,970   |                    |   | 4,712  
|Inventories, net                                       |  |                   | 52,187  |                    |   | 50,276 
|Deferred income tax                                    |  |                   | 2,607   |                    |   | 2,391  
|Prepaid expenses and other current assets              |  |                   | 2,976   |                    |   | 2,072  
|                                                       |  |                   |         |                    |   |        
|Total current assets                                   |  |                   | 87,906  |                    |   | 80,974 
|Rental equipment, net                                  |  |                   | 1,399   |                    |   | 912    
|Property, plant and equipment, net                     |  |                   | 39,632  |                    |   | 38,051 
|Patents, net                                           |  |                   | 1,236   |                    |   | 1,297  
|Goodwill                                               |  |                   | 1,843   |                    |   | 1,843  
|Deferred income tax                                    |  |                   | 496     |                    |   | 228    
|Notes receivable-noncurrent                            |  |                   | 7,270   |                    |   | 4,269  
|Other assets                                           |  |                   | 491     |                    |   | 588    
|                                                       |  |                   |         |                    |   |        
|Total assets                                           |  | $                 | 140,273 |                    | $ | 128,162
|                                                       |  |                   |         |                    |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                   |  |                   |         |                    |   |        
|Current liabilities:                                   |  |                   |         |                    |   |        
|Book overdrafts                                        |  | $                 | 82      |                    | $ |       
|Notes payable and current maturities of long-term debt |  |                   | 344     |                    |   | 322    
|Accounts payable trade                                 |  |                   | 7,305   |                    |   | 7,760  
|Accrued expenses and other current liabilities         |  |                   | 7,225   |                    |   | 10,007 
|Deferred revenue                                       |  |                   | 1,041   |                    |   | 1,668  
|Deferred income tax                                    |  |                   | 111     |                    |   | 120    
|Income tax payable                                     |  |                   | 1,611   |                    |   | 768    
|                                                       |  |                   |         |                    |   |        
|Total current liabilities                              |  |                   | 17,719  |                    |   | 20,645 
|Long-term debt net of current maturities               |  |                   | 16,309  |                    |   | 5,147  
|Deferred income tax                                    |  |                   | 361     |                    |   |       
|                                                       |  |                   |         |                    |   |        
|Total liabilities                                      |  |                   | 34,389  |                    |   | 25,792 
|                                                       |  |                   |         |                    |   |        
|Stockholders equity:                                  |  |                   |         |                    |   |        
|Preferred stock                                        |  |                   |        |                    |   |       
|Common stock                                           |  |                   | 59      |                    |   | 59     
|Additional paid-in capital                             |  |                   | 40,847  |                    |   | 40,420 
|Retained earnings                                      |  |                   | 62,939  |                    |   | 59,628 
|Accumulated other comprehensive income                 |  |                   | 2,039   |                    |   | 2,263  
|                                                       |  |                   |         |                    |   |        
|Total stockholders equity                             |  |                   | 105,884 |                    |   | 102,370
|                                                       |  |                   |         |                    |   |        
|Total liabilities and stockholders equity             |  | $                 | 140,273 |                    | $ | 128,162
|                                                       |  |                   |         |                    |   |        

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



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share
amounts)

(unaudited)



|                                              |  |                                    |           |   |                                    |   |           |  
|--------------------------------------------- |  | ---------------------------------- | --------- | - | ---------------------------------- | - | --------- | -
|                                              |  | Three MonthsEndedDecember 31, 2007 |           |   | Three MonthsEndedDecember 31, 2006 |  
|Net sales                                     |  | $                                  | 32,022    |   |                                    | $ | 44,753    |  
|Cost of sales                                 |  |                                    | 20,908    |   |                                    |   | 26,114    |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Gross profit                                  |  |                                    | 11,114    |   |                                    |   | 18,639    |  
|Operating expenses:                           |  |                                    |           |   |                                    |   |           |  
|Selling, general and administrative           |  |                                    | 4,462     |   |                                    |   | 4,539     |  
|Research and development                      |  |                                    | 2,192     |   |                                    |   | 2,395     |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Total operating expenses                      |  |                                    | 6,654     |   |                                    |   | 6,934     |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Gain on sale of assets                        |  |                                    | 354       |   |                                    |   |          |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Income from operations                        |  |                                    | 4,814     |   |                                    |   | 11,705    |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Other income (expense):                       |  |                                    |           |   |                                    |   |           |  
|Interest expense                              |  |                                    | (185      | ) |                                    |   | (111      | )
|Interest income                               |  |                                    | 272       |   |                                    |   | 126       |  
|Foreign exchange losses                       |  |                                    | (5        | ) |                                    |   | (18       | )
|Other, net                                    |  |                                    | (12       | ) |                                    |   | 13        |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Total other income, net                       |  |                                    | 70        |   |                                    |   | 10        |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Income before income taxes                    |  |                                    | 4,884     |   |                                    |   | 11,715    |  
|Income tax expense                            |  |                                    | 1,573     |   |                                    |   | 3,866     |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Net income                                    |  | $                                  | 3,311     |   |                                    | $ | 7,849     |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Basic earnings per share                      |  | $                                  | 0.56      |   |                                    | $ | 1.37      |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Diluted earnings per share                    |  | $                                  | 0.54      |   |                                    | $ | 1.30      |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Weighted average shares outstanding - Basic   |  |                                    | 5,892,828 |   |                                    |   | 5,745,440 |  
|                                              |  |                                    |           |   |                                    |   |           |  
|Weighted average shares outstanding - Diluted |  |                                    | 6,155,864 |   |                                    |   | 6,036,171 |  
|                                              |  |                                    |           |   |                                    |   |           |  

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



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                            |  |                                    |        |   |                                    |   |        |  
|------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                                                                            |  | Three MonthsEndedDecember 31, 2007 |        |   | Three MonthsEndedDecember 31, 2006 |  
|Cash flows from operating activities:                                                       |  |                                    |        |   |                                    |   |        |  
|Net income                                                                                  |  | $                                  | 3,311  |   |                                    | $ | 7,849  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                    |        |   |                                    |   |        |  
|Deferred income tax benefit                                                                 |  |                                    | (619   | ) |                                    |   | (947   | )
|Depreciation                                                                                |  |                                    | 853    |   |                                    |   | 690    |  
|Amortization                                                                                |  |                                    | 61     |   |                                    |   | 174    |  
|Stock-based compensation expense                                                            |  |                                    | 9      |   |                                    |   | 169    |  
|Inventory obsolescence reserve                                                              |  |                                    | 344    |   |                                    |   | 787    |  
|Gain on disposal of property, plant and equipment                                           |  |                                    | (354   | ) |                                    |   |       |  
|Bad debt expense (recovery)                                                                 |  |                                    | 294    |   |                                    |   | (248   | )
|Effects of changes in operating assets and liabilities:                                     |  |                                    |        |   |                                    |   |        |  
|Trade accounts and notes receivable                                                         |  |                                    | (7,648 | ) |                                    |   | 2,235  |  
|Inventories                                                                                 |  |                                    | (2,255 | ) |                                    |   | 1,977  |  
|Prepaid expenses and other assets                                                           |  |                                    | 78     |   |                                    |   | (880   | )
|Accounts payable                                                                            |  |                                    | (455   | ) |                                    |   | 1,783  |  
|Accrued expenses and other                                                                  |  |                                    | (2,516 | ) |                                    |   | 74     |  
|Deferred revenue                                                                            |  |                                    | (628   | ) |                                    |   | (7,723 | )
|Income tax payable                                                                          |  |                                    | 339    |   |                                    |   | 2,802  |  
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Net cash provided by (used in) operating activities                                         |  |                                    | (9,186 | ) |                                    |   | 8,742  |  
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Cash flows from investing activities:                                                       |  |                                    |        |   |                                    |   |        |  
|Proceeds from the sale of property, plant and equipment                                     |  |                                    | 367    |   |                                    |   |       |  
|Capital expenditures                                                                        |  |                                    | (3,287 | ) |                                    |   | (2,947 | )
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Net cash used in investing activities                                                       |  |                                    | (2,920 | ) |                                    |   | (2,947 | )
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Cash flows from financing activities:                                                       |  |                                    |        |   |                                    |   |        |  
|Change in book overdrafts                                                                   |  |                                    | 82     |   |                                    |   | (636   | )
|Borrowings under debt arrangements                                                          |  |                                    | 20,706 |   |                                    |   | 3,890  |  
|Principal payments on debt arrangements                                                     |  |                                    | (9,521 | ) |                                    |   | (6,861 | )
|Excess tax benefit from share-based compensation                                            |  |                                    | 255    |   |                                    |   | 393    |  
|Proceeds from exercise of stock options                                                     |  |                                    | 133    |   |                                    |   | 12     |  
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Net cash provided by (used in) financing activities                                         |  |                                    | 11,655 |   |                                    |   | (3,202 | )
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Effect of exchange rate changes on cash                                                     |  |                                    | (2     | ) |                                    |   | (205   | )
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Increase (decrease) in cash and cash equivalents                                            |  |                                    | (453   | ) |                                    |   | 2,388  |  
|Cash and cash equivalents, beginning of period                                              |  |                                    | 3,013  |   |                                    |   | 2,054  |  
|                                                                                            |  |                                    |        |   |                                    |   |        |  
|Cash and cash equivalents, end of period                                                    |  | $                                  | 2,560  |   |                                    | $ | 4,442  |  
|                                                                                            |  |                                    |        |   |                                    |   |        |  

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



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|1. | Significant Accounting Policies
|-- | -------------------------------

Basis of Presentation

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

Certain information and footnote disclosures
normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted. The accompanying consolidated financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended September 30, 2007.

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

Cash and Cash Equivalents

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

Inventories

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

Revenue Recognition

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



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



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



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



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



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

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



| |  |  | Whether the risks of ownership have passed to the customer,
| | - |  | -----------------------------------------------------------



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



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



| |  |  | Whether there is a fixed schedule for delivery of the product,
| | - |  | --------------------------------------------------------------



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



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



| |  |  | Whether the equipment is complete and ready for shipment.
| | - |  | ---------------------------------------------------------

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

Research and Development Costs

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



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Product Warranties

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



|                                                                             |  |   |       |  
|---------------------------------------------------------------------------- |  | - | ----- | -
|Balance at the beginning of the period (October 1, 2007)                     |  | $ | 1,111 |  
|Accruals for warranties issued during the period                             |  |   | 517   |  
|Accruals related to pre-existing warranties (including changes in estimates) |  |   |      |  
|Settlements made (in cash or in kind) during the period                      |  |   | (450  | )
|                                                                             |  |   |       |  
|Balance at the end of the period (December 31, 2007)                         |  | $ | 1,178 |  
|                                                                             |  |   |       |  

Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109, to clarify certain aspects of accounting for uncertain tax position, including issues related to the recognition and measurement of those tax positions. The Company adopted the provisions of FIN 48 as of
October 1, 2007. The adoption of FIN 48 did not have a material effect on the Companys consolidated financial statements. The Company classifies interest and penalties associated with the payment of income taxes in the Other Income
(Expense) section of its consolidated statement of operations. Tax return filings which are subject to review by local tax authorities by major jurisdiction are as follows:



| |  |  | United States  fiscal years ended September 2004, 2005, 2006 and 2007
| | - |  | ----------------------------------------------------------------------



| |  |  | State of Texas  fiscal years ended September 2003, 2004, 2005, 2006 and 2007
| | - |  | -----------------------------------------------------------------------------



| |  |  | Russian Federation  calendar years 2005, 2006 and 2007
| | - |  | -------------------------------------------------------



| |  |  | Canada  fiscal years ended September 2004, 2005, 2006 and 2007
| | - |  | ---------------------------------------------------------------

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements. Among other requirements, SFAS 157
defines fair value and establishes a framework for measuring fair value and also expands disclosure about the use of fair value to measure assets and liabilities. The Company early adopted the provisions of SFAS 157 as of October 1, 2007. The
adoption of SFAS 157 did not have a material effect on the Companys consolidated financial statements.

In February 2007, the FASB
issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. The Company early
adopted the provisions of SFAS 159 as of October 1, 2007. The adoption of SFAS 159 did not have a material effect on the Companys consolidated financial statements.



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|2. | Earnings Per Common Share
|-- | -------------------------

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



|                                                                                                     |  |                                    |           |                                    |   |          
|---------------------------------------------------------------------------------------------------- |  | ---------------------------------- | --------- | ---------------------------------- | - | ---------
|                                                                                                     |  | Three MonthsEndedDecember 31, 2007 |           | Three MonthsEndedDecember 31, 2006
|Net earnings available to common stockholders                                                        |  | $                                  | 3,311     |                                    | $ | 7,849    
|                                                                                                     |  |                                    |           |                                    |   |          
|Weighted average common shares and common share equivalents:                                         |  |                                    |           |                                    |   |          
|Common shares used in basic earnings per share                                                       |  |                                    | 5,892,828 |                                    |   | 5,745,440
|Common share equivalents                                                                             |  |                                    | 263,036   |                                    |   | 290,731  
|                                                                                                     |  |                                    |           |                                    |   |          
|Total weighted average common shares and common share equivalents used in diluted earnings per share |  |                                    | 6,155,864 |                                    |   | 6,036,171
|                                                                                                     |  |                                    |           |                                    |   |          
|Basic earnings per common share                                                                      |  | $                                  | 0.56      |                                    | $ | 1.37     
|                                                                                                     |  |                                    |           |                                    |   |          
|Diluted earnings per common share                                                                    |  | $                                  | 0.54      |                                    | $ | 1.30     
|                                                                                                     |  |                                    |           |                                    |   |          



|3. | Comprehensive Income
|-- | --------------------

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



|                                         |  |                                    |       |   |                                    |   |       |  
|---------------------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | -
|                                         |  | Three MonthsEndedDecember 31, 2007 |       |   | Three MonthsEndedDecember 31, 2006 |  
|Net income                               |  | $                                  | 3,311 |   |                                    | $ | 7,849 |  
|Foreign currency translation adjustments |  |                                    | (224  | ) |                                    |   | (15   | )
|                                         |  |                                    |       |   |                                    |   |       |  
|Total comprehensive income               |  | $                                  | 3,087 |   |                                    | $ | 7,834 |  
|                                         |  |                                    |       |   |                                    |   |       |  



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OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|4. | Trade Accounts and Notes Receivable
|-- | -----------------------------------

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



|                                |  |                   |        |   |                    |   |        |  
|------------------------------- |  | ----------------- | ------ | - | ------------------ | - | ------ | -
|                                |  | December 31, 2007 |        |   | September 30, 2007 |  
|Trade accounts receivable       |  | $                 | 22,448 |   |                    | $ | 19,059 |  
|Allowance for doubtful accounts |  |                   | (842   | ) |                    |   | (549   | )
|                                |  |                   |        |   |                    |   |        |  
|                                |  | $                 | 21,606 |   |                    | $ | 18,510 |  
|                                |  |                   |        |   |                    |   |        |  

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

At December 31, 2007 and September 30, 2007, the Companys current notes receivable was approximately $6.0 million and $4.7
million, respectively. The Companys current notes receivable at each of December 31, 2007 and September 30, 2007 were net of allowances for doubtful notes of $0.5 million. The Company also had notes receivable of approximately $7.3
million and $4.3 million classified as long-term at December 31, 2007 and September 30, 2007, respectively. Notes receivable are generally collateralized by the products sold and bear interest at rates ranging up to 11.3% per year.



|5. | Inventories
|-- | -----------

Inventories consisted of the following
(in thousands):



|                     |  |                   |        |   |                    |   |        |  
|-------------------- |  | ----------------- | ------ | - | ------------------ | - | ------ | -
|                     |  | December 31, 2007 |        |   | September 30, 2007 |  
|Finished goods       |  | $                 | 12,678 |   |                    | $ | 12,999 |  
|Work-in-process      |  |                   | 16,722 |   |                    |   | 11,603 |  
|Raw materials        |  |                   | 26,536 |   |                    |   | 29,122 |  
|Obsolescence reserve |  |                   | (3,749 | ) |                    |   | (3,448 | )
|                     |  |                   |        |   |                    |   |        |  
|                     |  | $                 | 52,187 |   |                    | $ | 50,276 |  
|                     |  |                   |        |   |                    |   |        |  

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



|6. | Segment and Geographic Information
|-- | ----------------------------------

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



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##### Table of Contents

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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



|                               |  |                                    |        |   |                                    |   |        |  
|------------------------------ |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                               |  | Three MonthsEndedDecember 31, 2007 |        |   | Three MonthsEndedDecember 31, 2006 |  
|Net sales:                     |  |                                    |        |   |                                    |   |        |  
|Seismic                        |  | $                                  | 28,572 |   |                                    | $ | 41,220 |  
|Thermal Solutions              |  |                                    | 3,283  |   |                                    |   | 3,440  |  
|Corporate                      |  |                                    | 167    |   |                                    |   | 93     |  
|                               |  |                                    |        |   |                                    |   |        |  
|Total                          |  | $                                  | 32,022 |   |                                    | $ | 44,753 |  
|                               |  |                                    |        |   |                                    |   |        |  
|Income (loss) from operations: |  |                                    |        |   |                                    |   |        |  
|Seismic                        |  | $                                  | 6,816  |   |                                    | $ | 14,446 |  
|Thermal solutions              |  |                                    | (95    | ) |                                    |   | (138   | )
|Corporate                      |  |                                    | (1,907 | ) |                                    |   | (2,603 | )
|                               |  |                                    |        |   |                                    |   |        |  
|Total                          |  | $                                  | 4,814  |   |                                    | $ | 11,705 |  
|                               |  |                                    |        |   |                                    |   |        |  



|7. | Credit Agreement
|-- | ----------------

On November 22, 2004,
several of the Companys subsidiaries entered into a credit agreement (the Credit Agreement) with a bank. Under the Credit Agreement as amended, the Companys borrower subsidiaries can borrow up to $25.0 million secured
principally by their accounts receivable, inventories and equipment. The Credit Agreement expires on January 31, 2010. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios,
restricts the Companys and the borrower subsidiaries ability to pay dividends and contains other covenants customary in agreements of this type. At December 31, 2007, there were borrowings of $12.2 million under the Credit
Agreement, $0.3 million of standby letters of credit were outstanding and additional borrowings available of $12.5 million. The Company is not subject to a borrowing base and is able to borrow the full $12.5 million subject to it remaining in
compliance with certain covenants. The Company was in compliance with all debt covenants as of December 31, 2007. The interest rate for borrowing under the Credit Agreement is, at our borrower subsidiaries option, a discounted prime rate
or a LIBOR based rate.



|8. | Income Taxes
|-- | ------------

The United States statutory tax rate
for the periods reported was 34.0%. The Companys effective tax rate for the three months ended December 31, 2007 and 2006 was 32.2% and 33.0%, respectively. The lower effective tax rates from statutory rates for each period reflect tax
benefits related to (i) lower tax rates applicable to income earned in foreign jurisdictions, (ii) the manufacturers/producers deduction, and (iii) research and experimentation tax credits for the period ended
December 31, 2007.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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

This report on Form 10-Q and the documents incorporated by reference herein, if any, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by terminology such as may, will, should, intend, expect,
plan, budget, forecast, anticipate, believe, estimate, predict, potential, continue, evaluating or similar words. You should read
statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. These forward-looking
statements reflect our best judgment about future events and trends based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control. The factors listed under the
caption Risk Factors in our Form 10-K for the fiscal year ended September 30, 2007, as well as other cautionary language in such Report on Form 10-K and this Report on Form 10-Q, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Report on Form
10-Q could have a material adverse effect on our business, results of operations and financial position, and actual events and results of operations may vary materially from our current expectations.

Industry Overview

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

Seismic Products

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

Seismic Exploration Products

Seismic data acquisition is conducted by combining a seismic energy source and a seismic data recording system. We provide many of the components of data recording systems, including geophones, hydrophones,
multi-component sensors, seismic leader wire, geophone strings, connectors, seismic telemetry cables and other seismic related products. We also design and manufacture seismic data acquisition systems targeted at conventional and niche markets. On
land, our customers use our geophones, leader wire, cables and connectors to receive and measure seismic reflections resulting from an energy source to data recording units, which store information for processing and analysis. Additionally, we
recently announced the development of a land wireless seismic data acquisition system capable of very large channel configurations, which is expected to be commercially available in the first calendar quarter of 2008. In the marine environment,
large ocean-going vessels tow long seismic cables known as streamers containing hydrophones which are used to detect pressure changes. Hydrophones transmit electrical impulses back to the vessels data recording unit, where the
seismic data is stored for subsequent processing and analysis. Our marine seismic products help steer streamers while being towed and help recover streamers if they become disconnected from the vessel.



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

Our wholly-owned subsidiary in the Russian Federation, OYO-GEO Impulse International, LLC (OYO-GEO Impulse), manufactures international
standard geophones, sensors, seismic leader wire, seismic telemetry cables and related seismic products for the Russian and other international seismic marketplaces. Operating in foreign locations involves certain risks as discussed under the
heading Risk Factors  Our Foreign Subsidiaries and Foreign Marketing Efforts Face Additional Risks and Difficulties.

Seismic
Reservoir Products

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

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

Emerging Technology Products

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

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

Thermal Solution Products

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

The quality of thermal images on film is determined primarily by the interface between a thermal printhead and the thermal film. We are manufacturing
thermal printheads and thermal film, which we believe will enable us to more effectively match the characteristics of our thermal printers to thermal film, thereby improving print quality, and make us more competitive in markets for these products.

We also distribute another brand of generally high-quality dry thermal film to users of our thermal printers. This other brand of dry
thermal film can be abrasive to our thermal printheads, resulting in high warranty costs



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

Facilities Expansion

We have been running at or near full capacity in portions of our original Pinemont facility. We recently completed a construction project to expand our Pinemont facility manufacturing space to approximately double its
original size. We are now in the process of adding and assembling the appropriate manufacturing machinery and equipment. We have begun producing some products in this facility, although not in significant quantities. The total cost of this facility
expansion, including initial machinery and equipment purchases, is expected to be $14.5 million. Costs for the facility expansion and machinery and equipment are being funded from our internal cash flows and/or from borrowings under the Credit
Agreement, discussed below under the heading Liquidity and Capital Resources. We are evaluating a long-term loan secured by a mortgage on our Pinemont facility to replenish our cash reserves and/or repay borrowings under the Credit
Agreement.

As a result of growth in our operation located in the Russian Federation, and with an expectation of new product lines to be
introduced over the coming years, we are evaluating plans to expand our manufacturing capacity there, including the construction of added capacity onto our existing 120,000 square foot facility. We are still in the early phases of planning for this
project and considering the various options available to us. The construction or acquisition of any additional space is estimated to cost up to $6.0 million. The Russian facility expansion is expected to be financed from (i) our internal cash
flows, (ii) the sale of non-critical assets, and/or (iii) from borrowings under the Credit Agreement, discussed below under the heading Liquidity and Capital Resources.

Incentive Compensation Program

We expect to adopt an
incentive compensation program for fiscal year 2008 whereby most employees will be eligible to begin earning incentive compensation upon the company reaching a 5% pretax return on shareholders equity, which will be determined as of
September 30, 2007. In addition, certain non-executive employees are expected to be required to achieve specific goals to earn a significant portion of their total incentive compensation award. Bonus awards earned under this program will be
paid out to eligible employees after the end of fiscal year 2008.

Upon reaching the 5% threshold under this proposed program, an incentive
compensation accrual will be established equal to 20% of the amount of any consolidated pretax profits above the 5% pretax return threshold. The proposed maximum aggregate bonus under the program for fiscal year 2008 is $3.6 million. Under this
proposed program, we have accrued $0.9 million of incentive compensation expense for the three months ended December 31, 2007.

Under
a similar program in fiscal year 2007, we accrued $3.2 million of incentive compensation expenses for the three months ended December 31, 2006. This accrual represented 100% of the aggregate bonus allowed under the fiscal year 2007 incentive
compensation program. This large accrual of incentive compensation expense resulted from the significant amount of pretax profits earned by the company during the three months ended December 31, 2006, primarily from the sale of a $16.2 million
reservoir characterization system to BP.



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##### Table of Contents

Results of Operations

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



|                                    |  |                                    |        |   |                                    |   |        |  
|----------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                    |  | Three MonthsEndedDecember 31, 2007 |        |   | Three MonthsEndedDecember 31, 2006 |  
|Seismic                             |  |                                    |        |   |                                    |   |        |  
|Seismic exploration product revenue |  | $                                  | 20,290 |   |                                    | $ | 21,449 |  
|Reservoir product revenue           |  |                                    | 5,519  |   |                                    |   | 18,141 |  
|Industrial product revenue          |  |                                    | 2,763  |   |                                    |   | 1,630  |  
|                                    |  |                                    |        |   |                                    |   |        |  
|Total seismic revenues              |  |                                    | 28,572 |   |                                    |   | 41,220 |  
|Operating income                    |  |                                    | 6,816  |   |                                    |   | 14,446 |  
|Thermal Solutions                   |  |                                    |        |   |                                    |   |        |  
|Revenues                            |  |                                    | 3,283  |   |                                    |   | 3,440  |  
|Operating loss                      |  |                                    | (95    | ) |                                    |   | (138   | )
|Corporate                           |  |                                    |        |   |                                    |   |        |  
|Revenues                            |  |                                    | 167    |   |                                    |   | 93     |  
|Operating loss                      |  |                                    | (1,907 | ) |                                    |   | (2,603 | )
|Consolidated Totals                 |  |                                    |        |   |                                    |   |        |  
|Revenues                            |  |                                    | 32,022 |   |                                    |   | 44,753 |  
|Operating income                    |  |                                    | 4,814  |   |                                    |   | 11,705 |  

Overview

Three months ended December 31, 2007 compared to three months ended December 31, 2006

Consolidated sales for the
three months ended December 31, 2007 decreased by $12.7 million, or 28.4%, from the corresponding period of the prior fiscal year. The decrease in sales primarily resulted from the revenue recognition in the prior fiscal year of a $16.2 million
permanent reservoir characterization system sold to BP for use in the Caspian Sea. The decline in sales of permanent reservoir characterization systems was partially offset by a $3.0 million sale of a seismic borehole system during the three months
ended December 31, 2007. Large scale sales like the $16.2 million permanent reservoir characterization system are infrequent and generally do not recur in each subsequent quarter. At this time, even if we receive a large order for a permanent
reservoir characterization system similar in size to the $16.2 million system sold to BP in the prior year, it would be unlikely that we could manufacture and deliver such a sizable system in this fiscal year. However, our active sales efforts
continue for this important product line.

Consolidated gross profits for the three months ended December 31, 2007 decreased by $7.5
million, or 40.4%, from the corresponding period of the prior fiscal year. The decreased gross profits are primarily due to the revenue recognition of the $16.2 million permanent reservoir characterization system in fiscal year 2007, which systems
yield significantly higher gross profit margins. The decreased gross profits for the three months ended December 31, 2007 were partially offset by a $0.9 million decrease in incentive compensation expense attributable to our manufacturing
employees resulting from a decrease in our consolidated pretax profits during such period.

Consolidated operating expenses for the three
months ended December 31, 2007 decreased $0.3 million, or 4.0%, from the corresponding period of the prior fiscal year. The decreased operating expenses for the three months ended December 31, 2007 primarily resulted from a decrease in
incentive compensation expense of $1.4 million for our non-manufacturing employees because of a decline in consolidated pretax profits. Such decrease in operating expenses was partially offset by a $0.5 million increase in bad debt expenses and a
$0.3 million increase in research and development project expenses.



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The United States statutory tax rate for the periods reported was 34.0%. Our effective tax rate for the
three months ended December 31, 2007 and 2006 was 32.2% and 33.0%, respectively. The lower effective tax rates from statutory rates for each period reflect tax benefits related to (i) lower tax rates applicable to income earned in foreign
jurisdictions, (ii) the manufacturers/producers deduction, and (iii) research and experimentation tax credits for the three months ended December 31, 2007.

Seismic Products

Net Sales

Sales of our seismic products for the three months ended December 31, 2007 decreased $12.6 million, or 30.7%, from the corresponding period of the prior fiscal year. The sales decrease was primarily due to our
recognition in the prior fiscal year of $16.2 million in revenues from the sale of a permanent reservoir characterization system to BP for use in the Caspian Sea. The decrease of $16.2 million was partially offset by the sale of a $3.0 million
borehole system during the three months ended December 31, 2007.

Operating Income

Our operating income associated with sales of our seismic products for the three months ended December 31, 2007 decreased $7.6 million, or 52.8%,
from the corresponding period of the prior fiscal year. The decrease in operating income resulted from the revenue recognition of the $16.2 million reservoir characterization system which yielded significant operating profits in the prior fiscal
year. The decreased operating income was partially offset by a $1.9 million decline in incentive compensation expense in the three months ended December 31, 2007.

Thermal Solutions Products

Net Sales

Sales of our thermal solutions products for the three months ended December 31, 2007 decreased $0.2 million, or 4.6%, from the corresponding period
of the prior fiscal year. This decrease resulted from a decline in sales of thermal imaging equipment.

Operating Loss

Our operating loss associated with sales of our thermal solutions products for the three months ended December 31, 2007 decreased $43,000, or 31.2%,
from the corresponding period of the prior fiscal year. Such improvement is generally the result of manufacturing process improvements.

Liquidity and
Capital Resources

At December 31, 2007, we had $2.6 million in cash and cash equivalents. For the three months ended
December 31, 2007, we used approximately $9.2 million of cash from operating activities. The cash used in operating activities resulted from net income of $3.3 million, which included non-cash charges of $0.9 million for depreciation,
amortization and stock-based compensation. Uses of cash from operating activities and changes in our working capital accounts included (i) a $7.6 million increase in accounts and notes receivable primarily resulting from increased sales to
customers requesting financing assistance, (ii) $2.3 million increase in inventories resulting from increased orders of seismic exploration products, and (iii) a $2.5 million decrease in accrued and other expenses, resulting from the
payment of fiscal year 2007 accrued incentive compensation.

For the three months ended December 31, 2007, we used approximately $2.9
million of cash in investing activities for capital expenditures. We had capital expenditures of $3.3 million which was partially offset by $0.4 million of cash received for the sale of a portion of surplus property in the Russian Federation. We
estimate that our total capital expenditures in fiscal year 2008 will be approximately $10 to $14 million.



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For the three months ended December 31, 2007, we generated approximately $11.7 million of cash in
financing activities primarily from net borrowings under the Credit Agreement, as discussed below.

On November 22, 2004, several of
our subsidiaries entered into a credit agreement (the Credit Agreement) with a bank. Under the Credit Agreement, as amended, our borrower subsidiaries can borrow up to $25.0 million principally secured by their accounts, inventories and
equipment. The Credit Agreement expires on January 31, 2010. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts our and our borrower subsidiaries ability
to pay dividends and contains other covenants customary in agreements of this type. We believe that the ratio of total liabilities to tangible net worth and the asset coverage ratio could prove to be the most restrictive. The interest rate for
borrowings under the Credit Agreement is, at our borrower subsidiaries option, a discounted prime rate or a LIBOR based rate. At December 31, 2007, there were borrowings of $12.2 million under the Credit Agreement, $0.3 million of standby
letters of credit were outstanding and additional available borrowings of $12.5 million.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and controls, and in developing the estimates and
assumptions that are used in the preparation of these financial statements. We continually evaluate our estimates, including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves for medical expenses, product
warranty reserves, intangible assets, stock-based compensation and deferred income tax assets. We base our estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may
differ from these estimates under different conditions or assumptions.

Goodwill represents the excess of the purchase price of purchased
businesses over the estimated fair value of the acquired business net assets. Under the Statement of Financial Accounting Standards, or SFAS, 142 Goodwill and Other Intangible Assets (SFAS 142), goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed periodically for impairment. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum
life applies. In accordance with the provisions of SFAS 142, we no longer record goodwill amortization expense. We review the carrying value of goodwill and other long-lived assets to determine whether there has been an impairment since the date of
the relevant acquisition. We have elected to make September 30 the annual impairment assessment date and will perform additional impairment tests if a change in circumstances occurs that would more likely than not reduce the fair value of
long-lived assets below their carrying amount. The assessment is performed in two steps: step one is to test for potential impairment and if potential losses are identified, step two is to measure the impairment loss. We performed step one at
September 30, 2007 and found that there were no impairments at that time; thus, step two was not necessary.

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

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



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



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



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



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



| |  |  | Collectibility is reasonably assured. We evaluate customer credit to ensure collectibility is reasonably assured.
| | - |  | -----------------------------------------------------------------------------------------------------------------

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



| |  |  | Whether the risks of ownership have passed to the customer,
| | - |  | -----------------------------------------------------------



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



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



| |  |  | Whether there is a fixed schedule for delivery of the product,
| | - |  | --------------------------------------------------------------



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



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



| |  |  | Whether the equipment is complete and ready for shipment.
| | - |  | ---------------------------------------------------------

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

Recent Accounting Pronouncements

In June 2006, the
FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, to clarify certain aspects of accounting for uncertain tax position, including
issues related to the recognition and measurement of those tax positions. We adopted the provisions of FIN 48 as of October 1, 2007. The adoption of FIN 48 did not have a material effect on our consolidated financial statements. We classify
interest and penalties associated with the payment of income taxes in the Other Income (Expense) section of our consolidated statement of operations. Tax return filings which are subject to review by local tax authorities by major jurisdiction are
as follows:



| |  |  | United States  fiscal years ended September 2004, 2005, 2006 and 2007
| | - |  | ----------------------------------------------------------------------



| |  |  | State of Texas  fiscal years ended September 2004, 2005, 2006 and 2007
| | - |  | -----------------------------------------------------------------------



| |  |  | Russian Federation  calendar years 2005, 2006 and 2007
| | - |  | -------------------------------------------------------



| |  |  | Canada fiscal years ended September 2004, 2005, 2006 and 2007
| | - |  | --------------------------------------------------------------

In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements. Among other requirements, SFAS 157 defines fair value and establishes a framework for measuring fair
value and also expands disclosure about the use of fair value to measure assets and liabilities. We early adopted the provisions of SFAS 157 as of October 1, 2007. The adoption of SFAS 157 did not have a material effect on our consolidated
financial statements.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. We early adopted the provisions of SFAS 159 as of October 1, 2007. The adoption of SFAS 159
did not have a material effect on our consolidated financial statements.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

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

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

Foreign Currency and Operations Risk

One of our
wholly-owned subsidiaries, OYO-GEO Impulse, is located in the Russian Federation. Therefore, our financial results may be affected by factors such as changes in foreign currency exchange rates, weak economic conditions in the Russian Federation or
changes in its political climate. Our consolidated balance sheet at December 31, 2007 reflected approximately $5.3 million of net working capital related to OYO-GEO Impulse. OYO-GEO Impulse both receives its income and pays its expenses
primarily in rubles. To the extent that transactions of OYO-GEO Impulse are settled in rubles, a devaluation of the ruble versus the U.S. dollar could reduce any contribution from OYO-GEO Impulse to our consolidated results of operations and total
comprehensive income as reported in U.S. dollars. We do not hedge the market risk with respect to our operations in the Russian Federation; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of rubles
versus U.S. dollars to the extent such disruptions result in any reduced valuation of OYO-GEO Impulses net working capital or future contributions to our consolidated results of operations. At December 31, 2007, the foreign exchange rate
of the U.S. dollar to the ruble was 1:24.5. If the U.S. dollar versus ruble exchange rate were to decline by ten percent, our working capital would decline by $0.5 million.

Foreign Currency Intercompany Accounts and Notes Receivable

From time to time, we provide access to
capital to our foreign subsidiaries through U.S. dollar denominated interest bearing promissory notes. Such funds are generally used by our foreign subsidiaries to purchase capital assets and for general working capital needs. In addition, we sell
products to our foreign subsidiaries in U.S. dollars on trade credit terms. Because these U.S. dollar denominated intercompany debts are accounted for in the local currency of our foreign subsidiaries, any appreciation or devaluation of such foreign
currencies against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations. At December 31, 2007, we had outstanding accounts and notes receivable of $0.6 million and $27,000 from our
subsidiaries in the Russian Federation and Canada, respectively. At December 31, 2007, the foreign exchange rate of the U.S. dollar to ruble was 1:24.5. If the U.S. dollar versus ruble exchange rate were to decline by ten percent our
intercompany notes receivable could decline by $65,000. Due to the relatively small amount of intercompany receivables due from our subsidiary in Canada changes in the exchange rate would not have a material effect.

Floating Interest Rate Risk

The Credit Agreement and
the real estate mortgage agreement for our Pinemont facility each contain a floating interest rate. These floating interest rates subject us to the risk of increased interest costs associated with any upward movements in bank market interest rates.
Under the Credit Agreement, our borrowing interest rate is a discounted prime lending rate or a LIBOR based rate, whichever we select. Under the real estate mortgage agreement, our borrowing rate is a LIBOR based rate plus 159 basis points with a
minimum rate of 3.8%. As of December 31, 2007, we had borrowings of $12.2 million under the Credit Agreement and had standby letters of credit in the amount of $0.3 million outstanding at a borrowing rate of 5.9%. We also had borrowings of $2.6
million outstanding under our real estate mortgage agreement at a rate of 6.8%. Due to the amount of borrowings outstanding under these facilities, including potential borrowings available under the Credit Agreement, increased interest costs
associated with large movements in market interest rates could be material to our financial condition, results of operations and/or cash flow. At December 31, 2007, based on our current level of borrowings, a 1.0% increase in interest rates
would increase our interest expense annually by approximately $0.1 million in the aggregate.



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|Item 4. | Controls and Procedures
|------- | -----------------------

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

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

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



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PART II - OTHER INFORMATION



|Item 6. | Exhibits
|------- | --------

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



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



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SIGNATURES

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



|      |  |                  |  |                          |  |     |  |                                      
|----- |  | ---------------- |  | ------------------------ |  | --- |  | -------------------------------------
|      |  |                  |  | OYO GEOSPACE CORPORATION
|      |  |                  |  |                         
|Date: |  | February 8, 2008 |  |                          |  | By: |  | /s/ Gary D. Owens                    
|      |  |                  |  |                          |  |     |  | Gary D. Owens, Chairman of the Board 
|      |  |                  |  |                          |  |     |  | President and Chief Executive Officer
|      |  |                  |  |                          |  |     |  | (duly authorized officer)            
|      |  |                  |  |                         
|Date: |  | February 8, 2008 |  |                          |  | By: |  | /s/ Thomas T. McEntire               
|      |  |                  |  |                          |  |     |  | Thomas T. McEntire                   
|      |  |                  |  |                          |  |     |  | Chief Financial Officer              
|      |  |                  |  |                          |  |     |  | (principal financial officer)        



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