OYO GEOSPACE CORP, 10-K405, 1998-12-21

OYO GEOSPACE CORP
10-K405, 1998-12-21
MEASURING & CONTROLLING DEVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended September 30, 1998

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

Commission file number 001-13601

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

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

12750 SOUTH KIRKWOOD, SUITE 200
STAFFORD, TEXAS 77477
(Address of Principal Executive Offices)

(281) 494-8282
(Registrant's telephone number, including area code)

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

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

There were 5,494,689 shares of the Registrant's Common Stock outstanding as of
the close of business on December 16, 1998. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $19 million
(based upon the closing price of $8.25 on December 16, 1998, as reported by the
NASDAQ Stock Market, Inc.).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.

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PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW AND PRODUCTS

We design and manufacture instruments and equipment used in the acquisition
and processing of seismic data and the commercial graphics industry.

We have been in the seismic instrument and equipment business since 1980,
marketing our products primarily to the oil and gas industry worldwide. Our
seismic product lines currently include geophones and hydrophones, seismic
leader wire, geophone string connectors, seismic telemetry cable, thermal
imaging products, marine seismic cable retrieval devices and small data
acquisition systems targeted at niche markets. Our seismic products are
compatible with most major seismic data acquisition systems currently in use.
We believe that our seismic products are among the most technologically advanced
instruments and equipment available for seismic data acquisition.

We also have adapted our thermal plotting technology, which we originally
developed for the seismic industry, for applications in the newsprint,
silkscreen and corrugated printing industries. We believe that our wide format
thermal printers, which use dry film technology developed in conjunction with a
film manufacturer, are a cost-effective alternative to conventional equipment.
We expect to continue our research and development activities to expand the
markets for our thermal imaging products and to increase the image clarity of
our products. Thermal plotters accounted for approximately 16% of our sales in
fiscal 1998.

We plan to expand our seismic product lines further through research and
development and through selective acquisitions, focusing in the following areas
of:

. seismic instruments and equipment used in time lapse 3-D seismic data
acquisition (the acquisition of 3-D seismic data repeated in the same area
over time in order to track fluid movement in a reservoir)

. three-axis seismic data acquisition (the acquisition of seismic data on
three axes to determine rock properties and fluid types);

. borehole seismology (the process of generating and/or recording seismic
waves in existing well bores).

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

SEISMIC INDUSTRY OVERVIEW; CURRENT INDUSTRY CONDITIONS

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

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

Marine seismic data acquisition is conducted primarily by large ocean-going
vessels that tow long seismic cables known as "streamers". Usually, the energy
source in marine seismic data acquisition is an airgun, and the reflected
seismic waves are received and measured by hydrophones, which are attached to
the streamers. Occasionally, these streamers are severed and become
disconnected from the vessel. Our patented marine seismic cable retrieval
devices, which are attached to the streamers, contain an air bag that is
designed to inflate automatically at a given depth, bringing the severed cable
to the surface. This can save the seismic contractor significant time and money
over the alternative of losing the seismic cable.

2
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At present, virtually all activities in the oil and gas and related industries
are experiencing difficult operating conditions. Excess supplies of crude oil
worldwide and persistently lower prices are generally resulting in decreased
demand for oil and gas industry equipment. We believe that favorable results
for fiscal 1999 will likely be dependent upon whether conditions in the oil and
gas industry improve substantially in the short term, upon the effects of
competitive pressures resulting from current difficult operating conditions and
upon our ability to diversify our products and to develop and sell new products,
activities which are underway. We have cut costs in response to current
conditions and expect to continue to do so as conditions dictate.

COMPETITION

Our principal competitors for geophones, hydrophones and geophone string
connectors are Input/Output, Inc. and Mark Products. We believe that we are one
of the largest manufacturers and distributors of geophones, hydrophones and
geophone string connectors in the world. In addition to these competitors,
certain manufacturers of marine streamers also manufacture hydrophones for their
own use.

We believe that the principal competitive factors in the seismic instruments
and equipment market are technological superiority, product durability and
reliability and customer service and support. Price and product delivery are
also important considerations for customers. These factors can be offset by a
customer's preference for standardization. In general, particular customers
prefer to standardize geophones and hydrophones, particularly if they are used
by a single seismic crew or multiple crews that can support each other. This is
a factor in the ability of a geophone or hydrophone manufacturer to gain market
share from other such manufacturers.

A key competitive factor for land field instruments and equipment, and to a
lesser degree for marine instruments and equipment, is durability under harsh
field conditions. Especially for land data acquisition systems, the field
instruments and equipment must not only meet rigorous technical specifications
regarding signal integrity and sensitivity, but must also be extremely rugged
and durable to withstand the rigors of field use, often in harsh environments.

With respect to competition concerning geophones, we and an agency of the
government of the People's Republic of China agreed in 1995 to terminate a joint
venture for the manufacturer of geophones in China based on the design for our
GS-20DX geophone. The former joint venture partner currently has the capability
and legal right to manufacture and market these geophones without restriction.
Although the GS-20DX geophone has been superseded by the more technologically
advanced GS-30CT and GS-32CT geophones, which the former joint venture partner
has no capabilities or rights to produce, we continue to manufacture and sell
limited quantities of the GS-20DX geophone. We therefore, may experience some
competition with respect to this older model geophone. We are unable to predict
the extent or effect of any such competition.

SUPPLIERS

We are not presently experiencing any supply or quality control problems with
our suppliers. However, these problems, if they develop, could have a
significant effect on our ability to meet future production and sales
commitments. A Japanese manufacturer unaffiliated with us is currently the only
supplier of wide format printheads that we use in our wide format thermal
plotters. We believe we maintain an adequate inventory of these printheads.
However, if this supplier were to discontinue supplying these printheads or was
unable or unwilling to supply printheads in sufficient quantity to meet our
requirements, our ability to compete in the wide format thermal plotting market
could be severely impeded.

PRODUCT MANUFACTURING

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

3
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MARKETS AND CUSTOMERS

Our principal customers are seismic contractors and major, independent and
government owned oil and gas companies that either operate their own seismic
crews or specify specific seismic instrument and equipment preferences to
contractors. In addition to the seismic industry, we sell our wide format
thermal plotters for use in the newsprint, silkscreen and corrugated printing
industries. To date, we have sold these products primarily to equipment
distributors that focus on these industries.

INTELLECTUAL PROPERTY

We seek to protect our intellectual property by means of patents, trademarks,
trade secrets and other measures. Although we do not consider any single patent
essential to our success, we consider our patent regarding our marine seismic
cable retrieval devices to be of significant value to us. This patent is
scheduled to expire in 2008.

EMPLOYEES

As of November 30, 1998, we employed approximately 425 people on a full-time
basis, of whom approximately 400 were employed in the United States. We have
never experienced a work stoppage and consider our relationship with our
employees to be satisfactory. None of the our employees are unionized.

ITEM 2. PROPERTIES

We conduct operations at the following locations.
<TABLE>
<CAPTION>

Location Owned/Leased Approximate Square Footage
- ------------------------------- ------------ --------------------------
<S> <C> <C>

Houston, Texas Owned 78,000
Houston, Texas Leased 34,000
Houston, Texas Owned 18,000
Calgary, Alberta, Canada Owned 21,000
Luton, Bedfordshire, England Owned 8,000
</TABLE>

In March 1998, we relocated our corporate headquarters' offices and a portion
of our research and development activities to a facility, in Stafford, Texas,
consisting of approximately 20,000 square feet. We own this facility. We
believe that our facilities are adequate for our current and immediately
projected needs.

ITEM 3. LEGAL PROCEEDINGS

We are not aware of any current or pending litigation or proceedings that
could have a material adverse effect on our results of operations, cash flows or
financial condition.

ITEM 4. SUBMISSION OF MATTERS TO AND VOTE OF SECURITY HOLDERS

None.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the Nasdaq National Market on November 20,
1997, under the symbol "OYOG". Before that time, there was no market for our
common stock. On December 16, 1998, there were approximately 60 holders of
record of our common stock.

The following table presents the range of high and low bid quotations for our
common stock during the year ended September 30, 1998, our first year as a
public company, as reported by The Nasdaq Stock Market, Inc.

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<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998: HIGH LOW
- ------------------------------ ------- ---
<S> <C> <C>
First Quarter.... $19 3/4 $14 7/8
Second Quarter... 23 1/4 15 1/2
Third Quarter.... 34 1/8 19 7/8
Fourth Quarter... 30 1/2 13 1/2
</TABLE>

Historically, we have not paid dividends, and we do not intend to pay cash
dividends on our common stock in the foreseeable future. We presently intend to
retain earnings for use in our business, with any future decision to pay cash
dividends dependent upon our growth, profitability, financial condition and
other factors the Board of Directors may deem relevant.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... $ 65,823 $ 41,049 $ 30,878 $ 32,615 $ 29,072
Cost of sales.................................. 38,425 24,239 17,278 18,909 15,690
---------- ---------- ---------- ---------- -----------
Gross profit................................... 27,398 16,810 13,600 13,706 13,382
Operating expenses:
Selling, general and administrative........... 11,934 8,183 6,729 5,854 6,035
Research and development...................... 5,621 2,392 1,959 1,988 1,697
Bad debt expense (recovery) (1)............... (97) (4,327) 2,860 1,013 73
Write-down of investment in foreign joint
venture..................................... -- -- -- -- 1,712
---------- ---------- ---------- ---------- ----------
Total operating expenses....................... 17,458 6,248 11,548 8,855 9,517
---------- ---------- ---------- ---------- ----------
Income from operations......................... 9,940 10,562 2,052 4,851 3,865
Other income (expense), net.................... 326 63 (466) (931) (95)
---------- ---------- ---------- ---------- ----------
Income before income taxes..................... 10,266 10,625 1,586 3,920 3,770
Provision for income taxes..................... 3,592 4,003 577 1,579 1,487
---------- ---------- ---------- ---------- ----------
Net income..................................... $ 6,674 $ 6,622 $ 1,009 $ 2,341 $ 2,283
========== ========== ========== ========== ==========
Basic earnings per share....................... $1.32 $1.66 $.25 $.59 $.57
========== ========== ========== ========== ==========
Diluted earnings per share..................... $1.29 $1.66 $.25 $.59 $.57
========== ========== ========== ========== ==========
Weighted average shares outstanding - Basic.... 5,072,262 4,000,000 4,000,000 4,000,000 4,000,000
Weighted average share outstanding - Diluted... 5,166,756 4,000,000 4,000,000 4,000,000 4,000,000

OTHER FINANCIAL DATA:
Depreciation and amortization.................. $ 2,803 $ 1,470 $ 1,025 $ 891 $ 916
Capital expenditures........................... 11,953 6,396 2,063 1,391 1,472
</TABLE>

5
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As of September 30,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>

BALANCE SHEET DATA:
Working capital........ $26,850 $16,140 $10,718 $ 9,266 $ 6,099
Total assets........... 63,288 35,078 26,272 24,259 19,208
Short-term debt........ 38 1,500 3,124 2,932 2,779
Long-term debt......... 956 -- 7,919 7,818 8,140
Stockholder's equity... 49,383 25,100 8,628 6,241 3,399
</TABLE>

(1) Includes $2.8 million in the year ended September 30, 1996, reflecting a
provision for loss on notes receivable from Grant Geophysical, Inc., which
reduced the carrying balance of those notes to zero. The total amount of
indebtedness on those notes as of September 26, 1997, including accrued
interest, was $6.8 million. On September 26, 1997, we received $6.2 million in
conjunction with those notes and related interest income, resulting in a
recovery, net of $1.0 million in purchase credit concessions, of $5.2 million
(including interest of $0.8 million). During the year ended September 30, 1998,
we received $0.2 million of additional recoveries on trade accounts receivable
with Grant Geophysical, Inc. that had been fully reserved in prior years.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

We design and manufacture instruments and equipment used in the acquisition
and processing of seismic data and the commercial graphics industry. Our sales
and earnings grew significantly in fiscal 1998 (excluding the effect of the
recovery of bad debt in fiscal 1997). However, at present, virtually all
activities in the oil and gas and related industries are experiencing difficult
operating conditions. Excess supplies of crude oil worldwide and persistently
lower prices are generally resulting in decreased demand for oil and gas
industry equipment. We believe that favorable results for fiscal 1999 will
likely be dependent upon whether conditions in the oil and gas industry improve
substantially in the short term, upon the effects of competitive pressures
resulting from current difficult operating conditions and upon our ability to
diversify our products and to develop and sell new products, activities which
are underway. We have cut costs in response to current conditions and expect to
continue to do so as conditions dictate.

ACQUISITION

On February 3, 1998, we acquired all of the outstanding stock of Concord
Technologies, Inc. ("Concord"), as well as certain intellectual property related
to the business of Concord, for a purchase price of $6.4 million, consisting of
a cash payment of $3.6 million and the issuance of 159,120 shares of our common
stock valued at approximately $2.8 million. Concord, located in Houston, Texas,
designs and manufactures equipment used in connection with deepwater marine
seismic surveys including marine seismic retrieval devices.

On November 30, 1998, we acquired substantially all of the assets of LTI, Inc.
and its Canadian subsidiary (together, "LTI") for approximately $4.6 million
including the assumption of approximately $1.8 million of long-term debt. In
connection with that acquisition, we issued 55,659 shares of our common stock
valued at $0.8 million. In addition, the Company had paid approximately $2.8
million of cash in connection with the acquisition as of December 8, 1998
including the repayment of $1.7 million of long-term debt. An additional amount
of cash may be paid upon the final determination in January 1999 of the net book
value of the assets purchased and liabilities assumed. The operations of LTI
include the design and manufacture of land and marine seismic connectors, which
will be combined with our existing seismic connector manufacturing operations.

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RESULTS OF OPERATIONS

The following table sets forth for the fiscal years ended September 30, 1998,
1997 and 1996, the percentage of certain income statement items to total sales:

1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0%
Cost of sales..................................... 58.4 59.0 56.0
Gross profit...................................... 41.6 41.0 44.0
Selling, general and administrative............... 18.1 19.9 21.8
Bad debt expense (recovery) (0.1) (10.4) 9.3
Research and development.......................... 8.5 5.8 6.3
Income from operations............................ 15.1 25.7 6.6
Other income (expense), net....................... 0.5 0.2 (1.5)
Income before provision for income taxes.......... 15.6 25.9 5.1
Provision for income taxes........................ 5.5 9.8 1.8
Net income........................................ 10.1 16.1 3.3
</TABLE>

Year Ended September 30, 1998 Compared to Year Ended September 30, 1997.

Sales for fiscal year 1998 were $65.8 million, an increase of $24.8 million,
or 60.5%, from $41.0 million in fiscal year 1997. The increase in sales was
primarily attributable to increased demand for our products and sales generated
from Concord, which we acquired on February 3, 1998.

Cost of sales for fiscal year 1998 were $38.4 million, an increase of $14.2
million, or 58.7%, from $24.2 million in fiscal year 1997. Cost of sales
decreased as a percentage of total sales to 58.4% in fiscal year 1998 from 59.0%
in fiscal year 1997. This percentage decrease was the result of increased sales
of products containing lower manufacturing costs and from the sale of products
by Concord, which have higher gross profit margins.

Selling, general and administrative expenses for fiscal year 1998 increased
$3.8 million, or 45.8%, from fiscal year 1997. This increase is primarily
attributable to expenses associated with increased sales and the acquisition of
Concord. Selling, general and administrative expenses decreased as a percentage
of total sales to 18.1% in fiscal year 1998 from 19.9% in fiscal year 1997,
principally reflecting the impact of high sales volume and the leveraging of
certain fixed expenses.

Bad debt expense (recovery) decreased as a percentage of total sales to (0.1)%
in fiscal year 1998 from (10.4)% in fiscal year 1997, principally resulting from
the recovery in fiscal year 1997 of $4.4 million of accounts previously written
off.

Research and development expenses for fiscal year 1998 increased $3.2 million,
or 135.0%, from fiscal year 1997. Research and development expenses increased as
a percentage of total sales to 8.5% in fiscal year 1998 from 5.8% in fiscal year
1997, principally resulting from the increase in research and development
expenditures targeted at new product development for borehole seismic
applications.

Other income (expense), net increased as a percentage of total sales to 0.5%
in fiscal year 1998 from 0.2% in fiscal year 1997. This increase was primarily
attributable to interest income earned on proceeds from our initial public
offering (the "Offering") and a decrease in interest expense as a result of
using a portion of the net proceeds of the Offering to repay outstanding
indebtedness.

Our effective tax rate for fiscal year 1998 was 35.0% compared to 37.7% in
fiscal year 1997. The decrease in our effective tax rate is principally the
result of the implementation of certain tax strategies designed to reduce our
domestic and foreign income tax expense.

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Year Ended September 30, 1997 Compared to Year Ended September 30, 1996.

Sales for fiscal year 1997 were $41.0 million, an increase of $10.1 million,
or 32.9%, from $30.9 million in fiscal year 1996. The increase in sales was
primarily attributable to increased demand for the Company's products.

Cost of sales for fiscal year 1997 was $24.2 million, an increase of $6.9
million, or 40.3%, from $17.3 million in fiscal year 1996. Cost of sales
increased as a percentage of total sales to 59.0% in fiscal year 1997 from 56.0%
in fiscal year 1996. This percentage increase was the result of increased sales
of products containing higher gross profit margins.

Selling, general and administrative expenses for fiscal year 1997 were $8.2
million, an increase of $1.5 million, or 21.6%, from $6.7 million in fiscal year
1996. Selling, general and administrative expenses decreased as a percentage of
total sales to 19.9% in fiscal year 1997 from 21.8% in fiscal year 1996,
principally reflecting the impact of high sales volume and the leveraging of
certain fixed expenses.

Bad debt expense for fiscal year 1997 was a recovery of $4.3 million compared
to a charge of $2.9 million in fiscal 1996. The fiscal 1996 bad debt expense
relates principally to a single customer, Grant Geophysical, Inc. ("Grant"), who
sought protection under the United States bankruptcy laws in December 1996. As
a result, we recorded a bad debt charge of $2.8 million in fiscal 1996 in
addition to a bad debt charge of $1.5 million relating to Grant recorded in
fiscal 1992. Our claim against Grant was purchased (without recourse to us) by
a third party for $6.2 million in cash on September 26, 1997. In connection
with this transaction, we issued $1.0 million purchase credit concession to
Grant, which is reflected on our consolidated balance sheet as a current
liability at September 30, 1997. The remaining recovery, net of the $1.0
million purchase credit concession, has been recorded as a bad debt recovery of
$4.4 million, interest income of $0.7 million and legal fee recovery of $0.1
million. The impact of transactions with Grant on sales and net income for
fiscal 1997 were $0.7 million and $3.2 million, respectively. The impact of
transactions with Grant on sales and net income (loss) for fiscal 1996 were $3.2
million and $(1.1) million, respectively.

Research and development expenses for fiscal year 1997 were $2.4 million, an
increase of $0.4 million, or 22.1%, from $2.0 million in fiscal year 1996.
Research and development expenses decreased as a percentage of total sales to
5.8% in fiscal year 1997 from 6.3% in fiscal year 1996, principally reflecting
increased sales in our geophone and thermal imaging product lines.

Our effective tax rate for fiscal year 1997 was 37.7% compared to 36.4% in
fiscal year 1996. This increase represents higher state income taxes in 1997.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998, we had $4.0 million in cash and cash equivalents. For
the year ended September 30, 1998, cash generated from operating activities was
$2.4 million principally resulting from net income and an increase in accounts
payable offset by increases in accounts receivable and inventory. The increases
in our working capital accounts are a result of continued growth in the demand
for our products.

For the year ended September 30, 1998, we used approximately $14.3 million in
investing activities, consisting of capital expenditures of approximately $12.0
million and a business acquisition of approximately $2.7 million, net of cash
acquired. We estimate that our capital expenditures in fiscal 1999 will be $5.0
million.

Financing activities for the year ended September 30, 1998 generated $13.2
million of cash, principally resulting from the net proceeds from our initial
public offering totaling $14.6 million. A portion of these proceeds were used
to repay outstanding bank borrowings of $3.1 million.

At September 30, 1997, we had $2.5 million in cash and cash equivalents. For
the year ended September 30, 1997, cash provided by operating activities was
$10.0 million principally consisting of net income offset by increases in
accounts and notes receivable and inventories. Investing activities used
approximately $5.6 million, principally consisting of capital expenditures
offset by proceeds from the sale of rental equipment and other

8
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property, plant and equipment. Financing activities used $2.7 million of cash,
principally consisting of the repayment of notes payable to related parties
partially offset by cash received from OYO Corporation U.S.A, our parent company
before the Offering and the holder of a majority of our common stock ("OYO
U.S.A."), for outstanding receivables and additional capital contributions.

At September 30, 1996, we had $0.8 million in cash and cash equivalents. For
the year ended September 30, 1996, cash provided by operating activities was
$0.5 million, principally consisting of net income, offset by increases in
receivables and inventories. Investing activities used approximately $1.9
million primarily consisting of capital expenditures and the purchase of an
affiliated entity partially offset by proceeds from the sale of rental equipment
and property, plant and equipment. Financing activities provided $1.2 million
principally due to payments received from OYO U.S.A.

Prior to the Offering, we relied on various intercompany arrangements with OYO
U.S.A. for our financing requirements. Following the Offering, OYO U.S.A. and
its affiliates are no longer guaranteeing any indebtedness for our benefit. We
obtained a working capital line of credit in June 1998, under which we are able
to borrow up to $10.0 million secured by our accounts receivable and inventory.
The credit agreement related to this line of credit (the "Credit Agreement")
expires in June 2000. The Credit Agreement prohibits the payment of cash
dividends on our common stock, limits capital expenditures, limits additional
indebtedness to $7.5 million, requires the maintenance of certain financial
amounts and contains other covenants customary in transactions of this type.
There were no borrowings outstanding at September 30, 1998 under the Credit
Agreement, and the borrowing base under the Credit Agreement was $10.0 million.

We obtained a $1.0 million mortgage loan in June 1998 secured by our corporate
office facility. We purchased this facility for $1.5 million in cash including
renovations. We are considering obtaining additional loans to be secured by
mortgages on our other facilities. However, we cannot assure you that we will
be able to do so on terms we consider reasonable.

We believe that the combination of cash flow from operations, borrowing
availability under the Credit Agreement and the net proceeds from the Offering
should provide us with sufficient capital resources and liquidity to fund our
operations for fiscal 1999 and support our acquisition and expansion program.
However, we cannot assure you that these sources of capital will be sufficient
to support an acquisition and expansion program in fiscal 1999 or in the long-
term or otherwise support our capital requirements. We may be required to issue
additional debt or equity securities in the future to meet our capital
requirements.

YEAR 2000 ISSUES

State of Readiness. We have substantially completed a program of upgrading
our internal accounting software (information technology systems) to make those
systems more efficient and compatible company-wide (the "Upgrade"). The
suppliers of substantially all of the software we use for financial purposes
following the Upgrade have informed us that all of those suppliers' software is
Year 2000 compliant.

Further, we are in the process of reviewing the operational computers built
into certain of our manufacturing equipment, such as milling machines and lathes
(non-information technology), to determine whether or not that equipment may be
effected by the Year 2000 problem. We have received assurances from the
manufacturers of most of this equipment that its operation will not be effected
by the Year 2000. We expect this review will be completed before the end of
fiscal 1999.

We have begun soliciting suppliers and vendors with whom we have a material
relationship to determine the readiness of those suppliers and vendors for the
Year 2000. Most, but not all, of those vendors have responded and indicated
that they do not expect to be materially adversely impacted by Year 2000
problems.

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<PAGE>

Expected Costs and Material Risks. Through November 30, 1998, we have
incurred approximately $50,000 in direct expenses related to investigating our
Year 2000 readiness and Year 2000 problems. We do not record internal costs of
our personnel in investigating Year 2000 issues. We do not expect that we will
incur material additional expenditures in discovering and addressing any Year
2000 problems we may have. However, our review of certain of our manufacturing
equipment is ongoing and could result in unexpected expense to repair Year 2000
problems or upgrade machinery.

In addition, the Year 2000 problem may impact customers, suppliers, shippers
and other entities with which we transact business, and we cannot predict the
effect of the Year 2000 problem on those entities or how those entities' Year
2000 problems may indirectly effect us. In particular, we outsource certain
employee benefits and payroll functions. Although the contractor performing
those functions has not advised us of any Year 2000 problems, they have not yet
assured us of their readiness for the Year 2000. The Year 2000 issues, if any,
of both of these vendors is beyond our control.

Further, our customers use our seismic products in conjunction with data
acquisition systems not manufactured by us. If those systems were to have Year
2000 problems, it is possible that some of our customers would be unable to
engage in seismic data acquisition, which could result in a decrease in demand
for our products.

Contingency Plans. With respect to our outsourced employee benefit and payroll
functions, we believe that we could temporarily revert to a manual payroll
system in the event of a failure of that vendor for Year 2000 reasons.

THE FOREGOING STATEMENTS ARE INTENDED TO BE AND ARE HEREBY DESIGNATED "YEAR
2000 READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND
READINESS ACT.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements made in this document and in documents incorporated
by reference herein, including those made under the captions "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements for purposes of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These statements are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to differ materially from the future
results, performance or achievements expressed or implied by such forward-
looking statements, including the risks and factors described below as well as
the Year 2000 Issues described above. See "--Year 2000 Issues". You are
cautioned to consider the following factors in connection with evaluating any
such forward-looking statements.

VOLATILITY OF DEMAND FOR OUR PRODUCTS

Demand for our products depends primarily on the level of worldwide oil and
gas exploration activity. That activity, in turn, depends primarily on
prevailing oil and gas prices. Historically, the markets for oil and gas have
been volatile, and those markets are likely to continue to be volatile. Oil and
gas prices are subject to wide fluctuation in response to relatively minor
changes in the supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond our control. These factors include
the level of consumer demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in the Middle East and other significant oil-producing
regions, the foreign supply of oil and gas, the price of foreign imports and
overall economic conditions.

Currently, oil and gas prices are significantly lower than they have been in
recent history, which has decreased demand for our products. Continued low
demand for our products could materially and adversely affect our results of
operations and liquidity. See "Business--Seismic Industry Overview; Current
Industry Conditions".

RAPID TECHNOLOGICAL EVOLUTION AND PRODUCT OBSOLESCENCE

Seismic instruments and equipment are constantly undergoing rapid
technological improvement. Our future success depends on our ability to continue
to:

10
<PAGE>

. improve our existing product lines;
. address the increasingly sophisticated needs of our customers;
. maintain a reputation for technological leadership;
. maintain market acceptance;
. anticipate changes in technology and industry standards; and
. respond to technological developments on a timely basis.

Current competitors or new market entrants may develop new technologies,
products or standards that could render our products obsolete. We cannot assure
you that we will be successful in developing and marketing, on a timely and cost
effective basis, product enhancements or new products that respond to
technological developments, that are accepted in the marketplace or that comply
with industry standards.

HIGHLY COMPETITIVE MARKETS

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

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

LIMITED MARKET AND CUSTOMER CONCENTRATION

We market our products to seismic contractors and large, independent and
government-owned oil and gas companies. We estimate, based on published industry
sources, that fewer than 100 seismic contracting companies are currently
operating worldwide (excluding those operating in Russia and the former Soviet
Union, India, the People's Republic of China and certain Eastern European
countries, where seismic data acquisition activity is difficult to verify). Due
to these market factors, a relatively small number of customers has accounted
for most of our sales. The loss of a small number of these customers could
materially and adversely impact our sales. See "Business--Competition".

CREDIT RISKS OF CUSTOMER FINANCING

We have in the past incurred significant write-offs in our accounts
receivables due to customer credit problems. We are subject to credit risks as
to certain of our customers, as we have found it necessary from time to time to
extend trade credit to long-term customers and others where some risks of
nonpayment or late payment exist. Given current industry conditions, some of
our customers may experience liquidity difficulties, which increases those
credit risks. We cannot assure you that sufficient aggregate amounts of
uncollectible receivables and bad debt write-offs will not have a material
adverse effect on our future results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" "Business--Customers" and Notes 1 and 4 of Notes to
Consolidated Financial Statements.

11
<PAGE>

UNCERTAINTY OF PATENT PROTECTION

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

RISKS AND DIFFICULTIES OF FOREIGN MARKETING

Sales by our foreign subsidiaries accounted for approximately 11% of our sales
during fiscal 1998. Additionally, our United States subsidiaries engage in some
export sales. Substantially all of our sales from the United States are made in
U.S. dollars, but from time to time we may make sales in foreign currencies and
may, therefore, be subject to foreign currency fluctuations on our sales. In
addition, net assets reflected on the balance sheet of our Canadian and U.K.
subsidiaries are subject to currency fluctuations. Significant foreign currency
fluctuations could adversely impact our results of operations.

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

RELIANCE ON SINGLE SUPPLIER AS TO ONE PRODUCT AND ON OTHER VENDORS

Many of our products incorporate products or technology supplied by third
parties. To the extent we experience any significant supply or quality control
problems with our vendors, including those associated with the Year 2000 problem
(see "--Risks Related to Year 2000 Issues"), those problems could adversely
effect our ability to meet future production and sales commitments.

A Japanese manufacturer unaffiliated with us is currently the only supplier of
wide format printheads that we use in our wide format thermal plotters. We
believe we maintain an adequate inventory of these printheads. However, if this
supplier were to discontinue supplying these printheads or was unable or
unwilling to supply printheads in sufficient quantity to meet our requirements,
our ability to compete in the wide format thermal plotting market could be
severely impeded, which could adversely affect our financial performance. In
addition, we pay for the printheads in Japanese yen. Accordingly, we are at risk
that, due to currency fluctuations, the cost of the printheads to us could
increase.

CONTROL BY PRINCIPAL STOCKHOLDER

OYO Japan owns indirectly in the aggregate approximately 52% of our common
stock. Accordingly, OYO Japan, through its wholly-owned subsidiary OYO U.S.A.,
is able to elect all of our directors and to control our management, operations
and affairs. We currently have, and will continue to have, a variety of
contractual relationships with OYO Japan and its affiliates.

UNCERTAINTY OF ACQUISITION STRATEGY

We anticipate that we will continue to selectively pursue acquisitions of
manufacturers of seismic-related products. Nevertheless, we cannot assure you
that attractive acquisitions will be available to us at reasonable prices or
that any completed acquisition (including the recent acquisition of the assets
of LTI) ultimately will be successful.

12
<PAGE>

DEPENDENCE UPON KEY PERSONNEL

Our success depends on attracting and retaining highly skilled professionals.
A number of our employees are highly skilled engineers and other professionals.
If we fail to continue to attract and retain such professionals, our ability to
compete in the industry could be adversely effected. In addition, our success
depends to a significant extent upon the abilities and efforts of several
members of our senior management who joined us subsequent to August 1997, one of
whom is our President and Chief Executive Officer.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It requires (a)
classification of the components of other comprehensive income by their nature
in a financial statement and (b) the display of the accumulated balance of the
other comprehensive income separate from retained earnings and additional paid-
in capital in the equity section of a statement of financial position. SFAS 130
is effective for years beginning after December 15, 1997 and is not expected to
have a material impact on our financial statements.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997 and is not expected to
have a material impact our financial statements.

In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS 132"). SFAS 132 standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable. It also
requires additional information on changes in the benefit obligations and fair
values of plan assets. SFAS 132 is effective for years beginning after December
15, 1997 and is not expected to have a material impact on our financial
statements.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999 and is not
expected to have a material impact on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

13
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 1998 Annual Meeting of
Stockholders under the captions "Proposal 1: Election of Directors", "Executive
Officers and Compensation" and Compliance With Section 16(A) Of The Securities
Exchange Act Of 1934" and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 1998 Annual Meeting of
Stockholders under the caption "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 1998 Annual Meeting of
Stockholders under the caption "Certain Relationships and Transactions" and is
incorporated herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) AND (D) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

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

(B) REPORTS ON FORM 8-K

None

Exhibit
Number Description of Documents
- ------ ------------------------

2.1(a) Agreement and Plan of Merger, dated February 3, 1998, by and among
JRC/Concord Technologies, Inc., Jimmy R. Cole, Jr., OYO Geospace
Corporation and Bubbles Merge Co.
2.2(a) Agreement and Assignment of Royalty Interest by and between Jimmy R.
Cole, Jr. and 5404339 and More Royalties Company, dated February 3,
1998.
3.1(b) Restated Certificate of Incorporation of the Registrant.
3.2(b) Restated Bylaws of the Registrant.
4.1(c) Business Loan Agreement, dated as of June 26, 1998, made by and
between the Registrant and Bank of America Texas, N.A.
4.2(c) Business Loan Agreement, dated as of June 26, 1998, made by and
between the Company and Bank of America Texas, N.A.
4.3(c) Security Agreements, dated as of June 26, 1998, made by the Registrant
and its Subsidiaries in favor of Bank of America Texas, N.A.
10.1(b) Employment Agreement between the Company and Gary D. Owens.
10.2(b) Employment Agreement between the Company and Michael J. Sheen.
10.3(d) OYO Geospace Corporation 1997 Key Employee Stock Option Plan.

14
<PAGE>

10.4 Amendment No. 1 to OYO Geospace Corporation 1997 Key Employee Stock
Option Plan, dated February 2, 1998.
10.5 Amendment No. 2 to OYO Geospace Corporation 1997 Key Employee Stock
Option Plan, dated November 16, 1998.
10.6(d) OYO Geospace Corporation 1997 Non-Employee Director Plan.
10.7(b) Printhead Purchase Agreement dated November 10, 1995 between the
Company and OYO Corporation.
10.8(b) Master Sales Agreement dated November 10, 1995 between the Company
and OYO Corporation.
10.9(e) Form of Director Indemnification Agreement.
10.10(c) Promissory Note, dated as of June 23, 1998, made by and between the
Registrant and Ameritas Life Insurance Corp.
10.11(c) Business Loan Agreement, dated as of June 26, 1998, made by and
between the Company and Bank of America Texas, N.A.
10.12(c) Security Agreements, dated as of June 26, 1998, made by the
Registrant and its Subsidiaries in favor of Bank of America
Texas, N.A.
10.13(c) Business Loan Continuing Guaranty Agreements, dated as of June 26,
1998, made by the Registrant and its Subsidiaries in favor of Bank
of America Texas, N.A.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule.

_____________________
(a) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1997 (File No. 001-13601).
(b) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed September 30, 1997 (Registration No. 333-36727).
(c) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998 (File No. 001-13601).
(d) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 filed November 5, 1997 (Registration No.
333-36727).
(e) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 filed November 18, 1997 (Registration
No. 333-36727).

15
<PAGE>

SIGNATURES

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

OYO GEOSPACE CORPORATION

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

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

SIGNATURE TITLE DATE
- ----------------------------- ------------------------------ -----------------
<S> <C> <C>

/s/ GARY D. OWENS Chairman of the Board December 17, 1998
- ----------------------------- President and Chief Executive
Gary D. Owens Officer (Principal Executive
Officer)

/s/ THOMAS T. MCENTIRE Chief Financial Officer December 17, 1998
- ----------------------------- (Principal Financial and
Thomas T. McEntire Accounting Officer)

/s/ SATORU OHYA Director December 17, 1998
- -----------------------------
Satoru Ohya

/s/ KATSUHIKO KOBAYASHI Director December 17, 1998
- -----------------------------
Katsuhiko Kobayashi

/s/ ERNEST M. HALL, JR. Director December 17, 1998
- -----------------------------
Ernest M. Hall, Jr.

/s/ MICHAEL J. SHEEN Director December 17, 1998
- -----------------------------
Michael J. Sheen

/s/ THOMAS L. DAVIS Director December 17, 1998
- -----------------------------
Thomas L. Davis

/s/ CHARLES H. STILL Director December 17, 1998
- -----------------------------
Charles H. Still
</TABLE>

16
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants....................................................................... F- 2
Consolidated Balance Sheets as of September 30, 1998 and 1997........................................... F- 3
Consolidated Statements of Operations For The Years Ended
September 30, 1998, 1997 and 1996..................................................................... F- 4
Consolidated Statement of Stockholders' Equity For The Years
Ended September 30, 1998, 1997 and 1996............................................................... F- 5
Consolidated Statements of Cash Flows For The Years Ended
September 30, 1998, 1997 and 1996..................................................................... F- 6
Notes to Consolidated Financial Statements.............................................................. F- 7
Report of Independent Accountants on Financial Statement Schedule....................................... F-22
Schedule II Valuation and Qualifying Accounts.......................................................... F-23
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of OYO Geospace Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of OYO Geospace
Corporation and its subsidiaries at September 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Houston, Texas
November 17, 1998, except for
Note 17, as to which the date
is December 8, 1998

F-2
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS
<TABLE>
<CAPTION>

AS OF SEPTEMBER 30,
------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 3,970 $ 2,488
Trade accounts and current portion of notes receivable, net of
allowance of $503 and $771.................................................. 11,946 6,494
Inventories................................................................... 19,660 15,035
Deferred income tax........................................................... 1,827 1,115
Prepaid expenses and other.................................................... 783 132
------- -------
Total current assets.................................................. 38,186 25,264
Rental equipment, net........................................................... 2,615 2,394
Property, plant and equipment, net.............................................. 16,763 6,108
Trade notes receivable -- long-term portion..................................... -- 30
Patent, net of accumulated amortization of $217................................. 3,463 --
Goodwill, net of accumulated amortization of $312 and $282...................... 1,047 1,006
Deferred income tax............................................................. 818 --
Other assets.................................................................... 396 276
------- -------
Total assets.......................................................... $63,288 $35,078
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and current maturities of long-term debt........................ $ 38 $ 1,500
Accounts payable:
Trade...................................................................... 4,421 2,019
Related parties............................................................ 1,095 1,029
Accrued expenses and other.................................................... 5,276 3,716
Income tax payable............................................................ 506 860
------- -------
Total current liabilities............................................. 11,336 9,124
Long-term debt.................................................................. 956 --
Deferred income tax............................................................. 1,613 854
------- -------
Total liabilities..................................................... 13,905 9,978
------- -------
Commitments and contingencies................................................... -- --
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized, no shares
issued and outstanding..................................................... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 5,439,030 and 4,000,000 shares issued and outstanding at
September 30, 1998 and 1997, respectively.................................. 54 40

Additional paid-in capital.................................................... 29,280 9,785
Retained earnings............................................................. 22,228 15,554
Cumulative foreign currency translation adjustments........................... (509) (279)
Unearned compensation-restricted stock awards................................. (1,670) --
------- -------
Total stockholders' equity............................................ 49,383 25,100
------- -------
Total liabilities and stockholders' equity............................ $63,288 $35,078
======= =======
</TABLE>

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

F-3
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Sales........................................................... $ 65,823 $ 41,049 $ 30,878
Cost of sales................................................... 38,425 24,239 17,278
---------- ---------- ----------
Gross profit.................................................... 27,398 16,810 13,600
Operating expenses:
Selling, general and administrative expenses.................. 11,934 8,183 6,729
Research and development expenses............................. 5,621 2,392 1,959
Bad debt expense (recovery)................................... (97) (4,327) 2,860
---------- ---------- ----------
Total operating expenses............................... 17,458 6,248 11,548
---------- ---------- ----------
Income from operations.......................................... 9,940 10,562 2,052
---------- ---------- ----------
Other income (expense):
Interest expense.............................................. (59) (606) (402)
Interest income............................................... 334 721 137
Other, net.................................................... 51 (52) (201)
---------- ---------- ----------
Total other income (expense), net...................... 326 63 (466)
---------- ---------- ----------
Income before provision for income taxes........................ 10,266 10,625 1,586
Provision for income taxes...................................... 3,592 4,003 577
---------- ---------- ----------
Net income...................................................... $ 6,674 $ 6,622 $ 1,009
========== ========== ==========
Earnings per common share:
Basic................................................... $1.32 $1.66 $.25
========== ========== ==========
Diluted................................................. $1.29 $1.66 $.25
========== ========== ==========
Weighted average shares outstanding Basic...................... 5,072,262 4,000,000 4,000,000
========== ========== ==========
Weighted average shares outstanding Diluted.................... 5,166,756 4,000,000 4,000,000
========== ========== ==========
</TABLE>

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

F-4
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CUMULATIVE UNEARNED
FOREIGN COMPENSATION-
COMMON STOCK ADDITIONAL RECEIVABLE CURRENCY RESTRICTED
-------------------- PAID-IN RETAINED FROM TRANSLATION STOCK
SHARES AMOUNT CAPITAL EARNINGS PARENT ADJUSTMENTS AWARDS TOTAL
------------ ------ ---------- --------- ----------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholder's equity,
September 30, 1995........... 4,000,000 $40 $ 4,687 $ 8,039 $(6,195) $(330) $ -- $ 6,241
Net income..................... -- -- -- 1,009 -- -- -- 1,009
Distribution to Parent......... -- -- -- (116) -- -- -- (116)
Decrease in receivable from
Parent....................... -- -- -- -- 1,449 -- -- 1,449
Foreign currency translation
adjustments.................. -- -- -- -- -- 45 -- 45
--------- --- ------- ------- ---------- ----- ------- -------
Stockholder's equity,
September 30, 1996........... 4,000,000 40 4,687 8,932 (4,746) (285) -- 8,628
Net income..................... -- -- -- 6,622 -- -- -- 6,622
Capital contribution from --
Parent....................... -- -- 5,098 -- -- -- 5,098
Decrease in receivable from
Parent....................... -- -- -- -- 4,746 -- -- 4,746
Foreign currency translation
adjustments.................. -- -- -- -- -- 6 -- 6
--------- --- ------- ------- ---------- ----- ------- -------
Stockholder's equity,
September 30, 1997........... 4,000,000 40 9,785 15,554 -- (279) -- 25,100
Net income..................... -- -- -- 6,674 -- -- -- 6,674
Initial public offering of
common stock (net of issuance
costs of $1,483)............. 1,150,000 11 14,617 -- -- -- -- 14,628
Issuance of common stock
pursuant to restricted stock
awards....................... 129,000 1 2,051 -- -- -- (2,052) --
Issuance of common stock
pursuant to Director Plan.... 910 -- 25 -- -- -- -- 25
Issuance of common stock in
acquisition of business...... 159,120 2 2,802 -- -- -- -- 2,804
Unearned compensation
amortization................. -- -- -- -- -- -- 382 382
Foreign currency translation
adjustments.................. -- -- -- -- -- (230) -- (230)
--------- --- ------- ------- ---------- ----- ------- -------
Stockholders' equity,
September 30, 1998........... 5,439,030 $54 $29,280 $22,228 $ -- $(509) $(1,670) $49,383
========= === ======= ======= ========== ===== ======= =======
</TABLE>

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

F-5
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 6,674 $ 6,622 $ 1,009
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income tax........................................................... (1,213) 1,482 (621)
Depreciation and amortization................................................. 2,803 1,470 1,025
Gain on disposal of rental equipment and property, plant and equipment (48) (101) (139)
Bad debt expense.............................................................. 62 205 2,860
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable......................................... (4,531) (984) (1,314)
Inventories................................................................. (3,429) (2,171) (1,523)
Prepaid expenses and other assets........................................... (832) (268) 107
Accounts payable............................................................ 2,388 443 (622)
Accrued expenses and other.................................................. 1,040 1,785 (473)
Income tax payable.......................................................... (472) 1,515 176
-------- ------- -------
Net cash provided by operating activities................................ 2,442 9,998 485
-------- ------- -------

Cash flows from investing activities:
Proceeds from sale of rental equipment and property, plant and
equipment..................................................................... 311 794 1,087
Capital expenditures............................................................. (11,953) (6,396) (2,063)
Purchase of subsidiary, net of cash acquired..................................... (2,688) -- (968)
-------- ------- -------
Net cash used in investing activities.................................... (14,330) (5,602) (1,944)
-------- ------- -------

Cash flows from financing activities:
Increase in notes payable to banks............................................... 1,700 1,500 --
Principal payments on notes payable to banks..................................... (3,113) -- --
Proceeds received from notes payable to related parties.......................... -- -- 2,500
Principal payments on notes payable to related parties........................... -- (9,733) (2,622)
Net proceeds from initial public offering of common stock........................ 14,628 -- --
Contributions from (distributions to) Parent..................................... -- 816 (116)
Decrease in receivable from Parent............................................... -- 4,746 1,449
-------- ------- -------
Net cash provided by (used in) financing activities...................... 13,215 (2,671) 1,211
-------- ------- -------

Effect of exchange rate changes on cash............................................ 155 (17) 75
-------- ------- -------

Increase (decrease) in cash and cash equivalents................................... 1,482 1,708 (173)
Cash and cash equivalents, beginning of period..................................... 2,488 780 953
-------- ------- -------
Cash and cash equivalents, end of period........................................... $ 3,970 $ 2,488 $ 780
======== ======= =======
</TABLE>

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

F-6
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

Prior to the completion of an initial public offering of common stock on
November 26, 1997, OYO Geospace Corporation ("OYO") was a wholly-owned
subsidiary of OYO Corporation U.S.A. ("OYO USA" or "Parent"). OYO USA is a
wholly-owned subsidiary of OYO Corporation, a Japanese corporation ("OYO
Japan"). As of September 30, 1998, approximately 52% of OYO's common stock was
owned by OYO USA. Through its subsidiaries, OYO designs, manufactures and
distributes instruments and equipment used primarily in the acquisition and
processing of seismic data in the oil and gas industry.

OYO and its subsidiaries are referred to collectively as the "Company". The
Company operates as a single business segment pursuant to Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise". The significant accounting policies followed by the Company are
summarized below.

Basis of Presentation

The accompanying financial statements present the consolidated financial
position and results of operations of the Company. Intercompany balances and
transactions have been eliminated.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid debt securities purchased with an
original maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.

Concentrations of Credit Risk

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

Demand for the Company's primary products is dependent upon the level of
worldwide oil and gas exploration and development activity. Such activity in
turn is primarily dependent upon oil and gas prices, which have been subject to
wide fluctuation in recent years in response to relatively minor changes in the
supply and demand for oil and natural gas, market uncertainty and a variety of
additional factors that are beyond the control of the Company. Recent worldwide
oil prices have been at their lowest levels since 1986. Continuing low prices
for hydrocarbon production have resulted in lower exploration budgets by oil
companies, which has resulted in reduced demand for the Company's seismic data
acquisition equipment. It is reasonably possible that a prolonged decline in
oil prices may impact the Company's estimate of the collectibility of trade
accounts receivable and that such effects may be material to the Company's
financial statements.

Inventories

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

F-7
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property, Plant and Equipment and Rental Equipment

Property, plant and equipment and rental equipment are stated at cost.
Depreciation expense is provided by straight-line and accelerated methods over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Rental equipment................................................ 3-5
Property, plant and equipment:
Machinery and equipment....................................... 3-10
Buildings..................................................... 25
Other......................................................... 5-10
</TABLE>

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

Revenue Recognition

Revenue is primarily derived from the sale and short-term rental under
operating lease of seismic instruments and equipment. Revenue is recognized when
the products are shipped or the rentals occur. Short-term rentals comprised less
than 10% of sales revenues for the years ended September 30, 1998, 1997 and
1996.

Foreign Currency Gains and Losses

The assets and liabilities of foreign subsidiaries have been translated to
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations have been translated using the average exchange rates
during the year. Resulting translation adjustments have been recorded as a
separate component of stockholders' equity as "Cumulative Foreign Currency
Translation Adjustments." Foreign currency transaction gains and losses are
included in the consolidated statement of operations as they occur.

Income Taxes

The Company was included in the consolidated U.S. income tax return of OYO USA
through the date of the initial public offering and the related income taxes
have been allocated as if the Company filed a separate return. Effective with
the income tax reporting period ended September 30, 1998, OYO and its U.S.
subsidiaries file a consolidated income tax return. Foreign subsidiaries file
separate income tax returns in the applicable foreign jurisdictions.

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

Research and Development Costs

Research and development costs are expensed as incurred.

Patent

Patent is being amortized using the straight-line method over the remaining
life of 15 years.

Goodwill

Goodwill represents the excess of the purchase price of purchased subsidiaries
over the estimated fair value of the net assets at the date of acquisition.
Goodwill is amortized using the straight-line method over 40 years. The Company
reviews the carrying value of goodwill to determine whether there has been an
impairment since the date of acquisition by comparing the book value of those
assets to the anticipated future undiscounted cash flows of

F-8
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

those businesses or transactions which gave rise to the assets. If such
undiscounted cash flows are less than the book value of the asset, such asset is
written down to fair value.

Product Warranties

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

Stock-Based Compensation

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

Financial Instruments

Financial instruments of the Company consist of cash and cash equivalents and
amounts receivable and payable. The fair value of financial instruments
approximates the amounts reported in the accompanying consolidated financial
statements.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It requires (a)
classification of the components of other comprehensive income by their nature
in a financial statement and (b) the display of the accumulated balance of the
other comprehensive income separate from retained earnings and additional paid-
in capital in the equity section of a statement of financial position. SFAS 130
is effective for years beginning after December 15, 1997 and will not have a
material impact on the Company's financial reporting practices.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company has not
completed the determination of its operating segments pursuant to SFAS 131;
however, the new standard is not expected to have a material impact on the
Company's financial statements.

In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS 132). SFAS 132 standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable. It also
requires additional information on changes in the benefit obligations and fair
values of plan assets. SFAS 132 is effective for years beginning after December
15, 1997 and is not expected to have a material impact on the Company's
financial statements.

F-9
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999 and is not expected to have a material impact on the Company's
financial statements.

Reclassifications

Certain 1997 and 1996 financial statement amounts have been reclassified to
conform with the September 30, 1998 presentation. These reclassifications had
no effect on total stockholders' equity or net income.

2. ACQUISITION:

On February 3, 1998, the Company acquired 100% of the outstanding common stock
of JRC/Concord Technologies, Inc. ("Concord") as well as certain related
intellectual property for $6.4 million, consisting of cash of $3.6 million and
the issuance of 159,120 shares of the Company's common stock. Concord, located
in Houston, Texas, designs and manufactures equipment used in connection with
deepwater marine seismic surveys.

The allocation of the total purchase price, including related expenses, for
Concord based on the estimated fair value of the net assets acquired, at the
date of acquisition, is as follows (in thousands):
<TABLE>
<CAPTION>

<S> <C>
Net current assets................ $1,487
Property, plant and equipment..... 1,688
Intangible assets................. 3,658
Deferred tax liability............ (441)
------

Total purchase price allocation... 6,392

Consideration:
Cash of acquired company.......... 900
Common stock issued............... 2,804
------

Cash used for acquisition......... $2,688
======
</TABLE>

The consolidated results of operations of the Company include the results of
Concord from the date of acquisition. The revenues and net income of Concord
were not material to the Company's consolidated results of operations for the
years ended September 30, 1998 and 1997.

3. INVENTORIES:

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1997
-------- ---------
<S> <C> <C>
Finished goods.............................................................. $ 3,282 $ 3,385
Work in process............................................................. 3,686 2,641
Raw materials............................................................... 12,692 9,009
------- -------
$19,660 $15,035
======= =======
</TABLE>

F-10
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. NOTES RECEIVABLE:

Notes receivable from customers consisted of the following (in thousands):

AS OF SEPTEMBER 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Various notes receivable from customers bearing interest ranging from 8%
per year to 12% per year, payable in monthly installments with final
installments at various dates through April 1999........................... $ 185 $ 161
----- -----
185 161
Current maturities included in current trade accounts receivable............ 185 131
----- -----
$ -- $ 30
===== =====
</TABLE>

During the years ended September 30, 1997 and 1996, the Company had
outstanding notes receivable with a customer under term note and line of credit
agreements. On December 6, 1996, the customer filed for protection under
Chapter 11 of the bankruptcy code. The Company believed there was substantial
doubt regarding the ability to recover any amounts on the notes receivable with
the customer. Accordingly, a provision for loss of $2.8 million was recorded as
of September 30, 1996, to reduce the combined carrying balance of the term and
line of credit notes receivable to zero. Following is an analysis of combined
activity with respect to the term and line of credit notes receivable for the
year ended September 30, 1996 (in thousands):

<TABLE>
<S> <C>
Contractual balance, October 1, 1995....................................... $ 3,229
Sales to the customer...................................................... 2,862
Interest income added to principal......................................... 567
Payments received.......................................................... (463)
-------
Contractual balance, September 30, 1996.................................... 6,195
Allowance for loss......................................................... (4,334)
Interest income deferred................................................... (1,861)
-------
Balance as reported, September 30, 1996.................................... $ --
=======
</TABLE>

During the year ended September 30, 1997, the Company made sales to the
customer under the line of credit and recognized bad debt expense of $0.1
million. The Company also made cash on delivery sales to the customer during the
year ended September 30, 1997 of $0.6 million and recognized gross profit on
such sales of $0.2 million. On April 29, 1997, the Company established secured
creditor status with the bankruptcy court with respect to the amounts due under
the notes receivable. In September 1997, the Company assigned its rights as a
secured creditor to an unrelated entity, without recourse, in exchange for cash
in the amount of 90% of the aggregate principal and accrued interest on the
notes receivable. On September 29, 1997, the Company collected $6.2 million,
including reimbursement of legal fees of $0.1 million, as a result of the
assignment. Under order of the bankruptcy court, the Company was required to
provide equipment purchase credits to the customer in the amount of $1.0 million
and, accordingly, a liability for this amount was recorded as of September 30,
1997. The Company recognized income from the recovery in the statement of
operations for the year ended September 30, 1997, in the aggregate amount of
$5.1 million, consisting of $4.4 million of recovery of bad debt expense
recognized in the current and prior years, and $0.7 million of interest income.
The Customer was recapitalized under a plan of reorganization and as of
September 30, 1998, had utilized all of the equipment purchase credits provided
by the Company.

5. RENTAL EQUIPMENT:

Rental equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Geophones and related products............................................... $ 5,311 $ 4,198
Accumulated depreciation..................................................... (2,696) (1,804)
------- -------
$ 2,615 $ 2,394
======= =======
</TABLE>

F-11
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------
1998 1997
-------------- -----------------
<S> <C> <C>
Land.......................................................................... $ 1,845 $ 1,792
Buildings..................................................................... 9,728 3,286
Machinery and equipment....................................................... 8,033 4,666
Furniture and fixtures........................................................ 509 771
Transportation equipment...................................................... 396 265
Tools and molds............................................................... 1,293 620
Leasehold improvements........................................................ 307 298
Construction in progress...................................................... 1,113 --
------- -------
23,224 11,698
Accumulated depreciation and amortization..................................... (6,461) (5,590)
------- -------
$16,763 $ 6,108
======= =======
</TABLE>

7. NOTES PAYABLE AND LONG-TERM DEBT:

Notes payable and long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------
1998 1997
-------------- -----------------
<S> <C> <C>
Outstanding balances on bank line of credit agreements........................ $ - $ 1,500
Mortgage note payable, due in monthly installments with
interest at 7.55%, through July 2013, collateralized by
certain land and buildings.................................................. 994 -
----- -------
994 -
Less current portion.......................................................... (38) (1,500)
----- -------
$ 956 $ -
===== =======
</TABLE>

In September 1997, the Company entered into uncommitted, uncollateralized line
of credit agreements with banks in the aggregate amount of $13.0 million.
Outstanding borrowings bear interest at a LIBOR-based rate. At September 30,
1997, the Company had outstanding borrowings of $1.5 million at an interest rate
of 6.9%, which matured on October 29, 1997, and which were extended to December
1, 1997, at an interest rate of 6.22%. The outstanding borrowings were paid in
full at maturity and the credit agreements were terminated.

In June 1998, the Company entered into a $10.0 million working capital line
of credit (the "Credit Agreement") with a bank that expires in June 2000.
Borrowings under the Credit Agreement are subject to borrowing base restrictions
based on consolidated operating results. Borrowings under the Credit Agreement
are collateralized by the Company's accounts receivable and inventory. At the
Company's option, interest on borrowings is based on the Bank's prime rate or
offshore rate. The Credit Agreement prohibits the payment of cash dividends on
the Company's common stock, limits capital expenditures, limits additional
indebtedness to $7.5 million, requires the maintenance of certain financial
amounts and contains other covenants customary in transactions of this type. As
of September 30, 1998, the borrowing base and outstanding borrowings under the
Credit Agreement were $10.0 million and zero, respectively.

Annual maturities of long-term debt and notes payable as of September 30, 1998
are (in thousands): $38 in 1999; $41 in 2000; $44 in 2001; $47 in 2002; $51 in
2003; and $773 thereafter.

F-12
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACCRUED EXPENSES:

Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------------
1998 1997
------------- ----------------
<S> <C> <C>
Employee bonuses.................................................. $2,356 $1,426
Product warranty.................................................. 776 205
Compensated absences.............................................. 465 171
Legal and professional fees....................................... 251 166
Customer equipment purchase credits............................... -- 1,027
Payroll........................................................... 613 172
Property taxes.................................................... 415 346
Other............................................................. 400 203
------ ------
$5,276 $3,716
====== ======
</TABLE>

9. STOCKHOLDERS' EQUITY:

In September 1997, the board of directors of the Company approved an increase
in the authorized shares of the Company's common stock thereby increasing the
authorized number of shares to 20,000,000. In addition, the board of directors
approved a 4,000-for-1 common stock split. Earnings per share information has
been computed as if the Company's common stock, giving effect to the stock
split, had been outstanding for all periods presented.

In November 1997, the Company completed an initial public offering (the
"Offering") of its common stock by selling 2,300,000 common shares, including
1,150,000 common shares previously owned by OYO USA. After deducting
underwriting discounts and offering expenses, the net proceeds from the Offering
were $29.2 million, which were split equally between the Company and the OYO
USA.

10. EMPLOYEE BENEFITS:

The Company's employees are participants in the Parent's 401(k) Retirement
Plan (the "Plan"), which covers substantially all eligible employees in the
United States. The Plan is a qualified salary reduction plan in which all
eligible participants may elect to have a percentage of their compensation
contributed to the Plan, subject to certain guidelines issued by the Internal
Revenue Service. The Company's share of discretionary contributions was
approximately $0.3 million, $0.2 million, and $0.2 million for the years ended
September 30, 1998, 1997 and 1996, respectively.

In September 1997, the board of directors approved the 1997 Key Employee Stock
Option Plan (the "Employee Plan") and reserved an aggregate of 425,000 shares
for issuance thereunder. In November 1997, the board of directors and
stockholder approved the Company's 1997 Non-Employee Director Plan (the
"Director Plan") and reserved an aggregate of 75,000 shares for issuance
thereunder. There were 63,090 shares available for grant under these plans at
September 30, 1998.

Under the Employee Plan, the Company is authorized to issue nonqualified and
incentive stock options to purchase common stock and restricted stock awards of
common stock to key employees of the Company. Options have a term not to exceed
ten years, with the exception of incentive options granted to employees owning
ten percent or more of the outstanding shares of common stock, which have a term
not to exceed five years. The exercise price of any option may not be less than
the fair market value of the common stock on the date of grant. In the case of
incentive options granted to an employee owning ten percent or more of the
outstanding shares of common stock, the exercise price of such option may not be
less than 110% of the fair market value of the common stock on the date of
grant. Options vest over a four-year period commencing on the date of grant in
25% annual increments. Under the Employee Plan, the Company may issue shares of
restricted stock to employees for no payment by the employee or for a payment
below the fair market value on the date of grant. The restricted

F-13
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

stock is subject to certain restrictions described in the Employee Plan, with no
restrictions continuing for more than ten years from the date of the award.

The Company established the Director Plan, pursuant to which options to
purchase shares of common stock are available for grant to non-employee
directors and pursuant to which one-half of the annual fees paid for the
services of such non-employee directors is paid in shares of common stock based
on the fair market value thereof at the date of grant. Options have a term not
to exceed ten years. The exercise price of an option granted may be no less
than the fair market value of the common stock on the date of grant. Options
vest over a four-year period commencing on the date of grant in 25% annual
increments.

The Company commenced granting stock awards under the Employee and Director
Plans during the year ended September 30, 1998. A summary of the status of the
Company's stock options as of September 30, 1998, and the change during the year
is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------------- ------------
<S> <C> <C>
Outstanding at October 1, 1997 -- $ --

Granted........................................................ 313,000 16.00
Exercised...................................................... -- --
Forfeited...................................................... (6,000) 14.00
------- ------
Outstanding at September 30, 1998................................. 307,000 $16.04
======= ======
</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at September 30, 1998:

OPTIONS OUTSTANDING OPTIONS OUTSTANDING
--------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
SHARES TERM EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ------------------------------------- --------------- ------------ ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$14.00 to $21.00..................... 281,700 9.23 $15.19 4,000 $14.00
$21.75 to $27.63..................... 25,300 9.69 25.49 - -
------- ---- ------ -------------- -----------
307,000 9.26 $16.04 4,000 $14.00
======= ==== ====== ============== ===========
</TABLE>

The Company granted 129,000 shares of restricted stock during the year ended
September 30, 1998. No restrictions had lapsed on any such shares as of
September 30, 1998. The Company issued 910 shares of common stock to directors
as partial compensation of services.

The amount of compensation expense related to stock-based employee and
director compensation included in the results of operations was none and $.4
million, respectively, during the year ended September 30, 1998, pursuant to the
provisions of APB 25. Unearned compensation included in stockholders' equity
related to unlapsed restrictions on grants of restricted stock was approximately
$1.7 million as of September 30, 1998.

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123") requires that stock-based awards be measured
and recognized at fair value. Adoption of the cost recognition provisions of
SFAS 123 with respect to stock-based awards to employees is optional and the
Company has decided

F-14
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

not to elect those provisions. As a result, the Company continues to apply APB
25 and related interpretations in accounting for the measurement and recognition
of its employee stock-based awards. However, the Company is required to provide
pro forma disclosure as if the cost recognition provisions of SFAS 123 had been
adopted. Under SFAS 123, compensation cost is measured at the grant date based
on the fair value of the awards and is recognized over the service period, which
is usually the vesting period. The fair values of options granted during the
year ended September 30, 1998 were estimated using the Black-Scholes option-
pricing model with the following assumptions: dividend yield of 0.00%; risk-free
interest rates of 5.71%; expected volatility of 33.05%; and expected option term
of 5 years.

The weighted average fair value of options, restricted stock and directors'
common stock granted during the year ended September 30, 1998 was $6.27 per
share, $16.11 per share and $27.50 per share, respectively.

The pro forma disclosures for the year ended September 30, 1998, as if the
Company had adopted the cost recognition requirements of SFAS 123 are presented
below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
Net income:
<S> <C>
As reported......................................... $6,674
Pro forma........................................... 6,439
Basic earnings per common share:
As reported......................................... $ 1.32
Pro forma........................................... 1.27
Diluted earnings per common share:
As reported......................................... $ 1.29
Pro forma........................................... 1.25
</TABLE>

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

11. INCOME TAXES:

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

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
------------------ --------------- ---------------
<S> <C> <C> <C>
United States............................................ $10,915 $ 9,265 $ 756
Foreign.................................................. (649) 1,360 830
------- ------- ------
$10,266 $10,625 $1,586
======= ======= ======
</TABLE>

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

YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
------------------ --------------- ---------------
<S> <C> <C> <C>
Current:
Federal................................................ $ 3,909 $1,731 $ 707
Foreign................................................ 548 634 321
State.................................................. 348 156 170
------- ------ ------
4,805 2,521 1,198
------- ------ ------
Deferred:
Federal................................................ (395) 1,281 (376)
Foreign................................................ (818) -- (29)
State.................................................. -- 201 (216)
------- ------ ------
(1,213) 1,482 (621)
------- ------ ------
$ 3,592 $4,003 $ 577
======= ====== ======
</TABLE>

F-15
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Provision for U.S. federal income tax at statutory rate................. $3,490 $3,613 $ 539
Effect of foreign income taxes.......................................... (58) 171 64
Tax benefit from use of foreign sales corporation....................... (195) -- --
State income taxes, net of federal income tax benefit................... 229 236 (30)
Nondeductible expenses.................................................. 42 12 12
Other, net.............................................................. 84 (29) (8)
------ ------ -----
$3,592 $4,003 $ 577
====== ====== =====
35.0% 37.7% 36.4%
====== ====== =====
</TABLE>

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

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................................... $ 128 $ 241
Inventory................................................................. 1,277 745
Accrued product warranty.................................................. 264 70
Accrued compensated absences.............................................. 158 59
Net foreign operating loss carryforwards.................................. 818 --
------- ------
2,645 1,115
Deferred income tax liabilities:
Property, plant and equipment and other................................... (1,613) (854)
------- ------

Net deferred income tax asset............................................... $ 1,032 $ 261
======= ======
</TABLE>

Deferred income taxes as of September 30, 1998 and 1997, are reported as
follows in the accompanying consolidated balance sheet (in thousands):

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------
1998 1997
----------------- --------------
<S> <C> <C>
Current deferred income tax asset........................................... $ 1,827 $1,115
Noncurrent deferred income tax asset........................................ 818 --
Noncurrent deferred tax liability........................................... (1,613) (854)
------- ------
$ 1,032 $ 261
======= ======
</TABLE>

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

As of September 30, 1998, the Company had foreign net operating loss
carryforwards of approximately $1.8 million which expire in varying amounts
through the fiscal years 2002 through 2005, if not utilized.

The financial reporting bases of investments in foreign subsidiaries exceeds
their tax basis. A deferred tax liability is not recorded for this temporary
difference because the investment is essentially permanent. A reversal of

F-16
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Company's plans to permanently invest in the operations would cause the
excess to become taxable. At September 30, 1998 and 1997, the temporary
difference related to undistributed earnings for which no deferred taxes have
been provided was approximately $1.5 million and $2.7 million, respectively. The
determination of the unrecognized deferred tax liability related to the
undistributed earnings is not practical.

12. EARNINGS PER COMMON SHARE:

The Company has adopted FASB Statement of Financial Accounting Standards No.
128, "Earnings per Share". In accordance with this new pronouncement, basic
earnings per share is computed by dividing net earnings available to common
stock holders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is determined on the assumption that
outstanding dilutive stock options have been exercised and the aggregate
proceeds as defined were used to reacquire Company common stock using the
average price of such common stock for the period. Prior period earnings per
share amounts have been restated in accordance with the requirements of the
pronouncement.

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
amounts):
<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>

Net earnings available to common stockholders $ 6,674 $ 6,622 $ 1,009
========== ========== ==========

Divided by weighted average common shares and
common share equivalents:
Weighted average common shares 5,072,262 4,000,000 4,000,000
Weighted average common share equivalents 94,494 - -
---------- ---------- ----------

Total weighted average common shares and common
share equivalents 5,166,756 4,000,000 4,000,000
========== ========== ==========

Basic earnings per common share $ 1.32 $ 1.66 $ 0.25
========== ========== ==========

Diluted earnings per common share $ 1.29 $ 1.66 $ 0.25
========== ========== ==========
</TABLE>

In 1998, options on 25,300 shares of common stock were not included in the
calculation of weighted average shares for diluted EPS because their effects
were antidilutive.

13. RELATED PARTY TRANSACTIONS:

Sales to OYO Japan and other affiliated companies, including sales to OYO
Geospace EAME Limited ("OYO UK"), the Company's wholly owned subsidiary in the
United Kingdom, prior to its acquisition in May 1996, were approximately $0.4
million, $2.0 million and $0.9 million during the years ended September 30,
1998, 1997 and

F-17
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)

1996, respectively. Purchases of inventory and equipment for resale from OYO
Japan were approximately $2.6 million, $2.8 million and $2.9 million during the
years ended September 30, 1998, 1997 and 1996, respectively.

Interest expense on the lines of credit from OYO Japan was approximately $0.4
million and $0.3 million during the years ended September 30, 1997 and 1996,
respectively. The average outstanding principal balance on the lines of credit
from OYO Japan was approximately $7.4 million and $7.9 million during the years
ended September 30, 1997, and 1996, respectively.

Effective September 30, 1997, the Company purchased land, buildings and
equipment used in the Company's operations from affiliates for $2.5 million in
cash. The Company previously leased the facilities from the affiliates and
incurred rent expense of approximately $0.2 million during each of the years
ended September 30, 1997 and 1996. The purchase of land, buildings and equipment
was recorded at the historical net book value of the affiliates since the
Company and affiliates were under common control at the purchase date. The
excess of the historical net book value over the purchase of $0.2 million was
recorded to additional paid-in capital, net of deferred income taxes of $0.1
million.

Prior to September 19, 1997, the Company participated in the cash management
system of OYO USA whereby the net cash generated from daily operations was swept
to OYO USA's concentration account and cash required for daily operations was
provided from OYO USA's concentration account. There were no terms for interest
or repayment on the resulting intercompany balances.

On September 19, 1997, the Company separated from OYO USA's cash management
system and the intercompany receivable on that date of $5.0 million was
collected in cash. At the separation date, OYO USA made a cash contribution to
the Company of $0.8 million as consideration for interest on the intercompany
receivable balance during the period October 1994 through the separation date.

During September 1997, additional paid-in capital was increased from the
following transactions with OYO USA (in thousands):

<TABLE>
<S> <C>
Excess of historical net book value of land, buildings and
equipment over the purchase price, net of deferred income
taxes....................................................... $ 116
Contribution of obligations owed to the Parent.................. 4,165
Interest on receivable from the Parent.......................... 775
Other........................................................... 42
------
$5,098
======
</TABLE>

14. COMMITMENTS AND CONTINGENCIES:

Operating Leases

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

YEAR ENDING SEPTEMBER 30,
- -------------------------
<S> <C>
1999......................................................................... $197
2000......................................................................... 27
2001......................................................................... 10
2002 and thereafter.......................................................... 7
----
$241
====
</TABLE>

F-18
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Rent expense was approximately $0.2 million, $0.4 million, and $0.4 million
for the years ended September 30, 1998, 1997 and 1996, respectively, including
rent expense on land, buildings, and equipment which the Company purchased
September 30, 1997, as described in Note 13.

In October 1998, the Company entered into a sixty month lease for
manufacturing space. The lease will commence on January 1, 1999 with annual
rental payments of approximately $212.

Year 2000

The "Year 2000 problem" is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations in affected computer and operational systems. The Company is in
the process of evaluating and correcting the Year 2000 problem as it relates to
its internal accounting and operational software systems and the computers built
into its manufacturing equipment. In addition, the Company is in the process of
evaluating the status of its major suppliers and service providers in addressing
their Year 2000 problem. The costs of evaluating and correcting the Year 2000
problem are charged to expense in the period incurred. As of September 30,
1998, the costs incurred by the Company were not significant. Although the
Company does not expect to incur material additional costs in evaluating and
correcting its Year 2000 problem, it is reasonably possible that unexpected
costs could be incurred that are material to the Company's consolidated
financial statements.

Legal Proceedings

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

15. SUPPLEMENTAL CASH FLOW INFORMATION:

Supplemental cash flow information was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
------------ -------------- --------------
<S> <C> <C> <C>
Cash paid for:
Interest...................................................... $ 59 $ 207 $ 409
Income taxes.................................................. 5,292 2,241 2,095
Noncash investing and financing activities:
Contribution of obligations owed to OYO USA................... -- 4,165 --
Common stock issued in business acquisition................... 2,804 -- --
Common stock issued pursuant to Employee
and Director Plan.......................................... 2,077 -- --
</TABLE>

Assets acquired, other than cash, and liabilities assumed with the May 1996
acquisition of OYO UK totaled $1.6 million and $0.7 million, respectively.

F-19
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. FOREIGN OPERATIONS:

Summary financial information of the Company's foreign subsidiaries is
presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
Net sales:
United States................................................ $ 65,498 $39,736 $29,797
Canada....................................................... 4,574 4,590 3,066
Europe....................................................... 2,733 2,541 2,167
Eliminations................................................. (6,982) (5,818) (4,152)
-------- ------- -------
$ 65,823 $41,049 $30,878
======== ======= =======
Income from operations:
United States................................................ $ 10,015 $ 9,676 $ 1,399
Canada....................................................... 975 1,172 664
Europe....................................................... 26 77 20
Eliminations................................................. (1,076) (363) (31)
-------- ------- -------
$ 9,940 $10,562 $ 2,052
======== ======= =======
Identifiable assets:
United States................................................ $ 83,819 $30,186 $24,497
Canada....................................................... 2,610 6,799 3,709
Europe....................................................... 1,945 2,186 3,237
Eliminations................................................. (25,086) (4,093) (5,171)
-------- ------- -------
$ 63,288 $35,078 $26,272
======== ======= =======
</TABLE>

17. SUBSEQUENT EVENT:

On November 30, 1998, the Company acquired certain assets of LTI, Inc. and its
Canadian subsidiary (together, "LTI") for approximately $4.6 million including
the assumption of approximately $1.8 million of long-term debt. In connection
with the acquisition, the Company issued 55,659 shares of its common stock
valued at $0.8 million. In addition, the Company had paid approximately $2.8
million of cash in connection with the acquisition as of December 8, 1998
including the repayment of $1.7 million of long-term debt. A final cash payment
is to be made in January 1999 upon final determination of the value of the
assets purchased and liabilities assumed. The operations of LTI include the
design and manufacture of land and marine seismic connectors, which will be
combined with the Company's existing seismic connector manufacturing operations.

F-20
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. SELECTED QUARTERLY INFORMATION (UNAUDITED):

The following table represents summarized data for each of the quarters in the
years ended September 30, 1998 and 1997 (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales................................................. $15,776 $18,484 $19,028 $12,535
Gross profit.......................................... 6,512 7,427 8,451 5,008
Income from operations................................ 1,829 2,508 4,107 1,496
Other income (expense), net........................... (126) 151 227 74
Net income............................................ $ 1,108 $ 1,843 $ 2,750 $ 973
======= ======= ======= =======

Basic earnings per share.............................. $ 0.21 $ 0.35 $ 0.52 $ 0.22
======= ======= ======= =======

Diluted earnings per share............................ $ 0.20 $ 0.34 $ 0.51 $ 0.22
======= ======= ======= =======

1997
----------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------- ------------- ------------- -------------

Sales................................................. $10,595 $12,452 $10,415 $ 7,587
Gross profit.......................................... 4,379 4,981 4,202 3,248
Income from operations................................ 5,862 2,119 1,743 838
Other income (expense), net........................... 186 (102) 2 (23)
Net income............................................ $ 3,770 $ 1,257 $ 1,087 $ 508
======= ======= ======= =======

Basic earnings per share.............................. $ 0.95 $ 0.31 $ 0.27 $ 0.13
======= ======= ======= =======

Diluted earnings per share............................ $ 0.95 $ 0.31 $ 0.27 $ 0.13
======= ======= ======= =======
</TABLE>

F-21
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of OYO Geospace Corporation

Our report on the consolidated financial statements of OYO Geospace Corporation
and its subsidiaries is included on page F-2 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule (Schedule II-Valuation and Qualifying Accounts).

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.

PricewaterhouseCoopers LLP

Houston, Texas
November 17, 1998

F-22
<PAGE>

SCHEDULE II

OYO GEOSPACE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
CHARGED
(CREDITED)
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING AND TO OTHER END
OF PERIOD EXPENSES ASSETS DEDUCTIONS OF PERIOD
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts on
accounts and notes receivable $ 771 $ (97) $ - $ (171) $ 503

YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts on
accounts and notes receivable 5,398 (4,327) - (300) 771
Deferred interest on note receivable 1,861 - - (1,861) -

YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts on
accounts and notes receivable 2,586 2,860 - (48) 5,398
Deferred interest on note receivable 1,293 - 568(a) - 1,861
</TABLE>

(a) Deferred interest on notes receivable charged against interest income.

F-23

<PAGE>

EXHIBIT 10.4

AMENDMENT NO. 1
TO
OYO GEOSPACE CORPORATION
1997 KEY EMPLOYEE STOCK OPTION PLAN

FEBRUARY 2, 1998

This Amendment amends the OYO Geospace Corporation 1997 Key Employee Stock
Option Plan (the "Plan") as follows:

1. Section 4.3 of the Plan is amended to read in its entirety as
follows:

" 4.3 RESTRICTIONS ON TRANSFERABILITY OF STOCK AWARDS AND OPTIONS. (a)
Except as set forth in this Section 4.3, Options shall not be transferable
by the Employee other than by will or under the laws of decent and
distribution, and shall be exercisable, during the Employee's lifetime,
only by him. Any attempt to transfer a Stock Award other than pursuant to
the terms of the Plan and the Restricted Stock Agreement shall entitle the
Committee to terminate that Stock Award and all rights of that Employee to
the Restricted Stock included therein.

(b) The Committee may, in its discretion, permit an Employee to
transfer all or any part of an Option, or may grant an Option with terms
that expressly permit all or any part of that Option to be transferred by
the Employee, in either case to (i) the spouse, children or grandchildren
of the Employee ("Immediate Family Members"), (ii) a trust or trusts for
the exclusive benefit of one or more of the Employee's Immediate Family
Members, or (iii) a partnership or other legal entity in which only the
Employee's Immediate Family Members have equity or ownership interests
(collectively, "Permitted Transferees"); provided that (x) there may be no
consideration for any such transfer and (y) subsequent transfers of Options
so transferred (other than transfers by will or under the laws of decent
and distribution, transfers back to the Employee to whom the Option was
originally granted and transfers to other Permitted Transferees of such
Employee) shall be void.

(c) Following the transfer of any Option pursuant to paragraph (b)
above, that Option shall continue to have the same terms and provisions and
be subject to the same restrictions as were applicable immediately before
that transfer, except that references in this Plan and in the Option
Agreement applicable to such Option shall be deemed to be references to the
Permitted Transferee or Permitted Transferees; provided that any provision
of Section 5.6 that would have been triggered by the termination, death,
retirement or disability of the Employee to whom the Option was originally
granted will continue to be triggered by the termination, death, retirement
or disability of such Employee."

2. Section 4.6 of the Plan is amended to read in its entirety as
follows:
<PAGE>

" 4.6 ELECTION UNDER SECTION 83(B) OF THE CODE. If any Employee exercises
the election permitted under Section 83(b) of the Code, that Employee
shall, within ten days of making the election, (i) notify the Committee
that he has made the election and (ii) pay to the Company, in immediately
available funds, an amount equal to the additional amount, if any, that the
Company will be required to withhold under applicable tax law as a result
of such election. If the Employee fails to make such payment or otherwise
provide for such payment, then the Company shall be entitled to deduct such
sums from other compensation payable to such Employee or the Committee
shall be entitled to rescind the Stock Award subject to such election."

<PAGE>

EXHIBIT 10.5

AMENDMENT NO. 2
TO
OYO GEOSPACE CORPORATION
1997 KEY EMPLOYEE STOCK OPTION PLAN

adopted by the Board of Directors November 16, 1998

This Amendment amends the OYO Geospace Corporation 1997 Key Employee Stock
Option Plan (the "Plan") as follows:

1. Section 4.2 of the Plan is amended to read in its entirety as follows:
2.
"4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options and Stock Awards may be granted under the Plan shall be
625,000. The shares may be treasury shares or authorized but unissued
shares. The maximum number of shares subject to Options that may be issued
to any Employee under the Plan in any calender year is 400,000. The number
of shares stated in this Section 4.2 shall be subject to adjustment in
accordance with the provisions of Section 4.5.

In the event that any outstanding Option or Stock Award shall expire or
terminate for any reason or any Option or Stock Award is surrendered, the
shares of Stock allocable to the unexercised portion of that Option or
Stock Award may again be subject to an Option or Stock Award under the
Plan."

<PAGE>

EXHIBIT 21.1

Subsidiaries of
OYO Geospace Corporation

5404339 and More Royalties Company, a Nevada corporation
Concord Technologies, Inc., a Texas corporation
Control Logic, Inc., a Texas corporation
Geo Space Corporation, a Texas corporation
Houston Geophysical Products, Inc., a Texas corporation
OYO Geo Space Canada, Inc., an Alberta corporation
OYO Geospace EAME Limited, a United Kingdom company
OYO Geospace International, Inc., a Barbados corporation
OYO Geospace J.V., Inc., a Texas corporation
OYO Instruments, Inc., a Texas corporation

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement on
Form S-8 (Reg. No. 333-40893) of OYO Geospace Corporation of our reports dated
November 17, 1998, on our audits of the consolidated financial statements and
financial statement schedule of OYO Geospace Corporation and its subsidiaries as
of September 30, 1998 and 1997, and for each of the three years in the period
ended September 30, 1998, which reports are included in this annual report on
Form 10-K.

PricewaterhouseCoopers LLP

Houston, Texas
December 17, 1998

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,970
<SECURITIES> 0
<RECEIVABLES> 12,449
<ALLOWANCES> 503
<INVENTORY> 19,660
<CURRENT-ASSETS> 38,186
<PP&E> 28,535
<DEPRECIATION> 9,157
<TOTAL-ASSETS> 63,288
<CURRENT-LIABILITIES> 11,336
<BONDS> 956
0
0
<COMMON> 54
<OTHER-SE> 49,329
<TOTAL-LIABILITY-AND-EQUITY> 63,288
<SALES> 65,823
<TOTAL-REVENUES> 65,823
<CGS> 38,425
<TOTAL-COSTS> 17,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (97)
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 10,266
<INCOME-TAX> 3,592
<INCOME-CONTINUING> 6,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,674
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.29

</TABLE>