##### 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 June 30, 2005
 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
    
    75-0970548(State or other jurisdiction of
incorporation or organization)
    
    (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
  Title of Each Class
    
    Outstanding at June 30, 2005Common Stock, $.33 1/3 par value
    
    7,461,794 shares




---



DAWSON GEOPHYSICAL COMPANY
  PageNumberPart I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial StatementsStatements of Operations for the Three Months and Nine Months
Ended June 30, 2005 and 2004 (unaudited)Balance Sheets at June 30, 2005 (unaudited) and September 30, 2004Statements of Cash Flows for the Nine Months Ended
June 30, 2005 and 2004 (unaudited)Notes to Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4. Controls and Procedures
    
    
    13Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    13Item 6. Exhibits
    
    
    13Signatures
    
    
    14Index to ExhibitsCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Rule 13a-14(b)Certification of CFO Pursuant to Rule 13a-14(b)
  i




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
   Three Months Ended June 30,
    
    Nine Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Operating revenues
    
    $
    31,500,000
    
    
    $
    17,112,000
    
    
    $
    79,574,000
    
    
    $
    47,790,000Operating costs:Operating expenses
    
    
    22,878,000
    
    
    
    13,504,000
    
    
    
    61,100,000
    
    
    
    38,457,000General and administrative
    
    
    1,409,000
    
    
    
    648,000
    
    
    
    3,192,000
    
    
    
    1,867,000Depreciation
    
    
    2,387,000
    
    
    
    1,156,000
    
    
    
    5,519,000
    
    
    
    3,381,00026,674,000
    
    
    
    15,308,000
    
    
    
    69,811,000
    
    
    
    43,705,000Income from operations
    
    
    4,826,000
    
    
    
    1,804,000
    
    
    
    9,763,000
    
    
    
    4,085,000Other income:Interest income
    
    
    212,000
    
    
    
    58,000
    
    
    
    335,000
    
    
    
    175,000Interest expense
    
    
    
    
    
    
    
    
    
    
    (65,000
    )
    
    
    Gain (loss) on disposal of assets
    
    
    149,000
    
    
    
    (1,000
    )
    
    
    149,000
    
    
    
    (4,000
    )Gain (loss) on sale of short-term investments
    
    
    (4,000
    )
    
    
    (15,000
    )
    
    
    (4,000
    )
    
    
    (15,000
    )Other
    
    
    
    
    
    
    143,000
    
    
    
    239,000
    
    
    
    253,000Income before income tax
    
    
    5,183,000
    
    
    
    1,989,000
    
    
    
    10,417,000
    
    
    
    4,494,000Income tax (expense) benefit:Current
    
    
    (783,000
    )
    
    
    
    
    
    
    (1,516,000
    )
    
    
    Deferred
    
    
    (1,043,000
    )
    
    
    
    
    
    
    (1,617,000
    )(1,826,000
    )
    
    
    
    
    
    
    (3,133,000
    )
    
    
    Net income
    
    $
    3,357,000
    
    
    $
    1,989,000
    
    
    $
    7,284,000
    
    
    $
    4,494,000Net income per common share
    
    $
    0.45
    
    
    $
    0.36
    
    
    $
    1.13
    
    
    $
    0.81Net income per common share-assuming dilution
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    1.11
    
    
    $
    0.80Weighted average equivalent common shares outstanding
    
    
    7,445,525
    
    
    
    5,584,442
    
    
    
    6,446,607
    
    
    
    5,535,741Weighted average equivalent common
shares outstanding-assuming dilution
    
    
    7,540,963
    
    
    
    5,681,372
    
    
    
    6,542,479
    
    
    
    5,601,703
 See
accompanying notes to the financial statements.
 1




---



##### Table of Contents



June 30,
    
    September 30,2005
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,527,000
    
    
    $
    3,587,000Short-term investments
    
    
    20,374,000
    
    
    
    4,130,000Accounts receivable, net of allowance
for doubtful accounts of $335,000 in
2005 and $199,000 in 2004
    
    
    28,186,000
    
    
    
    16,979,000Prepaid expenses and other assets
    
    
    765,000
    
    
    
    440,000Current deferred tax asset
    
    
    1,968,000
    
    
    
    Total current assets
    
    
    56,820,000
    
    
    
    25,136,000Deferred tax asset
    
    
    
    
    
    
    1,648,000Property, plant and equipment
    
    
    126,517,000
    
    
    
    94,050,000Less accumulated depreciation
    
    
    (67,655,000
    )
    
    
    (64,075,000
    )Net property, plant and equipment
    
    
    58,862,000
    
    
    
    29,975,000$
    115,682,000
    
    
    $
    56,759,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,712,000
    
    
    $
    3,357,000Accrued liabilities:Payroll costs and other taxes
    
    
    1,603,000
    
    
    
    742,000Other
    
    
    2,032,000
    
    
    
    971,000Deferred revenue
    
    
    2,685,000
    
    
    
    1,407,000Total current liabilities
    
    
    15,032,000
    
    
    
    6,477,000Deferred tax liability
    
    
    1,937,000
    
    
    
    Stockholders 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;
10,000,000 shares authorized, 7,461,794
and 5,633,794 shares issued and outstanding
in each period
    
    
    2,487,000
    
    
    
    1,878,000Additional paid-in capital
    
    
    80,569,000
    
    
    
    39,949,000Other comprehensive income, net of tax
    
    
    (110,000
    )
    
    
    (28,000
    )Retained earnings
    
    
    15,767,000
    
    
    
    8,483,000Total stockholders equity
    
    
    98,713,000
    
    
    
    50,282,000$
    115,682,000
    
    
    $
    56,759,000
 See accompanying notes to the financial statements.
 2




---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended June 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,284,000
    
    
    $
    4,494,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    5,519,000
    
    
    
    3,381,000Loss (gain) on disposal of assets
    
    
    (149,000
    )
    
    
    4,000Loss on sale of short-term investments
    
    
    4,000
    
    
    
    15,000Deferred income tax expense
    
    
    1,617,000
    
    
    
    Non-cash compensation
    
    
    45,000
    
    
    
    92,000Other
    
    
    (1,000
    )
    
    
    (64,000
    )Change in current assets and liabilities:Increase in accounts receivable
    
    
    (11,207,000
    )
    
    
    (7,056,000
    )Increase in prepaid expenses
    
    
    (325,000
    )
    
    
    (216,000
    )Increase in accounts payable
    
    
    5,355,000
    
    
    
    1,840,000Increase in deferred revenue
    
    
    1,278,000
    
    
    
    Increase (decrease) in accrued liabilities
    
    
    1,922,000
    
    
    
    669,000Net cash provided by operating activities
    
    
    11,342,000
    
    
    
    3,159,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (34,433,000
    )
    
    
    (8,475,000
    )Proceeds from sale of short-term investments
    
    
    4,965,000
    
    
    
    2,973,000Proceeds from maturity of short-term investments
    
    
    
    
    
    
    7,550,000Acquisition of short-term investments
    
    
    (21,309,000
    )
    
    
    (6,245,000
    )Proceeds from sale disposal of assets
    
    
    183,000
    
    
    
    35,000Net cash used in investing activities
    
    
    (50,594,000
    )
    
    
    (4,162,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    188,000
    
    
    
    767,000Proceeds from line of credit
    
    
    10,000,000
    
    
    
    Repayment on line of credit
    
    
    (10,000,000
    )
    
    
    Proceeds from stock offering
    
    
    41,004,000
    
    
    
    Net cash provided by financing activities
    
    
    41,192,000
    
    
    
    767,000Net increase (decrease) in cash and cash equivalents
    
    
    1,940,000
    
    
    
    (236,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    3,587,000
    
    
    
    3,389,000CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    5,527,000
    
    
    $
    3,153,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    476,000
    
    
    $
    14,000NON CASH INVESTING ACTIVITIES:Unrealized gain (loss) on investments
    
    $
    (82,000
    )
    
    $
    (148,000
    )
 See accompanying notes to the financial statements.




---



##### Table of Contents



DAWSON
GEOPHYSICAL COMPANY
 
 NOTES TO FINANCIAL STATEMENTS
 1. ORGANIZATION AND NATURE OF OPERATIONS
  2. OPINION OF MANAGEMENT
    Critical Accounting Policies
  Revenue Recognition.
  Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 4




---



##### Table of Contents



Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
  5




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    3,357,000
    
    
    $
    1,989,000
    
    
    $
    7,284,000
    
    
    $
    4,494,000Add: Stock-based employee compensation expense
included in net income, net of tax
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    73,000Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS
123),
net of tax
    
    
    (107,000
    )
    
    
    (79,000
    )
    
    
    (359,000
    )
    
    
    (310,000
    )Net income, pro forma
    
    $
    3,250,000
    
    
    $
    1,910,000
    
    
    $
    6,970,000
    
    
    $
    4,257,000Basic:Net income per common share, as reported
    
    $
    0.45
    
    
    $
    0.36
    
    
    $
    1.13
    
    
    $
    0.81Net income per common share, pro forma
    
    $
    0.44
    
    
    $
    0.34
    
    
    $
    1.08
    
    
    $
    0.77Diluted:Net income per common share, as reported
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    1.11
    
    
    $
    0.80Net income per common share, pro forma
    
    $
    0.43
    
    
    $
    0.34
    
    
    $
    1.07
    
    
    $
    0.76
 Recently Issued Accounting Pronouncements
  3. NET INCOME PER COMMON SHARE
  6




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004NUMERATOR:Net income and numerator for basic and diluted
net income per common share-income
available to common shareholders
    
    $
    3,357,000
    
    
    $
    1,989,000
    
    
    $
    7,284,000
    
    
    $
    4,494,000DENOMINATOR:Denominator for basic net income per common
share-weighted average common shares
    
    
    7,445,525
    
    
    
    5,584,442
    
    
    
    6,446,607
    
    
    
    5,535,741Effect of dilutive securities-employee stock options
    
    
    95,438
    
    
    
    96,930
    
    
    
    95,872
    
    
    
    65,962Denominator for diluted net income per common
share-adjusted weighted average common shares
and assumed conversions
    
    
    7,540,963
    
    
    
    5,681,372
    
    
    
    6,542,479
    
    
    
    5,601,703Net income per common share
    
    $
    0.45
    
    
    $
    0.36
    
    
    $
    1.13
    
    
    $
    0.81Net income per common share-assuming dilution
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    1.11
    
    
    $
    0.80
 4. DEBT
  5. CONTINGENCY
  7




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
  Overview
    8




---



##### Table of Contents



Highlights of the Quarter Ended June 30, 2005
  
    
    During the third fiscal quarter of 2005, we operated ten data acquisition crews as
compared to seven crews that operated in the third quarter of fiscal 2004. In May 2005 we
deployed our eleventh data acquisition crew.
    
    We continued to experience price improvements and more favorable contract terms in our
agreements with clients. These factors helped improve our revenues during the third quarter
of fiscal 2005.
    
    We continued to grow by upgrading our recording capacity, expanding the channel count
of existing crews, adding to our energy source fleet and making technical improvements in
all phases of our operations.
 Results of Operations
 Operating Revenues.
 Operating Costs.
    9




---



##### Table of Contents



Taxes.
 Liquidity and Capital Resources
 Introduction.
 Cash Flows.
   Capital Expenditures.
   Capital Resources.
 10




---



##### Table of Contents



Payments Due by PeriodWithin
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years(In thousands)Operating lease obligations
    
    $
    428
    
    
    $
    143
    
    
    $
    285
    
    
    $
    0
    
    
    $
    0
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Revenue Recognition.
 11




---



##### Table of Contents



Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
 Recently Issued Accounting Pronouncements
  12




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  13




---



##### Table of Contents



SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: August 9, 2005
    
    By:
    
    /s/ L. Decker DawsonL. Decker DawsonChairman of the Board of Directors and
Chief Executive OfficerDATE: August 9, 2005
    
    By:
    
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Treasurer,Secretary and Chief Financial Officer
 14




---



##### Table of Contents



INDEX TO EXHIBITS
 Number
    
    Exhibit3.1
    
    Restated Articles of Incorporation of the Company (filed on
December 10, 2004 as Exhibit 3.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2004 (File No.
000-10144) 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 (File No. 000-10144) 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 (File No. 000-10144) 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. Pursuant to SEC Release
34-47551, this Exhibit is furnished to the SEC and shall not be
deemed to be filed.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. Pursuant to SEC Release
34-47551, this Exhibit is furnished to the SEC and shall not be
deemed to be filed.
 
 *
    
    Filed herewith.