OYO GEOSPACE CORP, 10-K405, 2000-12-13

OYO GEOSPACE CORP
10-K405, 2000-12-13
MEASURING & CONTROLLING DEVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended September 30, 2000

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

Commission file number 001-13601

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

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

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

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

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

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

There were 5,517,138 shares of the Registrant's Common Stock outstanding as
of the close of business on December 6, 2000. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $45 million
(based upon the closing price of $19.13 on December 6, 2000, as reported by the
NASDAQ Stock Market, Inc.).

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Registrant's 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
report.

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PART I

Item 1. Business

Company and Seismic Industry Overview

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.

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. The streamers then transmit the electrical impulses back to the
vessel via telemetric cable included within the streamers, and the seismic data
is then processed in much the same manner as it is on land.

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

It is estimated that one-to two-thirds of the reserves associated with every
discovery will be left behind in the reservoir, not able to be recovered
economically or at times even identified. Reservoir characterization and
management programs, in which the reservoir is carefully imaged and monitored
throughout the life of the field, are now seen as a vital tool for improving
rates of return. Surveys repeated in time show dynamic changes within the
reservoir and can be used to monitor the effects of production. In fiscal 2000,
we introduced HDSeis(TM), a suite of borehole and reservoir characterization
products and services.

Products and Product Development

Our seismic product lines currently consist of geophones and hydrophones,
including multi-component geophones and hydrophones, seismic leader wire,
geophone string connectors, seismic telemetry cable, high definition reservoir
characterization products and services, thermal imaging products, marine
seismic cable retrieval devices and small data acquisition systems targeted at
niche markets. Our seismic products are compatible with most major seismic data
acquisition systems currently in use. We believe that our seismic products are
among the most technologically advanced instruments and equipment available for
seismic data acquisition.

Our products used in marine seismic data acquisition include our patented
marine seismic cable retrieval devices. Occasionally, streamers are severed and
become disconnected from the vessel as a result of inclement weather, vessel
traffic or human or technological error. Our seismic cable retrieval devices,
which are attached to the streamers, contain 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. We are also developing seismic
streamer "birds", which are rudderlike or finlike devices that attach to the
streamer which help maintain the streamer at a certain desired depth as it is
towed through the water.

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We also have adapted our thermal imaging technology, which we originally
developed for the seismic industry, for commercial applications in the
newsprint, silkscreen and corrugated printing industries. 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 increase
the image clarity of our products. Thermal imaging and related products used
for commercial applications accounted for approximately 20.7% of our sales in
fiscal 2000.

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.

In fiscal 2000, we introduced HDSeis(TM), a suite of borehole and reservoir
characterization products and services. Our new HDSeis(TM) System is a high
definition seismic acquisition system with flexible architecture that can be
configured as a borehole seismic system or as a subsurface system for land or
marine reservoir-monitoring activities.

The scalable architecture of the HDSeis System enables custom designed
system configuration for applications ranging from low-channel engineering and
environmental-scale surveys to large-channel permanent deepwater reservoir
imaging and monitoring surveys. Modular architecture allows virtually unlimited
channel expansion with Global Positioning System (GPS) and fiber-optic
synchronization. In addition, multi-system synchronization features make the
HDSeis well suited for multi-well or multi-site acquisition, simultaneous
surface and downhole acquisition and continuous reservoir monitoring projects.

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

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

We believe our new HD Seis system and tools, designed for cost-effective
deployment and lifetime performance, will make borehole and seabed seismic a
cost effective, reliable resolution to the challenges of reservoir
characterization and monitoring.

This year, we further expanded our manufacturing capabilities with the
addition of new armored cable manufacturing capability. Armored cable is used
in reservoir monitoring as well as in wireline and well-logging applications
and as such represents a potential new market for us. Installation of the
manufacturing equipment should be concluded during the first quarter of fiscal
2001, with first shipments expected shortly thereafter.

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

In marine seismic developments, we are in the final stages of testing a new
marine streamer steering device for use in marine streamer surveys. Known as
"Birds", these rudderlike devices are fitted to the streamer to provide
vertical depth control. The new bird is expected to be ready for commercial
introduction during the first half of fiscal 2001.

Last year, our commercial graphics operations launched the Techstyler, a 14-
inch, 600 dpi, image setter for textile products. This year, we expect to
introduce the Techsetter, a high performance product targeted at the offset
printing market.

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Competition

Our principal competitors for geophones, hydrophones, geophone string
connectors, leader wire and telemetry cable are Input/Output, Inc. and Mark
Products, a division of Sercel. We believe that we are one of the world's
largest manufacturers and distributors of these products. Furthermore, entities
in China and Russia manufacture an older model geophone having the same design
and specifications as our GS-20 DX geophone. In addition to these competitors,
certain manufacturers of marine streamers also manufacture hydrophones for
their own use.

We believe that the principal competitive factors in the seismic instruments
and equipment market are technological superiority, product durability and
reliability and customer service and support. Since price and product delivery
are also important considerations for customers, pricing terms may become more
significant during an industry downturn. These factors can be offset by a
customer's preference for standardization. In general, particular customers
prefer to standardize geophones and hydrophones, particularly if they are used
by a single seismic crew or multiple crews that can support each other. This 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 seismic instruments and equipment is durability
under harsh field conditions. Instruments and equipment must not only meet
rigorous technical specifications regarding signal integrity and sensitivity,
but must also be extremely rugged and durable to withstand the rigors of field
use, often in harsh environments.

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

We believe that our primary competitors in the seismic plotter industry are
iSys Group, Cypress Tech. and Atlantek Inc. The primary competitors for the
commercial graphics market are Xante, Gerber Scientific and EcoPro Imaging.

The primary competitors for downhole high definition seismic data
acquisition services are Western GECO (the recently formed joint venture
between Baker Atlas and Schlumberger) and Tomoseis.

Suppliers

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
often return significant quantities of these products to the manufacturer for
repair, testing and quality assurance review. We believe we maintain an
adequate inventory of these printheads to continue production for two to three
months. 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.

We are not presently experiencing any other 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.

Product Manufacturing

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

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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 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, 2000, we employed approximately 515 people on a full-
time basis, of whom approximately 476 were employed in the United States. We
have never experienced a work stoppage and consider our relationship with our
employees to be satisfactory. None of our employees are unionized.

Item 2. Properties

We conduct operations at the following locations:

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

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

Item 3. Legal Proceedings

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

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

None.

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

Our common stock is traded on the Nasdaq National Market under the symbol
"OYOG". On November 30, 2000, there were approximately 74 holders of record of
our common stock.

The following table presents the range of high and low bid quotations for
our common stock during the two years ended September 30, 2000, as reported by
The Nasdaq Stock Market, Inc.

<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
Year Ended September 30, 2000:
Fourth Quarter................................................. $15.63 $25.00
Third Quarter.................................................. 14.38 23.00
Second Quarter................................................. 10.25 20.50
First Quarter.................................................. 10.25 14.88
Year Ended September 30, 1999:
Fourth Quarter................................................. $10.00 $14.63
Third Quarter.................................................. 7.75 14.00
Second Quarter................................................. 6.75 9.63
First Quarter.................................................. 7.75 16.25
</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.

6
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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,
---------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands, except share and per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales................... $ 53,474 $ 42,031 $ 65,823 $ 41,049 $ 30,878
Cost of sales........... 39,042 25,536 38,425 24,239 17,278
--------- --------- --------- --------- ---------
Gross profit............ 14,432 16,495 27,398 16,810 13,600
Operating expenses:
Selling, general and
administrative....... 10,090 9,682 11,837(1) 3,856(1) 9,589(1)
Research and
development.......... 6,146 6,246 5,621 2,392 1,959
--------- --------- --------- --------- ---------
Total operating
expenses........... 16,236 15,928 17,458 6,248 11,548
--------- --------- --------- --------- ---------
Income (loss) from
operations............. (1,804) 567 9,940 10,562 2,052
Other income (expense),
net.................... 41 84 326 63 (466)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes........... (1,763) 651 10,266 10,625 1,586
Income tax expense
(benefit).............. (572) (187) 3,592 4,003 577
--------- --------- --------- --------- ---------
Net income (loss)....... $ (1,191) $ 838 $ 6,674 $ 6,622 $ 1,009
========= ========= ========= ========= =========
Basic earnings (loss)
per share.............. $ (0.22) $ 0.16 $ 1.32 $ 1.66 $ .25
========= ========= ========= ========= =========
Diluted earnings (loss)
per share.............. $ (0.22) $ 0.15 $ 1.29 $ 1.66 $ .25
========= ========= ========= ========= =========
Weighted average shares
outstanding--Basic..... 5,431,901 5,384,530 5,072,262 4,000,000 4,000,000
Weighted average share
outstanding--Diluted... 5,431,901 5,449,404 5,166,756 4,000,000 4,000,000
Other Financial Data:
Depreciation and
amortization........... $ 4,014 $ 4,319 $ 2,803 $ 1,470 $ 1,025
Capital expenditures.... 6,004 3,656 11,953 6,396 2,063
<CAPTION>
As of September 30,
---------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 28,888 $ 32,339 $ 26,850 $ 16,140 $ 10,718
Total assets............ 65,108 63,419 63,288 35,078 26,272
Short-term debt......... 198 169 38 1,500 3,124
Long-term debt.......... 3,984 4,182 956 -- 7,919
Stockholders' equity.... 50,709 51,398 49,383 25,100 8,628
</TABLE>
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(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.

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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. Our
discussion of our financial condition and results of operations includes
various forward-looking statements about our markets, the demand for our
products and services and our future results. These statements are based on
assumptions that we consider to be reasonable, but that could prove to be
incorrect. For more information regarding our assumptions, you should refer to
"Forward-Looking Statements".

Industry Overview

We design and manufacture instruments and equipment used in the acquisition
and processing of seismic data for the oil and gas industry and for 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.

The seismic data acquisition industry suffered a substantial downturn in
fiscal 1999, which adversely impacted our operations in fiscal 1999 and 2000.
See "Forward-Looking Statements and Risks--A Decline in Industry Conditions
Could Affect our Projected Results; --Demand for Our Products is Volatile".

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

While orders for our products have always had the potential to vary
substantially from quarter to quarter, with variations in timing impacting our
operating results and cash flow, manufacturing capability and expense levels in
any given quarter, reservoir characterization projects, especially deepwater
projects, contemplate more equipment over a greater period of time than is
typically associated with conventional surface seismic systems. Revenue and
expense recognition in accordance with generally accepted accounting principles
for these large scale projects has the potential to produce beneficial--but
strong--fluctuations in quarterly performance.

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Acquisitions and Corporate Restructuring

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 valued at $2.8
million. Concord designs and manufactures equipment used in connection with
deepwater marine seismic surveys.

On November 30, 1998, we acquired substantially all of the assets of LTI,
Inc. and its Canadian subsidiary (together, "LTI") for approximately $1.8
million. In connection with that acquisition, we issued 55,659 shares of our
common stock valued at $0.5 million and paid approximately $1.3 million of
cash. The operations of LTI included the design and manufacture of land and
marine seismic connectors, which we combined with our existing seismic
connector manufacturing operations.

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

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

Results of Operations

The following table sets forth for the fiscal years ended September 30,
2000, 1999 and 1998, the percentage of certain income statement items to total
sales:

<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Sales................................................... 100.0% 100.0% 100.0%
Cost of sales........................................... 73.0 60.8 58.4
Gross profit............................................ 27.0 39.2 41.6
Selling, general and administrative..................... 18.9 23.0 18.0
Research and development................................ 11.5 14.9 8.5
Income (loss) from operations........................... (3.4) 1.3 15.1
Other income , net...................................... 0.1 0.2 0.5
Income (loss) before income taxes....................... (3.3) 1.5 15.6
Income tax expense (benefit)............................ (1.1) (0.5) 5.5
Net income (loss)....................................... (2.2) 2.0 10.1
</TABLE>

Year Ended September 30, 2000 Compared to Year Ended September 30, 1999.

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

Cost of sales for fiscal year 2000 increased $13.5 million, or 52.9%, from
fiscal year 1999. Cost of sales increased as a percentage of total sales to
73.0% in fiscal year 2000 from 60.8% in fiscal year 1999. This percentage
increase is attributable to a shift in our product mix coupled with the effects
of overcapacity in the marketplace. Fiscal year 2000 saw an increase in demand
for our land based seismic products, which generally yield lower gross profit
margins than our marine and commercial graphics product lines. Furthermore,
sales of

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our marine seismic products, which generally provide the highest gross profit
margins, declined significantly during fiscal 2000 as marine seismic activity
continues to be constrained. Finally, excess manufacturing capacity in the
marketplace coupled with unfavorable foreign currency exposures has created a
competitive pricing environment for most of our land based seismic products.

Selling, general and administrative expenses for fiscal year 2000 increased
$0.4 million, or 4.2%, from fiscal year 1999, primarily as a result of
increased sales. Selling, general and administrative expenses decreased as a
percentage of total sales to 18.9% in fiscal year 2000 from 23.0% in fiscal
year 1999, principally reflecting the leveraging of fixed overhead expenses
with the increase in sales volume.

Research and development expenses were relatively stable for fiscal year
2000, decreasing $0.1 million, or 1.6%, from fiscal year 1999. The continued
level of spending reflects the company's commitment toward the development of
reservoir characterization technologies and products. Research and development
expenses decreased as a percentage of total sales to 11.5% in fiscal year 2000
from 14.9% in fiscal year 1999, reflecting a stabilization of research and
development expenditures coupled with increases in our sales volume.

Other income, net decreased $43,000, or 51.2%, from fiscal year 1999. Other
income, net decreased as a percentage of total sales to 0.1% in fiscal year
2000 from 0.2% in fiscal year 1999, primarily as a result of gains reported on
the sale of surplus real estate in fiscal year 1999.

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

Year Ended September 30, 1999 Compared to Year Ended September 30, 1998.

Sales for fiscal year 1999 decreased $23.8 million, or 36.1%, from fiscal
year 1998, primarily as a result of sharply reduced demand for our land-based
seismic products. This decrease was partially offset by an increase in sales of
our marine-based seismic products and thermal imaging products targeted outside
the seismic industry.

Cost of sales for fiscal year 1999 decreased $12.9 million, or 33.5%, from
fiscal year 1998, primarily as a result of reduced sales. Cost of sales
increased as a percentage of total sales to 60.8% in fiscal year 1999 from
58.4% in fiscal year 1998. This percentage increase was generally attributable
to decreased manufacturing efficiencies as a result of the lower sales volume
and competitive pricing pressures associated with our land-based seismic
products. This percentage increase was partially offset by higher gross profit
margins on certain of our marine products. We could experience significantly
lower gross profit margins if our sales continue to decline or if our sales mix
contains a lesser percentage of marine products, which generally have higher
gross profit margins.

Selling, general and administrative expenses for fiscal year 1999 decreased
$2.2 million, or 18.2%, from fiscal year 1998, primarily as a result of cost-
saving measures. Selling, general and administrative expenses increased as a
percentage of total sales to 23.0% in fiscal year 1999 from 18.0% in fiscal
year 1998, principally reflecting the impact of fixed expenses over a lower
sales volume.

Research and development expenses for fiscal year 1999 increased $0.6
million, or 11.1%, from fiscal year 1998, principally resulting from the
increase in research and development expenditures targeted at the development
of our high-definition reservoir characterization products. Research and
development expenses increased as a percentage of total sales to 14.9% in
fiscal year 1999 from 8.5% in fiscal year 1998, reflecting both the increase in
spending and lower sales volume.

Other income (expense), net decreased $0.2 million, or 74.5%, from fiscal
1998 and decreased as a percentage of total sales to 0.2% in fiscal year 1999
from 0.5% in fiscal year 1998, primarily as a result of increased interest
expense partially offset by net gains on the sale of surplus real estate.

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<PAGE>

We recorded a net benefit of $0.2 million for income taxes in fiscal 1999.
The net benefit includes a $0.3 million tax benefit resulting from the
resolution of contingent tax matters and the recognition of tax credits and
other attributes from prior years. Our effective tax rate for fiscal year 1999
was (28.7)% compared to 35.0% in fiscal year 1998. Excluding the impact of the
tax benefits, our effective tax rate for fiscal 1999 would have been 19.0%
compared to 35% for fiscal 1998.

Liquidity and Capital Resources

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

For the year ended September 30, 2000, we used approximately $5.9 million of
cash and cash equivalents in investing activities, consisting of capital
expenditures of approximately $6.0 million, partially offset by approximately
$0.1 million of proceeds from the sale of property and equipment. We estimate
that our capital expenditures in fiscal 2001 will range between $6.0 to $8.0
million, which we expect to fund through operating cash flow and borrowings
under our credit facility as needed.

Financing activities for the year ended September 30, 2000 generated $24,000
of cash, reflecting $193,000 received from the exercise of stock options,
offset by the repayment of long-term debt of $169,000.

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

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

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

At September 30, 1998, we had $4.0 million in cash and cash equivalents. For
the year ended September 30, 1998, cash and cash equivalents generated from
operating activities was approximately $2.4 million, principally consisting of
net income offset by increases in accounts and notes receivable and
inventories. 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. Financing activities for the year ended
September 30, 1998 generated $13.2 million of cash and cash equivalents,
principally resulting from the 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.

We have a working capital line of credit 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 expires in October 2001. Our
credit agreement prohibits us from paying cash dividends on our common stock,
limits our capital expenditures, limits our additional indebtedness to $7.5
million, requires us to maintain certain financial ratios and contains other
customary covenants. There were no borrowings outstanding at September 30, 2000
under our credit agreement.

11
<PAGE>

Among the ratios required by the existing credit facility, one such ratio is
that our debt may not exceed two times our EBITDA (as defined in the facility)
for the most recent four fiscal quarters. As a result of the operating losses
we experienced in the third and fourth quarters of fiscal year 2000, we cannot
assure you that we will be in compliance with this ratio at the end of the
first quarter of fiscal 2001. If we are not in compliance with this ratio, the
lender under the credit facility may refuse our requests for future borrowings
and could terminate the facility.

We use this facility from time to time to supplement our working capital,
and we consider it an important aspect of our liquidity. Therefore, the absence
of a credit facility could significantly constrain our liquidity in the future.
We are currently in discussions with our existing lender, as well as additional
lenders, to design a credit facility more suitable for our borrowing needs. We
expect that these negotiations will result in a credit facility that will
provide us with sufficient liquidity going forward. However, we cannot assure
you that we will be able to amend our existing facility or obtain a new
facility.

We obtained $3.5 million of cash from a mortgage loan in December 1998
secured by one of our manufacturing facilities. We may consider 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 existing cash reserves, cash flows from
operations and borrowing availability under our existing credit facility or
borrowing availability under a new credit facility, should provide us with
sufficient capital resources and liquidity to fund our planned operations
through fiscal 2001. However, there can be no assurance that we will be able to
successfully modify our existing credit facility or obtain a new credit
facility or that such sources of capital will be sufficient to support our
capital requirements in the long-term, and we may be required to issue
additional debt or equity securities in the future to meet our capital
requirements.

Forward-Looking Statements and Risks

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

Our New Products May Not Achieve Market Acceptance.

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

In particular, we have incurred substantial expenditures to develop our
recently introduced HDSeis(TM) product line. We cannot assure you that we will
realize our expectations regarding market acceptance and revenues from these
products and services.

A Decline in Industry Conditions Could Affect our Projected Results.

Any unexpected material changes in oil and gas prices or other market trends
that would impact seismic exploration activity would likely affect the forward-
looking information contained in this document. Our results

12
<PAGE>

for fiscal 2000 were materially and adversely affected by the downturn in the
industry that began in fiscal 1999. Although we currently expect that our
results for fiscal 2001 will show an improvement over fiscal 2000 due to the
recent increase in oil and gas prices and drilling activity and a general
industry view that market conditions have bottomed out and are beginning to
recover, the oil and gas industry is extremely volatile and subject to change
based on political and economic factors outside our control.

Our estimates as to future results and industry trends described in this
document are based on assumptions regarding the future level of seismic
exploration activity and their effect on the demand and pricing of our products
and services. In analyzing the market and its impact on us, we have made the
following assumptions for fiscal 2001:

. The recent increase in the price of oil and gas will increase seismic
exploration activity.

. Demand for seismic instruments and equipment will gradually increase as
the current surplus of equipment in the industry is utilized.

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

. Deep-water marine seismic activity will remain constrained.

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

. Pricing for many of our products will continue to be subject to pricing
pressures due to industry consolidations and competition as the industry
recovers.

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

We May Experience Fluctuations in Quarterly Results of Operations.

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

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

We believe and have assumed that our allowances for bad debts at September
30, 2000 is adequate in light of known circumstances. However, we cannot assure
you that sufficient aggregate amounts of uncollectible receivables and bad debt
write-offs will not have a material adverse effect on our future results of
operations. Many of our customers have suffered from lower revenues and
experienced liquidity challenges resulting from the economic difficulties
throughout our industry. We have in the past incurred significant write-offs in
our accounts receivable due to customer credit problems. We have found it
necessary from time to time to extend trade credit to long-term customers and
others where some risks of nonpayment or late payment exist. Given recent
industry conditions, some of our customers have experienced liquidity
difficulties, which increases those credit risks. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" "Business--Markets and Customers" and Notes 1 and 4 of Notes
to Consolidated Financial Statements.

Demand for Our Products is Volatile.

Demand for our products depends primarily on the level of worldwide oil and
gas exploration activity. That activity, in turn, depends primarily on
prevailing oil and gas prices. Historically, the markets for oil and

13
<PAGE>

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

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

We have approximately 2.4 million shares outstanding held by nonaffiliates.
This small float results in a relatively illiquid market for our common stock.
Our average daily trading volume during this past year has been around 6,000
shares. This may result in greater volatility of our stock price.

Our Industry is Characterized by 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:

. improve our existing product lines;

. address the increasingly sophisticated needs of our customers;

. maintain a reputation for technological leadership;

. maintain market acceptance;

. anticipate changes in technology and industry standards; and

. respond to technological developments on a timely basis.

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

We Operate in Highly Competitive Markets.

The markets for our products are highly competitive. Many of our existing
and potential competitors have substantially greater marketing, financial and
technical resources than we do. Additionally, 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.

We Have a Limited Market.

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

14
<PAGE>

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). We estimate that fewer than ten seismic contractors are
engaged in marine seismic exploration. Due to these market factors, a
relatively small number of customers have accounted for most of our sales. The
loss of a small number of these customers could materially and adversely impact
our sales. See "Business--Markets and Customers".

In November 2000, two of our major customers, Schlumberger and Baker Hughes,
merged their seismic divisions into a new entity called Western GECO. While it
is not apparent at this time what impact this merger will have upon our sales,
the loss of one or both of these customers could materially and adversely
impact our sales.

We Cannot Be Certain of Patent Protection of Our Products.

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

Our Foreign Marketing Efforts Face Additional Risks and Difficulties.

Net sales outside the United States accounted for approximately 68.7% of our
net sales during fiscal 2000. See Note 16 to our financial statements.
Additionally, our United States subsidiaries engage in significant export
sales. Substantially all of our sales from the United States are made in U.S.
dollars, but from time to time we may make sales in foreign currencies and may,
therefore, be subject to foreign currency fluctuations on our sales. In
addition, net assets reflected on the balance sheet of our 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.

We Rely on a Single Supplier for a Significant Product Component.

A Japanese manufacturer unaffiliated with us is currently the only supplier
of wide format printheads that we use in our wide format thermal plotters. 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.

We Are Subject to Control by a Principal Stockholder.

OYO Japan owns indirectly in the aggregate approximately 51.7% 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 may continue to have, a variety of
contractual relationships with OYO Japan and its affiliates.

Our Success Depends Upon A Limited Number of Key Personnel.

Our success depends on attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
professionals. If we fail to continue to attract and retain such

15
<PAGE>

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.

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.

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 2001 Annual Meeting of
Stockholders under the captions "Election of Directors", "Executive Officers
and Compensation" and "Compliance With Section 16(A) of The Securities Exchange
Act of 1934" and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2001 Annual Meeting of
Stockholders under the caption "Executive Officers and Compensation" and is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is contained in our definitive Proxy
Statement to be distributed in connection with our 2001 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 2001 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.

16
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Documents
------- ------------------------
<C> <S>
3.1(a) Restated Certificate of Incorporation of the Registrant.
3.2(a) Restated Bylaws of the Registrant.
4.1(b) Business Loan Agreement, dated as of June 26, 1998, made by and
between the Company and Bank of America Texas, N.A.
4.3(b) 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(a) Employment Agreement between the Company and Gary D. Owens.
10.2(a) Employment Agreement between the Company and Michael J. Sheen.
10.3(c) OYO Geospace Corporation 1997 Key Employee Stock Option Plan.
10.4(d) Amendment No. 1 to OYO Geospace Corporation 1997 Key Employee Stock
Option Plan, dated February 2, 1998.
10.5(d) Amendment No. 2 to OYO Geospace Corporation 1997 Key Employee Stock
Option Plan, dated November 16, 1998.
10.6(c) OYO Geospace Corporation 1997 Non-Employee Director Plan.
10.7(a) Printhead Purchase Agreement dated November 10, 1995 between the
Company and OYO Corporation.
10.8(a) Master Sales Agreement dated November 10, 1995 between the Company
and OYO Corporation.
10.9(e) Form of Director Indemnification Agreement.
10.10(b) Promissory Note, dated as of June 23, 1998, made by and between the
Registrant and Ameritas Life Insurance Corp.
10.11(b) Business Loan Agreement, dated as of June 26, 1998, made by and
between the Company and Bank of America Texas, N.A.
10.12(b) 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(b) 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.
</TABLE>
--------
(a) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed September 30, 1997 (Registration No. 333-36727).
(b) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998 (File No. 001-13601).
(c) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 filed November 5, 1997 (Registration No.
333-36727).
(d) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1998 (File No. 001-13601).
(e) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 filed November 18, 1997 (Registration
No. 333-36727).

17
<PAGE>

SIGNATURES

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

OYO GEOSPACE CORPORATION

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

December 11, 2000

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

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Gary D. Owens Chairman of the Board December 11, 2000
______________________________________ President and Chief
Gary D. Owens Executive Officer
(Principal Executive
Officer)

/s/ Thomas T. McEntire Chief Financial Officer December 11, 2000
______________________________________ (Principal Financial and
Thomas T. McEntire Accounting Officer)

/s/ Satoru Ohya Director December 11, 2000
______________________________________
Satoru Ohya

/s/ Katsuhiko Kobayashi Director December 11, 2000
______________________________________
Katsuhiko Kobayashi

______________________________________ Director
Ernest M. Hall, Jr.

/s/ Michael J. Sheen Director December 11, 2000
______________________________________
Michael J. Sheen

/s/ Thomas L. Davis Director December 11, 2000
______________________________________
Thomas L. Davis

/s/ Charles H. Still Director December 11, 2000
______________________________________
Charles H. Still
</TABLE>

18
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of September 30, 2000 and 1999 ........... F-3
Consolidated Statements of Operations for the Years Ended September 30,
2000, 1999 and 1998..................................................... F-4
Consolidated Statement of Stockholders' Equity for the Years Ended
September 30, 2000, 1999 and 1998....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30,
2000, 1999 and 1998..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Report of Independent Accountants on Financial Statement Schedule........ F-21
Schedule II--Valuation and Qualifying Accounts........................... F-22
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of OYO Geospace Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of OYO
Geospace Corporation and subsidiaries at September 30, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
November 9, 2000

F-2
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

<TABLE>
<CAPTION>
As of September
30,
----------------
ASSETS 2000 1999
------ ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 3,989 $ 5,280
Trade accounts and notes receivable, net of allowance of
$353 and $580............................................. 8,509 7,770
Inventories................................................ 22,095 21,941
Deferred income tax........................................ 1,320 1,864
Prepaid expenses and other................................. 1,778 1,394
------- -------
Total current assets..................................... 37,691 38,249
Rental equipment, net........................................ 1,846 1,654
Property, plant and equipment, net........................... 19,550 17,060
Patent, net of accumulated amortization of $716 and $480..... 3,031 3,303
Goodwill, net of accumulated amortization of $590 and $424... 2,173 2,295
Deferred income tax.......................................... 675 729
Other assets................................................. 142 129
------- -------
Total assets............................................. $65,108 $63,419
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable and current maturities of long-term debt..... $ 198 $ 169
Accounts payable:
Trade.................................................... 5,405 1,853
Related parties.......................................... 289 939
Accrued expenses........................................... 2,679 2,630
Income tax payable......................................... 232 319
------- -------
Total current liabilities................................ 8,803 5,910
Long-term debt............................................... 3,984 4,182
Deferred income tax.......................................... 1,612 1,929
------- -------
Total liabilities........................................ 14,399 12,021
------- -------
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized, no shares
issued and outstanding.................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
5,512,713 and 5,501,359 shares issued and outstanding..... 55 55
Additional paid-in capital................................. 30,088 29,914
Retained earnings.......................................... 21,875 23,066
Accumulated other comprehensive loss....................... (679) (456)
Unearned compensation-restricted stock awards.............. (630) (1,181)
------- -------
Total stockholders' equity............................... 50,709 51,398
------- -------
Total liabilities and stockholders' equity............... $65,108 $63,419
======= =======
</TABLE>

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

F-3
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales......................................... $ 53,474 $ 42,031 $ 65,823
Cost of sales................................. 39,042 25,536 38,425
--------- --------- ---------
Gross profit.................................. 14,432 16,495 27,398
Operating expenses:
Selling, general and administrative
expenses................................... 10,090 9,682 11,837
Research and development expenses........... 6,146 6,246 5,621
--------- --------- ---------
Total operating expenses.................. 16,236 15,928 17,458
--------- --------- ---------
Income (loss) from operations................. (1,804) 567 9,940
--------- --------- ---------
Other income (expense):
Interest expense............................ (324) (336) (59)
Interest income............................. 269 257 334
Other, net.................................. 96 163 51
--------- --------- ---------
Total other income, net................... 41 84 326
--------- --------- ---------
Income (loss) before income taxes............. (1,763) 651 10,266
Income tax expense (benefit).................. (572) (187) 3,592
--------- --------- ---------
Net income (loss)............................. $ (1,191) $ 838 $ 6,674
========= ========= =========
Earnings (loss) per common share:
Basic....................................... $ (0.22) $ 0.16 $ 1.32
========= ========= =========
Diluted..................................... $ (0.22) $ 0.15 $ 1.29
========= ========= =========
Weighted average shares outstanding:
Basic....................................... 5,431,901 5,384,530 5,072,262
========= ========= =========
Diluted..................................... 5,431,901 5,449,404 5,166,756
========= ========= =========
</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, 2000, 1999 and 1998
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Accumulated Unearned
Common Stock Additional Other Compensation-
----------------- Paid-In Retained Comprehensive Restricted
Shares Amount Capital Earnings Income (Loss) Stock Awards Total
--------- ------ ---------- -------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1997................... 4,000,000 $40 $ 9,785 $15,554 $(279) $ -- $25,100
Comprehensive income:
Net income............. -- -- -- 6,674 -- -- 6,674
Foreign currency
translation
adjustments........... -- -- -- -- (230) -- (230)
-------
Total comprehensive
income................ 6,444
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
--------- --- ------- ------- ----- ------ -------
Balance at September 30,
1998................... 5,439,030 54 29,280 22,228 (509) (1,670) 49,383
Comprehensive income:
Net income............. -- -- -- 838 -- -- 838
Foreign currency
translation
adjustments........... -- -- -- -- 53 -- 53
-------
Total comprehensive
income................ -- -- -- -- -- -- 891
Issuance of common stock
pursuant to restricted
stock awards........... 3,000 -- 24 -- -- (24) --
Issuance of common stock
pursuant to Director
Plan................... 3,670 -- 25 -- -- -- 25
Issuance of common stock
in acquisition of
business............... 55,659 1 585 -- -- -- 586
Unearned compensation
amortization........... -- -- -- -- -- 513 513
--------- --- ------- ------- ----- ------ -------
Balance at September 30,
1999................... 5,501,359 55 29,914 23,066 (456) (1,181) 51,398
Comprehensive income:
Net loss............... -- -- -- (1,191) -- -- (1,191)
Foreign currency
translation
adjustments........... -- -- -- -- (223) -- (223)
-------
Total comprehensive
loss.................. (1,414)
Issuance of common stock
pursuant to Director
Plan................... 1,654 -- 25 -- -- -- 25
Termination of
restricted stock
grants................. (5,000) -- (70) -- -- 70 --
Issuance of common stock
pursuant to exercise of
options................ 14,700 -- 219 -- -- -- 219
Unearned compensation
amortization........... -- -- -- -- -- 481 481
--------- --- ------- ------- ----- ------ -------
Balance at September 30,
2000................... 5,512,713 $55 $30,088 $21,875 $(679) $ (630) $50,709
========= === ======= ======= ===== ====== =======
</TABLE>

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

F-5
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

<TABLE>
<CAPTION>
Year Ended September
30,
------------------------
2000 1999 1998
------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(1,191) $ 838 $ 6,674
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income tax expense (benefit)............ 281 368 (1,213)
Depreciation and amortization.................... 4,014 4,319 2,803
(Gain) loss on disposal of property, plant and
equipment....................................... 90 (125) (48)
Bad debt expense................................. 190 488 62
Effects of changes in operating assets and
liabilities:
Trade accounts and notes receivable............ (929) 4,375 (4,531)
Inventories.................................... (154) (533) (3,429)
Prepaid expenses and other assets.............. (384) 251 (832)
Accounts payable............................... 2,902 (3,518) 2,388
Accrued expenses and other..................... 97 (3,233) 1,040
Income tax payable............................. (87) (188) (472)
------- ------ -------
Net cash provided by operating activities.... 4,829 3,042 2,442
------- ------ -------
Cash flows from investing activities:
Proceeds from the sales of property, plant and
equipment......................................... 83 1,625 311
Capital expenditures............................... (6,004) (3,656) (11,953)
Business acquisitions, net of cash acquired........ -- (1,259) (2,688)
------- ------ -------
Net cash used in investing activities............ (5,921) (3,290) (14,330)
------- ------ -------
Cash flows from financing activities:
Increase in notes payable to banks................. 1,431 9,500 1,700
Principal payments on notes payable to banks....... (1,600) (8,036) (3,113)
Proceeds from exercise of stock options............ 193 -- --
Net proceeds from initial public offering of common
stock............................................. -- -- 14,628
------- ------ -------
Net cash provided by financing activities........ 24 1,464 13,215
------- ------ -------
Effect of exchange rate changes on cash.............. (223) 94 155
------- ------ -------
Increase (decrease) in cash and cash equivalents..... (1,291) 1,310 1,482
Cash and cash equivalents, beginning of period....... 5,280 3,970 2,488
------- ------ -------
Cash and cash equivalents, end of period............. $ 3,989 $5,280 $ 3,970
======= ====== =======
</TABLE>

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

F-6
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies:

The Company

OYO Geospace Corporation ("OYO") designs, manufactures and distributes
instruments and equipment used primarily in the acquisition and processing of
seismic data for the oil and gas industry. Prior to the completion of an
initial public offering of common stock on November 26, 1997, 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, 2000, OYO USA owned approximately 51.7% of OYO's
common stock.

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

Basis of Presentation

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

Use of Estimates

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

Cash and Cash Equivalents

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

Concentrations of Credit Risk

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

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

F-7
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

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

Property, Plant and Equipment and Rental Equipment

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

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

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

Revenue Recognition

Revenue is primarily derived from the sale, and short-term rental under
operating lease, of seismic instruments and equipment. Revenue is recognized
when the products are shipped and title has passed to the customer or when
rentals occur. Short-term rentals comprised less than 10% of sales revenues for
fiscal 2000, 1999 and 1998. Revenue from services is recognized when such
services are rendered.

Foreign Currency Gains and Losses

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

Income Taxes

The Company was included in the consolidated U.S. income tax return of OYO
USA through the date of the initial public offering and the income taxes for
all periods prior to that date have been allocated to the Company as if it
filed a separate return. Effective with the income tax reporting period ended
September 30, 1998, OYO and its U.S. subsidiaries file a consolidated U.S.
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 basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company provides a valuation
allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value.

F-8
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Research and Development Costs

Research and development costs are expensed as incurred.

Patent

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

Goodwill

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

Product Warranties

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

Stock-Based Compensation

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

Financial Instruments

Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgement and, therefore, cannot be
determined with precision.

The Company believes that the carrying amounts of its financial instruments,
consisting of cash and cash equivalents, accounts and notes receivable,
accounts payable and long-term debt, approximate the fair values of such items.

Reclassification

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

2. Acquisitions:

F-9
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

cash of $3.6 million and the issuance of 159,120 shares of the Company's common
stock valued at $2.8 million. Concord designs and manufactures equipment used
in connection with deepwater marine seismic surveys.

On November 30, 1998, the Company acquired substantially all of the assets
of LTI, Inc. and its Canadian subsidiary (together, "LTI") for approximately
$1.8 million. In connection with that acquisition, the Company issued 55,659
shares of its common stock valued at $0.5 million and paid approximately $1.3
million of cash. The operations of LTI included the design and manufacture of
land and marine seismic connectors, which were combined with the Company's
existing seismic connector manufacturing operations.

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

<TABLE>
<CAPTION>
LTI Concord
------ -------
<S> <C> <C>
Fair values of assets and liabilities:
Net current assets....................................... $1,907 $2,465
Property, plant and equipment............................ 483 1,688
Patent................................................... -- 3,587
Goodwill................................................. 1,348 --
Deferred income tax...................................... -- (441)
Long-term debt........................................... (1,893) (907)
------ ------
Total allocated purchase price......................... 1,845 6,392
Less noncash consideration--common stock issued............ (586) (2,804)
Less cash of acquired business............................. -- (900)
------ ------
Cash used for business acquisition, net of cash acquired... $1,259 $2,688
====== ======
</TABLE>

The consolidated results of operations of the Company include the results of
acquired businesses from the dates of acquisition. The revenues and net income
of acquired businesses prior to the acquisition dates were not material to the
Company's consolidated results of operations.

3. Inventories:

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
As of September
30,
----------------
2000 1999
-------- -------
<S> <C> <C>
Finished goods.............................................. $ 2,900 $ 3,070
Work in process............................................. 2,708 2,639
Raw materials............................................... 16,487 16,232
-------- -------
$ 22,095 $21,941
======== =======
</TABLE>

4. Notes Receivable:

At September 30, 2000 and 1999, the Company had outstanding notes receivable
from customers in the amount of $0.6 million and $0.8 million, respectively,
which are included in current trade accounts and notes receivable. The notes
receivable outstanding at September 30, 2000, bear interest at rates up to 10%
and are collectible in monthly installments through July 2001. At September 30,
2000 and 1999, the reported amount of notes receivable was net of an allowance
for doubtful accounts of $36,000 and $0.2 million, respectively.

F-10
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Rental Equipment:

Rental equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
As of September
30,
----------------
2000 1999
------- -------
<S> <C> <C>
Geophones and related products............................. $ 5,562 $ 5,036
Less accumulated depreciation.............................. (3,716) (3,382)
------- -------
$1,846 $ 1,654
======= =======
</TABLE>

6. Property, Plant and Equipment:

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

<TABLE>
<CAPTION>
As of September
30,
----------------
2000 1999
------- -------
<S> <C> <C>
Land....................................................... $ 2,123 $ 1,523
Buildings.................................................. 8,545 8,585
Machinery and equipment.................................... 11,817 10,172
Furniture and fixtures..................................... 1,707 1,361
Transportation equipment................................... 182 320
Tools and molds............................................ 1,671 1,628
Leasehold improvements..................................... 860 791
Construction in progress................................... 2,142 52
------- -------
29,047 24,432
Accumulated depreciation and amortization.................. (9,497) (7,372)
------- -------
$19,550 $17,060
======= =======
</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,
--------------
2000 1999
------ ------
<S> <C> <C>
Mortgage note payable, due in monthly installments with
interest at 7.0% through January 2014, collateralized by
certain land and building ............................... $3,266 $3,398
Mortgage note payable, due in monthly installments with
interest at 7.6% through July 2013, collateralized by
certain land and building................................ 916 953
------ ------
4,182 4,351
Less current portion...................................... (198) (169)
------ ------
$3,984 $4,182
====== ======
</TABLE>

The Company has a working capital line of credit under which it is able to
borrow up to $10.0 million secured by accounts receivable and inventory. The
credit agreement related to this line of credit expires in October 2001. The
credit agreement prohibits the Company from paying cash dividends on common
stock,

F-11
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

limits capital expenditures, limits additional indebtedness to $7.5 million,
requires the maintenance of certain financial ratios and contains other
customary covenants. There were no borrowings outstanding at September 30, 2000
under the credit agreement, and borrowing availability was $10.0 million. Our
borrowing availability under our existing credit facility is based on financial
formulas and ratios, which are calculated at the end of each fiscal year. As a
result of the operating losses we experienced in the third and fourth quarters
of fiscal year 2000, our borrowing availability may be reduced. The Company is
currently in discussions with the existing lender, as well as additional
lenders, to design a credit facility more suitable for its borrowing needs.

We believe that the combination of existing cash reserves, cash flows from
operations and borrowing availability under our existing credit facility or
borrowing availability under a new credit facility, should provide us
sufficient capital resources and liquidity to fund our planned operations
through fiscal 2001. However, there can be no assurance that we will be able to
successfully modify our existing credit facility or obtain a new credit
facility or that such sources of capital will be sufficient to support our
capital requirements in the long-term, and we may be required to issue
additional debt or equity securities in the future to meet our capital
requirements.

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

<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
2001............................................................... $ 198
2002............................................................... 212
2003............................................................... 228
2004............................................................... 244
2005............................................................... 263
Thereafter......................................................... 3,037
------
$4,182
======
</TABLE>

8. Accrued Expenses:

Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
As of
September 30,
-------------
2000 1999
------ ------
<S> <C> <C>
Employee bonuses........................................... $ 89 $ 185
Product warranty........................................... 342 410
Compensated absences....................................... 489 501
Legal and professional fees................................ 376 266
Payroll.................................................... 211 402
Property taxes............................................. 552 681
Other...................................................... 620 185
------ ------
$2,679 $2,630
====== ======
</TABLE>

9. Stockholders' Equity:

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
OYO USA.

F-12
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Employee Benefits:

The Company's employees are participants in the OYO Geospace Corporation
Employee's 401(k) Retirement Plan (the "Plan"), which covers substantially all
eligible employees in the United States. The Plan is a qualified salary
reduction plan in which all eligible participants may elect to have a
percentage of their compensation contributed to the Plan, subject to certain
guidelines issued by the Internal Revenue Service. The Company's share of
discretionary matching contributions was approximately $0.3 million, $0.3
million, and $0.3 million in fiscal 2000, 1999 and 1998, respectively.

In September 1997, the board of directors approved the 1997 Key Employee
Stock Option Plan, as amended, (the "Employee Plan") and reserved an aggregate
of 625,000 shares for issuance thereunder. In November 1997, the board of
directors and stockholders approved the Company's 1997 Non-Employee Director
Plan (the "Director Plan") and reserved an aggregate of 75,000 shares for
issuance thereunder. At September 30, 2000 the shares available for grant under
the Employee Plan and Director Plan were 58,400 and 37,266, respectively.

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

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

Effective November 5, 1999, the board of directors approved the OYO Geospace
Corporation 1999 Broad-Based Option Plan (the "Broad-Based Plan") and reserved
an aggregate of 50,000 shares for issuance thereunder. Under the Broad-Based
Plan, the Company is authorized to issue nonqualified stock options to purchase
common stock to all employees (except executive officers and employee
directors) of the Company. Options have a term not to exceed ten years. The
exercise price of any option may not be less than fair market value of the
common stock on the date of grant. Options vest over a one-year period
commencing on the date of grant. There were 16,700 shares available for grant
under this plan at September 30, 2000.

F-13
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

The following table summarizes information about stock options outstanding
and exercisable at September 30, 2000:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Weighted Average
Remaining Term Weighted Average Weighted Average
Range of Exercise Prices Shares (in years) Exercise Price Shares Exercise Price
------------------------ ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 6.81 to $13.49........ 92,800 8.67 $9.76 19,125 $8.29
$13.50 to $20.00........ 376,600 7.92 15.21 132,300 15.19
$20.01 to $27.63........ 20,300 7.73 26.40 13,300 26.66
------- -------
489,700 8.06 14.64 164,725 15.31
======= =======
</TABLE>

The Company granted zero shares and 3,000 shares of restricted stock during
fiscal 2000 and 1999, respectively. The Company issued 1,654 shares and 3,670
shares of common stock to directors during fiscal 2000 and 1999 respectively as
partial compensation for services.

The amount of compensation expense related to stock-based employee and
director compensation included in the results of operations was $0.5 million
and $0.5 million in fiscal 2000 and 1999, respectively, pursuant to the
provisions of APB 25. Unearned compensation included in stockholders' equity
related to unlapsed restrictions on grants of restricted stock was
approximately $0.6 million and $1.2 million as of September 30, 2000 and 1999,
respectively.

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123") requires that stock-based awards be measured
and recognized at fair value. Adoption of the cost recognition provisions of
SFAS 123 with respect to stock-based awards to employees is optional and the
Company decided not to elect those provisions. As a result, the Company
continues to apply APB 25 and related interpretations in accounting for the
measurement and recognition of its employee stock-based awards. However, the
Company is required to provide pro forma disclosure as if the cost recognition
provisions of SFAS 123 had been adopted. Under SFAS 123, compensation cost is
measured at the grant date based on the fair value of the awards and is
recognized over the service period, which is usually the vesting period. The
fair value of options granted during the year ended September 30, 2000 was
estimated using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; risk-free interest rates of 6%; expected
volatility of 38%; and expected option term of 5 years.

F-14
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

The pro forma disclosures as if the Company had adopted the cost recognition
requirements of SFAS 123 are presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended
September 30,
--------------
2000 1999
------- -----
<S> <C> <C>
Net income (loss):
As reported............................................. $(1,191) $ 838
Pro forma............................................... (1,883) 327
Basic earnings (loss) per common share:
As reported............................................. $ (0.22) $0.16
Pro forma............................................... (0.35) 0.06
Diluted earnings (loss) per common share:
As reported............................................. $ (0.22) $0.15
Pro forma............................................... (0.35) 0.06
</TABLE>

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

11. Income Taxes:

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

<TABLE>
<CAPTION>
Year Ended September
30,
---------------------
2000 1999 1998
------- ---- -------
<S> <C> <C> <C>
United States...................................... $(2,716) $448 $10,915
Foreign............................................ 953 203 (649)
------- ---- -------
$(1,763) $651 $10,266
======= ==== =======
</TABLE>

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

<TABLE>
<CAPTION>
Year Ended September
30,
----------------------
2000 1999 1998
------- ----- ------
<S> <C> <C> <C>
Current:
Federal......................................... $(1,075) $(560) $3,909
Foreign......................................... 116 5 548
State........................................... 106 -- 348
------- ----- ------
(853) (555) 4,805
------- ----- ------
Deferred:
Federal......................................... 28 279 (395)
Foreign......................................... 228 89 (818)
State........................................... 25 -- --
------- ----- ------
281 368 (1,213)
------- ----- ------
$ (572) $(187) $3,592
======= ===== ======
</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 (benefit) for income taxes and the statutory federal tax rate of 34%
were as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended
September 30,
-----------------------
2000 1999 1998
------ ----- ------
<S> <C> <C> <C>
Provision for U.S. federal income tax at
statutory rate................................. $ (598) $ 221 $3,490
Effect of foreign income taxes.................. 21 25 (58)
Tax benefit from use of foreign sales
corporation.................................... (59) (159) (195)
State income taxes, net of federal income tax
benefit........................................ 94 -- 229
Nondeductible expenses.......................... 45 38 42
Resolution of prior years' tax matters.......... (75) (312) --
Other, net...................................... -- -- 84
------ ----- ------
$ (572) $(187) $3,592
------ ----- ------
(32.5)% (28.7)% 35.0 %
====== ===== ======
</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,
----------------
2000 1999
------- -------
<S> <C> <C>
Deferred income tax
assets:
Allowance for doubtful
accounts............... $ 110 $ 194
Inventory............... 911 1,362
AMT carryforward........ 175 --
Accrued product
warranty............... 123 140
Accrued compensated
absences............... 176 168
Net foreign operating
loss carryforwards and
deferrals.............. 500 729
------- -------
1,995 2,593
Deferred income tax
liabilities:
Property, plant and
equipment and other.... (1,612) (1,929)
------- -------
Net deferred income tax
asset.................... $ 383 $ 664
======= =======
</TABLE>

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

<TABLE>
<CAPTION>
As of September
30,
----------------
2000 1999
------- -------
<S> <C> <C>
Current deferred income tax asset.......................... $ 1,320 $ 1,864
Noncurrent deferred income tax asset....................... 675 729
Concurrent deferred tax liability.......................... (1,612) (1,929)
------- -------
$ 383 $ 664
======= =======
</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

F-16
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

record, and the expectation that the deductible temporary differences will
reverse during periods in which the Company generates net taxable income or
during periods in which losses can be carried back to offset prior year taxes,
management believes that the Company will realize the benefit of the net
deferred income tax asset after consideration of the valuation allowance.

As of September 30, 2000, the Company had foreign net operating loss
carryforwards of approximately $77,000, which if not utilized will expire, in
varying amounts during fiscal years 2001 through 2005.

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 the
Company's plans to permanently invest in the operations would cause the excess
to become taxable. At September 30, 2000 and 1999, the temporary difference
related to undistributed earnings for which no deferred taxes have been
provided was approximately $2.2 million and $1.6 million, respectively. The
determination of the unrecognized deferred tax liability related to the
undistributed earnings is not practical.

12. Earnings Per Common Share:

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

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

<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) available to common
stockholders.................................. $ (1,191) $ 838 $ 6,674
========= ========= =========
Weighted average common shares and common
shares equivalents:
Common shares................................ 5,431,901 5,384,530 5,072,262
Common share equivalents..................... -- 64,874 94,494
--------- --------- ---------
Total weighted average common shares and common
share equivalents............................. 5,431,901 5,449,404 5,166,756
========= ========= =========
Basic earnings (loss) per common share......... $ (0.22) $ 0.16 $ 1.32
========= ========= =========
Diluted earnings (loss) per common share....... $ (0.22) $ 0.15 $ 1.29
========= ========= =========
</TABLE>

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

13. Related Party Transactions:

Sales to OYO Japan and other affiliated companies were approximately $0.3
million, $0.3 million and $0.4 million during fiscal 2000, 1999 and 1998,
respectively. Purchases of inventory and equipment from OYO Japan were
approximately $4.2 million, $2.7 million and $2.6 million during fiscal 2000,
1999 and 1998, respectively.

F-17
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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>
2001............................................................... $ 540
2002............................................................... 533
2003............................................................... 307
2004............................................................... 95
2005............................................................... --
------
$1,475
======
</TABLE>

Rent expense was approximately $0.5 million, $0.5 million, and $0.2 million
for fiscal 2000, 1999 and 1998, respectively.

Legal Proceedings

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

15. Supplemental Cash Flow Information:

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

<TABLE>
<CAPTION>
Year Ended
September 30,
---------------
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
Cash paid for:
Interest.............................................. $305 $332 $ 59
Income taxes.......................................... 360 143 5,292
Noncash investing and financing activities:
Common stock issued in business acquisitions.......... -- 586 2,804
Common stock issued pursuant to Employee and Director
Plan................................................. 25 49 2,077
</TABLE>

16. Segment and Geographic Information:

The Company manages its business and makes decisions with respect to the
deployment of resources on a single consolidated product-line basis. The
Company has one reportable segment comprised of operations in the United
States, Canada and United Kingdom. The reportable segment provides products as
described in Note 1.

F-18
<PAGE>

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summaries of net sales by geographic area for fiscal 2000 and 1999 are as
follows (in thousands):

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

Net sales are attributed to countries based on the ultimate destination of
the product sold, if known. If the ultimate destination is not known, sales are
attributed to countries based on the geographic location of the initial
shipment. Net sales information by geographic area for fiscal 1998 has been
excluded since presenting such information is not practical. Sales information
for the Company's U.S. domestic and foreign subsidiaries is as follows (in
thousands):

<TABLE>
<CAPTION>
Year Ended September
30,
-------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
United States..................................... $51,740 $40,662 $65,498
Canada............................................ 7,512 1,738 4,574
United Kingdom.................................... 2,254 2,804 2,733
Eliminations...................................... (8,032) (3,173) (6,982)
------- ------- -------
$53,474 $42,031 $65,823
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
As of September 30,
-----------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
United States........................................ $23,809 $21,474 $21,119
Canada............................................... 3,049 3,032 3,221
United Kingdom....................................... 559 664 762
------- ------- -------
$27,417 $25,170 $25,102
======= ======= =======
</TABLE>

The Company had two customers with individual sales of 15% and 13%,
respectively, of total annual sales for fiscal 2000. The Company had no
individual customers comprising more than 10% of annual sales for fiscal 1999
and 1998.

F-19
<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
fiscal 2000 and 1999 (in thousands, except per share amounts).

<TABLE>
<CAPTION>
2000
----------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales....................................... $12,781 $12,935 $14,963 $12,795
Gross profit................................ 3,577 2,085 4,388 4,382
Income (loss) from operations............... (595) (2,283) 459 615
Other income (expense), net................. 99 (140) 53 29
Net income (loss)........................... (397) (1,622) 409 419
Basic earnings (loss) per share............. $ (0.07) $ (0.30) $ 0.08 $ 0.08
======= ======= ======= =======
Diluted earnings (loss) per share........... $ (0.07) $ (0.30) $ 0.07 $ 0.08
======= ======= ======= =======
<CAPTION>
1999
----------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales....................................... $ 9,258 $ 9,564 $12,133 $11,076
Gross profit................................ 3,039 3,791 5,341 4,324
Income (loss) from operations............... (492) 138 771 150
Other income (expense), net................. 283 (103) (122) 26
Net income.................................. 98 203 422 115
Basic earnings per share.................... $ 0.02 $ 0.04 $ 0.08 $ 0.02
======= ======= ======= =======
Diluted earnings per share.................. $ 0.02 $ 0.04 $ 0.08 $ 0.02
======= ======= ======= =======
</TABLE>

F-20
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

Our audits of the consolidated financial statements referred to in our
report dated November 9, 2000 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 14(a)(2)
of this Form 10-K. In our opinion, the financial statement schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
November 9, 2000

F-21
<PAGE>

SCHEDULE II

OYO GEOSPACE CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

<TABLE>
<CAPTION>
Charged Charged
Balance at (Credited) to Balance
Beginning to Costs Other at End
of Period and Expenses Assets Deductions of Period
---------- ------------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 30,
2000
Allowance for doubtful
accounts on accounts and
notes receivable........ $580 $190 $-- $(417) $353
Year Ended September 30,
1999
Allowance for doubtful
accounts on accounts and
notes receivable........ 503 488 -- (411) 580
Year Ended September 30,
1998
Allowance for doubtful
accounts on accounts and
notes receivable........ 771 (97) -- (171) 503
</TABLE>

F-22