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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 December 31, 2006
 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 February 6, 2007Common Stock, $.33 1/3 par value
    
    7,583,244 shares




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DAWSON GEOPHYSICAL COMPANY
  PageNumberPart I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Statements of Operations for the Three Months Ended December 31, 2006 and 2005 (unaudited)
    
    
    1Balance Sheets at December 31, 2006 (unaudited) and September 30, 2006
    
    
    2Statements of Cash Flows for the Three Months Ended December 31, 2006 and 2005 (unaudited)
    
    
    3Notes to Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    15Part II. OTHER INFORMATION
    
    
    15Item 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 6. Exhibits
    
    
    15Signatures
    
    
    16Index to Exhibits
    
    
    17Second Restated Articles of IncorporationRevolving Line of Credit Loan AgreementCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended December 31,2006
    
    
    2005Operating revenues
    
    $
    53,654,000
    
    
    $
    35,493,000Operating costs:Operating expenses
    
    
    39,724,000
    
    
    
    28,138,000General and administrative
    
    
    1,448,000
    
    
    
    1,127,000Depreciation
    
    
    4,014,000
    
    
    
    2,976,00045,186,000
    
    
    
    32,241,000Income from operations
    
    
    8,468,000
    
    
    
    3,252,000Other income:Interest income
    
    
    154,000
    
    
    
    161,000Other
    
    
    32,000
    
    
    
    23,000Income before income tax
    
    
    8,654,000
    
    
    
    3,436,000Income tax expense:Current
    
    
    (1,927,000
    )
    
    
    (535,000
    )Deferred
    
    
    (1,292,000
    )
    
    
    (601,000
    )Net income
    
    $
    5,435,000
    
    
    $
    2,300,000Net income per common share
    
    $
    0.72
    
    
    $
    0.31Net income per common share-assuming dilution
    
    $
    0.71
    
    
    $
    0.30Weighted average equivalent common shares outstanding
    
    
    7,553,809
    
    
    
    7,486,389Weighted average equivalent common
shares outstanding-assuming dilution
    
    
    7,635,013
    
    
    
    7,584,165
 See accompanying notes to the financial statements.
 1




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DAWSON GEOPHYSICAL COMPANY
 
 BALANCE SHEETS
 December 31,
    
    
    September 30,2006
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,815,000
    
    
    $
    8,064,000Short-term investments
    
    
    6,460,000
    
    
    
    6,437,000Accounts receivable, net of allowance
for doubtful accounts of $180,000 in December 2006
and $148,000 in September 2006
    
    
    45,264,000
    
    
    
    46,074,000Prepaid expenses and other assets
    
    
    133,000
    
    
    
    690,000Current deferred tax asset
    
    
    682,000
    
    
    
    1,619,000Total current assets
    
    
    61,354,000
    
    
    
    62,884,000Property, plant and equipment
    
    
    163,953,000
    
    
    
    160,740,000Less accumulated depreciation
    
    
    (78,168,000
    )
    
    
    (74,206,000
    )Net property, plant and equipment
    
    
    85,785,000
    
    
    
    86,534,000$
    147,139,000
    
    
    $
    149,418,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,290,000
    
    
    $
    16,280,000Accrued liabilities:Payroll costs and other taxes
    
    
    869,000
    
    
    
    1,958,000Other
    
    
    4,895,000
    
    
    
    4,195,000Deferred revenue
    
    
    1,642,000
    
    
    
    863,000Total current liabilities
    
    
    14,696,000
    
    
    
    23,296,000Deferred tax liability
    
    
    7,276,000
    
    
    
    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, 7,567,244
and 7,549,244 shares issued and outstanding
in each period
    
    
    2,523,000
    
    
    
    2,517,000Additional paid-in capital
    
    
    82,877,000
    
    
    
    82,370,000Other comprehensive income, net of tax
    
    
    (22,000
    )
    
    
    (33,000
    )Retained earnings
    
    
    39,789,000
    
    
    
    34,354,000Total stockholders equity
    
    
    125,167,000
    
    
    
    119,208,000$
    147,139,000
    
    
    $
    149,418,000
 See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three Months Ended December 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,435,000
    
    
    $
    2,300,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    4,014,000
    
    
    
    2,976,000Non-cash compensation
    
    
    287,000
    
    
    
    186,000Deferred income tax expense
    
    
    1,292,000
    
    
    
    601,000Excess tax benefit from share based payment arrangement
    
    
    (115,000
    )
    
    
    (37,000
    )Other
    
    
    120,000
    
    
    
    7,000Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    810,000
    
    
    
    (4,604,000
    )Decrease in prepaid expenses
    
    
    557,000
    
    
    
    907,000(Decrease) increase in accounts payable
    
    
    (9,596,000
    )
    
    
    4,256,000Decrease in accrued liabilities
    
    
    (389,000
    )
    
    
    (1,065,000
    )Increase in deferred revenue
    
    
    779,000
    
    
    
    2,254,000Net cash provided by operating activities
    
    
    3,194,000
    
    
    
    7,781,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, net of $606,000 noncash capital
expenditures in December 2006
    
    
    (2,670,000
    )
    
    
    (13,535,000
    )Proceeds from disposal of assets
    
    
    
    
    
    
    4,000Proceeds from sale of short-term investments
    
    
    
    
    
    
    4,022,000Net cash used in investing activities
    
    
    (2,670,000
    )
    
    
    (9,509,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Excess tax benefit from share based payment arrangement
    
    
    115,000
    
    
    
    37,000Proceeds from exercise of stock options
    
    
    112,000
    
    
    
    43,000Net cash provided by financing activities
    
    
    227,000
    
    
    
    80,000Net increase (decrease) in cash and cash equivalents
    
    
    751,000
    
    
    
    (1,648,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    8,064,000
    
    
    
    2,803,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    8,815,000
    
    
    $
    1,155,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    139,000
    
    
    $
    40,000NON CASH INVESTING ACTIVITIES:Unrealized gain (loss) on investments
    
    $
    18,000
    
    
    $
    (11,000
    )
 See accompanying notes to the financial statements.
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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.
 Depreciable Lives of Property, Plant and Equipment.
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Tax Accounting.
 Stock Based Compensation.
       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
    
    
    17.91
    
    
    
    (1,750
    )Exercised
    
    
    7.45
    
    
    
    (15,000
    )Balance as of December 31, 2006
    
    $
    9.18
    
    
    
    154,500
    
    
    
    2.06
    
    
    $
    4,260Exercisable as of December 31, 2006
    
    $
    7.94
    
    
    
    125,750
    
    
    
    2.06
    
    
    $
    3,623
 Number of
    
    
    Weighted AverageNonvested Share
    
    
    Grant Date FairAwards
    
    
    ValueNonvested Shares Outstanding September 30, 2006
    
    
    72,000
    
    
    $
    11.35Granted
    
    
    
    
    
    
    Vested
    
    
    (41,500
    )
    
    
    8.81Forfeited
    
    
    (1,750
    )
    
    
    17.91Nonvested Shares Outstanding December 31, 2006
    
    
    28,750
    
    
    $
    14.61
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Number of
    
    
    Weighted AverageRestricted Share
    
    
    Grant Date FairAwards
    
    
    ValueUnvested Restricted Shares Outstanding September 30, 2006
    
    
    
    
    
    
    Granted
    
    
    59,000
    
    
    $
    27.05Forfeited
    
    
    
    
    
    
    Unvested Restricted Shares Outstanding December 31, 2006
    
    
    59,000
    
    
    $
    27.05
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Recently Issued Accounting Pronouncements
    3. NET INCOME PER COMMON SHARE
   Three Months EndedDecember 312006
    
    
    2005NUMERATOR:Net income and numerator for basic and
diluted net income per common
share-income available to common
shareholders
    
    $
    5,435,000
    
    
    $
    2,300,000DENOMINATOR:Denominator for basic net income per
common share-weighted average common
shares
    
    
    7,553,809
    
    
    
    7,486,389Effect of dilutive securities-employee
stock options and restricted stock grants
    
    
    81,204
    
    
    
    97,776Denominator for diluted net income per
common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,635,013
    
    
    
    7,584,165Net income per common share
    
    $
    .72
    
    
    $
    .31Net income per common share-assuming dilution
    
    $
    .71
    
    
    $
    .30
 4. DEBT
  7




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5. CONTINGENCY
    Payments
Due by Period (000s)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,268
    
    
    $
    411
    
    
    $
    500
    
    
    $
    357
    
    
    
    
  8




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
  Overview
    9




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Highlights of the Quarter Ended December 31, 2006
  
    
    We deployed our thirteenth data acquisition crew on a provisional basis to work from time
to time as opportunities arose and operated it throughout the first fiscal quarter and to
date in the second quarter.
    
    We made plans to deploy an additional seismic data crew equipped with 8,500 channels of Aram equipment in April.
    
    We placed an order for a recording system with 8,500 channels
of Aram equipment to replace an existing recording system.
    
    We placed an order for 18 I/O vibrator energy source units to meet ongoing demand.
    
    We opened our new support office in Michigan and added to our technical and
operational staff in our offices in Denver, Oklahoma City and Midland.
 Results of Operations
 Operating Revenues
 Operating Costs
    Taxes
 Liquidity and Capital Resources
 Introduction.
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Cash Flows.
   Capital Expenditures.
   Capital Resources.
    Payments Due by Period (000s)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,268
    
    
    $
    411
    
    
    $
    500
    
    
    $
    357
    
    
    $
    
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Off-Balance Sheet Arrangements
  12




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Critical Accounting Policies
  Revenue Recognition.
  Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
 13




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
    
    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
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  14




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
  15




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SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: February 9, 2007
    
    By:
    
    /s/ Stephen C. JumperStephen C. JumperPresident and Chief Executive OfficerDATE: February 9, 2007
    
    By:
    
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Secretaryand Chief Financial Officer
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INDEX TO EXHIBITS
 Number
    
    Exhibit3.1*
    
    Second Restated Articles of Incorporation of the Company, as amended.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, 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.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. 17