##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Transition Period From to
 Commission File No. 0-10144
 DAWSON GEOPHYSICAL COMPANY
 Texas
(State or other jurisdiction of 
incorporation or organization)
    
    75-0970548
(I.R.S. Employer
Identification No.)
 508 West Wall, Suite 800, Midland, Texas 79701
 (Principal Executive Office)
 Telephone Number: 432-684-3000
 þ o
  o þ o
 o þ
  Title of Each Class
    

Outstanding at May 9, 2007Common Stock, $.33 1/3 par value
    
    7,622,744 shares




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##### 



DAWSON GEOPHYSICAL COMPANY
  PageNumberPart I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Statements of Operations for the Three Months and the Six Months Ended March 31, 2007 and 2006 (unaudited)
    
    
    1Balance Sheets at March 31, 2007 (unaudited) and September 30, 2006
    
    
    2Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006 (unaudited)
    
    
    3Notes to Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15Part II. OTHER INFORMATION
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Index to Exhibits
    
    
    19Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended March 31,
    
    
    Six Months Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    59,935,000
    
    
    $
    40,042,000
    
    
    $
    113,589,000
    
    
    $
    75,535,000Operating costs:Operating expenses
    
    
    45,608,000
    
    
    
    29,109,000
    
    
    
    85,332,000
    
    
    
    57,247,000General and administrative
    
    
    1,605,000
    
    
    
    1,314,000
    
    
    
    3,053,000
    
    
    
    2,441,000Depreciation
    
    
    4,154,000
    
    
    
    3,188,000
    
    
    
    8,168,000
    
    
    
    6,164,00051,367,000
    
    
    
    33,611,000
    
    
    
    96,553,000
    
    
    
    65,852,000Income from operations
    
    
    8,568,000
    
    
    
    6,431,000
    
    
    
    17,036,000
    
    
    
    9,683,000Other income:Interest income
    
    
    272,000
    
    
    
    167,000
    
    
    
    426,000
    
    
    
    328,000Other income (expense)
    
    
    (33,000
    )
    
    
    113,000
    
    
    
    (1,000
    )
    
    
    136,000Income before income tax
    
    
    8,807,000
    
    
    
    6,711,000
    
    
    
    17,461,000
    
    
    
    10,147,000Income tax expense:Current
    
    
    (3,138,000
    )
    
    
    (1,307,000
    )
    
    
    (5,065,000
    )
    
    
    (1,842,000
    )Deferred
    
    
    (301,000
    )
    
    
    (1,053,000
    )
    
    
    (1,593,000
    )
    
    
    (1,654,000
    )(3,439,000
    )
    
    
    (2,360,000
    )
    
    
    (6,658,000
    )
    
    
    (3,496,000
    )Net income
    
    $
    5,368,000
    
    
    $
    4,351,000
    
    
    $
    10,803,000
    
    
    $
    6,651,000Net income per common share
    
    $
    0.71
    
    
    $
    0.58
    
    
    $
    1.43
    
    
    $
    0.89Net income per common
share-assuming dilution
    
    $
    0.70
    
    
    $
    0.57
    
    
    $
    1.41
    
    
    $
    0.88Weighted average equivalent
common shares outstanding
    
    
    7,590,911
    
    
    
    7,504,811
    
    
    
    7,572,156
    
    
    
    7,495,499Weighted average equivalent
common shares
outstanding-assuming dilution
    
    
    7,650,405
    
    
    
    7,593,193
    
    
    
    7,642,709
    
    
    
    7,583,611
 See accompanying notes to the financial statements (unaudited).
 1




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DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
 March 31,
    
    
    September 30,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,337,000
    
    
    $
    8,064,000Short-term investments
    
    
    6,484,000
    
    
    
    6,437,000Accounts receivable, net of allowance for doubtful accounts of $280,000 in March 2007
and $148,000 in September 2006
    
    
    45,187,000
    
    
    
    46,074,000Prepaid expenses and other assets
    
    
    1,771,000
    
    
    
    690,000Current deferred tax asset
    
    
    807,000
    
    
    
    1,619,000Total current assets
    
    
    70,586,000
    
    
    
    62,884,000Property, plant and equipment:
    
    
    180,140,000
    
    
    
    160,740,000Less accumulated depreciation
    
    
    (82,228,000
    )
    
    
    (74,206,000
    )Net property, plant and equipment
    
    
    97,912,000
    
    
    
    86,534,000$
    168,498,000
    
    
    $
    149,418,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    19,203,000
    
    
    $
    16,280,000Accrued liabilities:Payroll costs and other taxes
    
    
    2,275,000
    
    
    
    1,958,000Other
    
    
    5,902,000
    
    
    
    4,195,000Deferred revenue
    
    
    2,180,000
    
    
    
    863,000Total current liabilities
    
    
    29,560,000
    
    
    
    23,296,000Deferred tax liability
    
    
    7,709,000
    
    
    
    6,914,000Stockholders equity:Preferred stock-par value $1.00 per share; 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock-par value $.33 1/3 per share; 50,000,000 shares authorized, 7,622,744 and
7,549,244 shares issued and outstanding in each period
    
    
    2,541,000
    
    
    
    2,517,000Additional paid-in capital
    
    
    83,540,000
    
    
    
    82,370,000Other comprehensive expense, net of tax
    
    
    (9,000
    )
    
    
    (33,000
    )Retained earnings
    
    
    45,157,000
    
    
    
    34,354,000Total stockholders equity
    
    
    131,229,000
    
    
    
    119,208,000$
    168,498,000
    
    
    $
    149,418,000
 See accompanying notes to the financial statements (unaudited).
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DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended March 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    10,803,000
    
    
    $
    6,651,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    8,168,000
    
    
    
    6,164,000Non-cash compensation
    
    
    415,000
    
    
    
    536,000Deferred income tax expense
    
    
    1,593,000
    
    
    
    1,654,000Excess tax benefit from share based payment arrangement
    
    
    (243,000
    )
    
    
    (46,000
    )Other
    
    
    343,000
    
    
    
    (149,000
    )Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    887,000
    
    
    
    (5,876,000
    )(Increase) decrease in prepaid expenses
    
    
    (1,081,000
    )
    
    
    483,000Decrease in accounts payable
    
    
    (3,198,000
    )
    
    
    (371,000
    )Increase in accrued liabilities
    
    
    2,024,000
    
    
    
    1,208,000Increase in deferred revenue
    
    
    1,317,000
    
    
    
    55,000Net cash provided by operating activities
    
    
    21,028,000
    
    
    
    10,309,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, net of $6,120,000 noncash capital expenditures in March 2007
    
    
    (13,521,000
    )
    
    
    (19,713,000
    )Proceeds from disposal of assets
    
    
    4,000
    
    
    
    320,000Proceeds from maturity of short-term investments
    
    
    
    
    
    
    6,510,000Net cash used in investing activities
    
    
    (13,517,000
    )
    
    
    (12,883,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Excess tax benefit from share based payment arrangement
    
    
    243,000
    
    
    
    46,000Proceeds from exercise of stock options
    
    
    519,000
    
    
    
    230,000Net cash provided by financing activities
    
    
    762,000
    
    
    
    276,000Net increase (decrease) in cash and cash equivalents
    
    
    8,273,000
    
    
    
    (2,298,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    8,064,000
    
    
    
    2,803,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    16,337,000
    
    
    $
    505,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    4,106,000
    
    
    $
    604,000NON CASH INVESTING ACTIVITIES:Unrealized gain (loss) on investments
    
    $
    38,000
    
    
    $
    (29,000
    )
 See accompanying notes to the financial statements (unaudited).
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DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 1. ORGANIZATION AND NATURE OF OPERATIONS
  2. OPINION OF MANAGEMENT
   Critical Accounting Policies
  Revenue Recognition. S
  Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 Depreciable Lives of Property, Plant and Equipment.
 4




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Tax Accounting.
 Stock Based Compensation.
     5




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WeightedAverageNumber of
    
    
    RemainingWeighted
    
    
    Optioned
    
    
    Contractual
    
    
    Aggregate IntrinsicAverage Price
    
    
    Shares
    
    
    Term in Years
    
    
    Value ($000)Balance as of September 30, 2006
    
    $
    9.12
    
    
    
    171,250
    
    
    
    2.22
    
    
    $
    3,535Forfeited
    
    
    15.82
    
    
    
    (6,500
    )Exercised
    
    
    7.62
    
    
    
    (70,500
    )Balance as of March 31, 2007
    
    $
    9.77
    
    
    
    94,250
    
    
    
    1.87
    
    
    $
    3,703Exercisable as of March 31, 2007
    
    $
    8.15
    
    
    
    70,250
    
    
    
    1.87
    
    
    $
    2,874
 Number of
    
    
    Weighted AverageNonvested Share
    
    
    Grant Date FairAwards
    
    
    ValueNonvested Shares Outstanding September 30, 2006
    
    
    72,000
    
    
    $
    11.35Granted
    
    
    
    
    
    
    Vested
    
    
    (41,500
    )
    
    
    8.81Forfeited
    
    
    (6,500
    )
    
    
    15.82Nonvested Shares Outstanding March 31, 2007
    
    
    24,000
    
    
    $
    14.52
      6




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Number of
    
    
    Weighted AverageRestricted Share
    
    
    Grant Date FairAwards
    
    
    ValueNonvested Restricted Shares Outstanding September 30, 2006
    
    
    
    
    
    
    Granted
    
    
    59,000
    
    
    $
    27.05Forfeited
    
    
    (3,000
    )
    
    
    27.05Nonvested Restricted Shares Outstanding March 31, 2007
    
    
    56,000
    
    
    $
    27.05
    Recently Issued Accounting Pronouncements
     7




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3. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312007
    
    
    2006
    
    
    2007
    
    
    2006NUMERATOR:Net income and numerator for basic and
diluted net income per common
share-income available to common
shareholders
    
    $
    5,368,000
    
    
    $
    4,351,000
    
    
    $
    10,803,000
    
    
    $
    6,651,000DENOMINATOR:Denominator for basic net income per
common share-weighted average common
shares
    
    
    7,590,911
    
    
    
    7,504,811
    
    
    
    7,572,156
    
    
    
    7,495,499Effect of dilutive securities-employee
stock options and restricted stock grants
    
    
    59,494
    
    
    
    88,382
    
    
    
    70,553
    
    
    
    88,112Denominator for diluted net income per
common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,650,405
    
    
    
    7,593,193
    
    
    
    7,642,709
    
    
    
    7,583,611Net income per common share
    
    $
    0.71
    
    
    $
    0.58
    
    
    $
    1.43
    
    
    $
    0.89Net income per common share-assuming dilution
    
    $
    0.70
    
    
    $
    0.57
    
    
    $
    1.41
    
    
    $
    0.88
 4. DEBT
   5. CONTINGENCY
   8




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Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,384
    
    
    $
    440
    
    
    $
    554
    
    
    $
    390
    
    
    
    
  9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
  Overview
    10




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Highlights of the Quarter Ended March 31, 2007
  
    
    We operated thirteen data acquisition crews during the quarter, an increase of two crews
from the same quarter in fiscal 2006.
    
    We prepared to deploy our fourteenth data crew which began
work in April. We have since
increased the channel count on this crew from 8,500 to 10,000 channels.
    
    We continued to make significant investments in our equipment and recording capacity.  During the quarter we increased the channel count from 8,500 channels to 9,500 channels on an Aram recording system scheduled for delivery in June and which will be used to replace a recording system on an existing crew. We also purchased an additional 1,500 channels of Aram equipment to further expand the recording capacity on our existing crews using Aram equipment, received ten I/O vibrator energy source units and await the delivery of eight more.
 Results of Operations
 Operating Revenues
 Operating Costs
    11




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Taxes
 Liquidity and Capital Resources
 Introduction.
 Cash Flows.
   Capital Expenditures.
   Capital Resources.
  12




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Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,384
    
    
    $
    440
    
    
    $
    554
    
    
    $
    390
    
    
    $
    
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Revenue Recognition.
  Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 13




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Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
 
    
    Expected volatility of our stock price is based on historical volatility over the
expected term of the option.
    
    Expected term of the option is based on historical employee stock option exercise
behavior, the vesting term of the respective option and the contractual term.
    
    Risk-free interest rate for periods with the expected term of the option.
    
    Dividend yield.
   Recently Issued Accounting Pronouncements
  14




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ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting.
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    Number of SharesFor
    
    WithheldPaul H. Brown
    
    
    6,568,882
    
    
    
    243,933L. Decker Dawson
    
    
    6,659,059
    
    
    
    153,756Gary M. Hoover
    
    
    6,479,426
    
    
    
    333,389Stephen C. Jumper
    
    
    6,722,670
    
    
    
    90,145Tim C. Thompson
    
    
    6,570,110
    
    
    
    242,705
  For
    
    
    2,279,039Against
    
    
    1,381,086Abstain
    
    
    271,694Broker Non-Votes
    
    
    2,880,996
 16




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For
    
    
    5,940,100Against
    
    
    48,879Abstain
    
    
    823,835Broker Non-Votes
    
    
    0
 
 ITEM 5. OTHER INFORMATION
  From
    
    ToStephen C. Jumper 
President, Chief Executive Officer
    
    $
    275,000
    
    
    $
    310,000C. Ray Tobias 
Executive Vice President, Chief 
Operating Officer
    
    $
    175,000
    
    
    $
    200,000Christina W. Hagan
Executive Vice
President, Secretary and Chief Financial Officer
    
    $
    175,000
    
    
    $
    187,500Howell W. Pardue 
Executive Vice President
    
    $
    145,000
    
    
    $
    165,000K.S. Forsdick 
Vice President
    
    $
    140,000
    
    
    $
    162,500
 
 ITEM 6. EXHIBITS
  17




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SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: May 10, 2007
    
    By:
    
    /s/ Stephen C. JumperStephen C. Jumper 
President and Chief Executive OfficerDATE: May 10, 2007
    
    By:
    
    /s/ Christina W. HaganChristina W. Hagan 
Executive Vice President, Secretary
and Chief Financial Officer
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INDEX TO EXHIBITS
 Number
    
    Exhibit3.1
    
    Second Restated Articles of Incorporation of the Company, as amended (filed on
February 9, 2007 as Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 2006 and incorporated herein by reference).3.2
    
    Bylaws of the Company, as amended (filed on December 11, 2003 as Exhibit 3 to the
Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2003
and incorporated herein by reference).4.1
    
    Rights Agreement by and between the Company and Mellon Investor Services, LLC
(f/k/a Chasemellon Shareholder Services, L.L.C.), as Rights Agent, dated July 13,
1999 (filed on December 11, 2003 as Exhibit 4 to the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2003 and incorporated herein by
reference).10.1
    
    Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the 2006
Plan), dated November 28, 2006 (filed on January 29, 2007 as Exhibit 10.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference).10.2
    
    Revolving Line of Credit Loan Agreement, dated January 18, 2007, between the
Company and Western National Bank (filed on February 9, 2007 as Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 and
incorporated herein by reference).31.1*
    
    Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to
Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended,
and Section 1350 of Chapter 63 of Title 18 of the United States Code.32.2*
    
    Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to
Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended,
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement. 19