##### 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, 2008
 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
    
    (I.R.S. Employerincorporation or organization)
    
    identification No.)
 508 West Wall, Suite 800, Midland, Texas 79701
(Principal Executive Office)
 Telephone Number: 432-684-3000
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Title of Each Class
    
    Outstanding at August 1, 2008Common Stock, $.33 1/3 par value
    
    7,765,994 shares




---



##### 



DAWSON GEOPHYSICAL COMPANY
  
  PageNumberPart I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Statements of Operations for the Three Months and the Nine Months Ended June 30, 2008
and 2007 (unaudited)
    
    
    3Balance Sheets at June 30, 2008 (unaudited) and September 30, 2007
    
    
    4Statements of Cash Flows for the Nine Months Ended June 30, 2008 and 2007 (unaudited)
    
    
    5Notes to Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Index to Exhibits
    
    
    19Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to 13a-14(b)Certification of CFO Pursuant to Rule 13a-14(b)
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended June 30,
    
    
    Nine Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues
    
    $
    84,568,000
    
    
    $
    68,637,000
    
    
    $
    240,530,000
    
    
    $
    182,226,000Operating costs:Operating expenses
    
    
    60,457,000
    
    
    
    49,825,000
    
    
    
    176,111,000
    
    
    
    135,157,000General and administrative
    
    
    1,649,000
    
    
    
    1,532,000
    
    
    
    5,192,000
    
    
    
    4,585,000Depreciation
    
    
    6,317,000
    
    
    
    4,685,000
    
    
    
    17,722,000
    
    
    
    12,853,00068,423,000
    
    
    
    56,042,000
    
    
    
    199,025,000
    
    
    
    152,595,000Income from operations
    
    
    16,145,000
    
    
    
    12,595,000
    
    
    
    41,505,000
    
    
    
    29,631,000Other income:Interest income
    
    
    76,000
    
    
    
    190,000
    
    
    
    410,000
    
    
    
    616,000Interest expense
    
    
    (116,000
    )
    
    
    
    
    
    
    (316,000
    )
    
    
    Other income (expense)
    
    
    (141,000
    )
    
    
    230,000
    
    
    
    (42,000
    )
    
    
    229,000Income before income tax
    
    
    15,964,000
    
    
    
    13,015,000
    
    
    
    41,557,000
    
    
    
    30,476,000Income tax expense:Current
    
    
    (4,981,000
    )
    
    
    (4,502,000
    )
    
    
    (13,631,000
    )
    
    
    (9,567,000
    )Deferred
    
    
    (1,276,000
    )
    
    
    (952,000
    )
    
    
    (2,223,000
    )
    
    
    (2,545,000
    )(6,257,000
    )
    
    
    (5,454,000
    )
    
    
    (15,854,000
    )
    
    
    (12,112,000
    )Net income
    
    $
    9,707,000
    
    
    $
    7,561,000
    
    
    $
    25,703,000
    
    
    $
    18,364,000Net income per common share
    
    $
    1.27
    
    
    $
    0.99
    
    
    $
    3.35
    
    
    $
    2.42Net income per common
share-assuming dilution
    
    $
    1.26
    
    
    $
    0.98
    
    
    $
    3.33
    
    
    $
    2.40Weighted average equivalent
common shares outstanding
    
    
    7,668,651
    
    
    
    7,622,755
    
    
    
    7,665,253
    
    
    
    7,589,022Weighted average equivalent
common shares
outstanding-assuming
dilution
    
    
    7,733,076
    
    
    
    7,695,371
    
    
    
    7,727,205
    
    
    
    7,660,053
 See accompanying notes to the financial statements (unaudited).
 3




---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
 June 30,
    
    
    September 30,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,834,000
    
    
    $
    14,875,000Accounts receivable, net of allowance
for doubtful accounts of $216,000 and
$176,000 in 2008 and 2007, respectively
    
    
    74,784,000
    
    
    
    56,707,000Prepaid expenses and other assets
    
    
    1,103,000
    
    
    
    815,000Current deferred tax asset
    
    
    697,000
    
    
    
    693,000Total current assets
    
    
    89,418,000
    
    
    
    73,090,000Property, plant and equipment:
    
    
    245,597,000
    
    
    
    207,427,000Less accumulated depreciation
    
    
    (96,806,000
    )
    
    
    (84,655,000
    )Net property, plant and equipment
    
    
    148,791,000
    
    
    
    122,772,000$
    238,209,000
    
    
    $
    195,862,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,807,000
    
    
    $
    12,816,000Accrued liabilities:Payroll costs and other taxes
    
    
    1,612,000
    
    
    
    2,325,000Other
    
    
    13,804,000
    
    
    
    14,263,000Deferred revenue
    
    
    645,000
    
    
    
    2,922,000Line of credit
    
    
    20,000,000
    
    
    
    5,000,000Total current liabilities
    
    
    50,868,000
    
    
    
    37,326,000Deferred tax liability
    
    
    11,609,000
    
    
    
    9,381,000Stockholders 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,
7,765,994 and 7,658,494 shares issued
and outstanding in each period
    
    
    2,588,000
    
    
    
    2,553,000Additional paid-in capital
    
    
    86,137,000
    
    
    
    85,090,000Retained earnings
    
    
    87,007,000
    
    
    
    61,512,000Total stockholders equity
    
    
    175,732,000
    
    
    
    149,155,000$
    238,209,000
    
    
    $
    195,862,000
 See accompanying notes to the financial statements (unaudited).
 4




---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    25,703,000
    
    
    $
    18,364,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    17,722,000
    
    
    
    12,853,000Noncash compensation
    
    
    932,000
    
    
    
    474,000Deferred income tax expense
    
    
    2,223,000
    
    
    
    2,545,000Excess tax benefit from share-based payment arrangement
    
    
    (104,000
    )
    
    
    (583,000
    )Other
    
    
    59,000
    
    
    
    498,000Change in current assets and liabilities:Increase in accounts receivable
    
    
    (14,274,000
    )
    
    
    (5,744,000
    )Increase in prepaid expenses
    
    
    (288,000
    )
    
    
    (289,000
    )Increase (decrease) in accounts payable
    
    
    2,081,000
    
    
    
    (1,317,000
    )(Decrease) increase in accrued liabilities
    
    
    (1,172,000
    )
    
    
    2,650,000(Decrease) increase in deferred revenue
    
    
    (2,277,000
    )
    
    
    1,051,000Net cash provided by operating activities
    
    
    30,605,000
    
    
    
    30,502,000CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from disposal of assets
    
    
    20,000
    
    
    
    238,000Proceeds from maturity of short-term investments
    
    
    
    
    
    
    6,500,000Capital expenditures, net of $700,000 and $3,900,000 noncash
capital expenditures in 2008 and 2007, respectively
    
    
    (47,816,000
    )
    
    
    (44,837,000
    )Net cash used in investing activities
    
    
    (47,796,000
    )
    
    
    (38,099,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    46,000
    
    
    
    537,000Proceeds from line of credit
    
    
    15,000,000
    
    
    
    Excess tax benefit from share-based payment arrangement
    
    
    104,000
    
    
    
    583,000Net cash provided by financing activities
    
    
    15,150,000
    
    
    
    1,120,000Net decrease in cash and cash equivalents
    
    
    (2,041,000
    )
    
    
    (6,477,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    14,875,000
    
    
    
    8,064,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    12,834,000
    
    
    $
    1,587,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest expense
    
    $
    375,000
    
    
    $
    Cash paid during the period for income taxes
    
    $
    14,638,000
    
    
    $
    6,923,000
 See accompanying notes to the financial statements (unaudited).
 5




---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
 
 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 1. ORGANIZATION AND NATURE OF OPERATIONS
  2. OPINION OF MANAGEMENT
   Critical Accounting Policies
  Revenue Recognition
   Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 6




---



##### Table of Contents



Depreciable Lives of Property, Plant and Equipment.
  Tax Accounting.
 Stock-Based Compensation.
 Recently Issued Accounting Pronouncements
    7




---



##### Table of Contents



3. DEBT
  4. STOCK-BASED COMPENSATION
  Incentive Stock Options:
     Stock Awards:
   8




---



##### Table of Contents



5. CONTINGENCY
     Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,723
    
    
    $
    491
    
    
    $
    946
    
    
    $
    286
    
    
    $
    
   6. ADOPTION OF FIN 48
  9




---



##### Table of Contents



Unrecognized TaxBenefitsBalance as of October 1, 2007
    
    $
    137,000Increase (decrease) in prior year tax positions
    
    
    Increase (decrease) in current year tax positions
    
    
    Settlement with taxing authorities
    
    
    Expiration of statutes of limitations
    
    
    (2,000
    )Balance as of June 30, 2008
    
    $
    135,000
   7. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007NUMERATOR:Net income and numerator for basic and
diluted net income per common
share-income available to common
shareholders
    
    $
    9,707,000
    
    
    $
    7,561,000
    
    
    $
    25,703,000
    
    
    $
    18,364,000DENOMINATOR:Denominator for basic net income per
common share-weighted average common
shares
    
    
    7,668,651
    
    
    
    7,622,755
    
    
    
    7,665,253
    
    
    
    7,589,022Effect of dilutive securities-employee
stock options and restricted stock grants
    
    
    64,425
    
    
    
    72,616
    
    
    
    61,952
    
    
    
    71,031Denominator for diluted net income per
common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,733,076
    
    
    
    7,695,371
    
    
    
    7,727,205
    
    
    
    7,660,053Net income per common share
    
    $
    1.27
    
    
    $
    0.99
    
    
    $
    3.35
    
    
    $
    2.42Net income per common share-assuming dilution
    
    $
    1.26
    
    
    $
    0.98
    
    
    $
    3.33
    
    
    $
    2.40
 10




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
  Overview
    11




---



##### Table of Contents



Highlights of the Quarter Ended June 30, 2008
  
    
    We operated sixteen data acquisition crews during the quarter, an increase of two crews from
the same quarter in fiscal 2007;
    
    We continued to make significant capital investments and capital improvements in order to
enhance our data acquisition capabilities, including:
 
    
    The replacement of an I/O MRX recording system with an ARAM ARIES recording system on
an existing crew;
    
    Fielding our sixteenth crew by redeploying an existing I/O MRX recording system;
    
    Increasing total channel count to in excess of 115,000; and
    
    Taking delivery of seven ION vibrator energy source units, bringing the Companys total
to 143 units.
 
    
    During the third fiscal quarter, we operated crews in West Texas, South Texas, East Texas,
the Barnett Shale of the Fort Worth Basin, the Fayetteville Shale in Arkansas, the Rocky
Mountains, New Mexico, Oklahoma, Louisiana, California, and the Appalachian Basin.
 Results of Operations
 Operating Revenues
 Operating Costs
  12




---



##### Table of Contents



Taxes
   Liquidity and Capital Resources
 Introduction.
 Cash Flows.
   13




---



##### Table of Contents



Capital Expenditures.
   Capital Resources.
    Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,723
    
    
    $
    491
    
    
    $
    946
    
    
    $
    286
    
    
    $
    
  14




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Revenue Recognition.
   Allowance for Doubtful Accounts.
 Impairment of Long-Lived Assets.
 Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 15




---



##### Table of Contents



Stock-Based Compensation.
 Recently Issued Accounting Pronouncements
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Managements Evaluation of Disclosure Controls and Procedures
 16




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
  17




---



##### Table of Contents



SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: August 1, 2008
    By:
    /s/ Stephen C. JumperStephen C. JumperPresident and Chief Executive Officer DATE: August 1, 2008
    By:
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Secretary and Chief Financial Officer 18




---



##### Table of Contents



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 and filed on November 28,
2007 as Exhibit 3.1 to the Companys Current Report on Form 8-K and
incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of the Company (filed on August 7, 2007
as Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for
the third quarter ended June 30, 2007 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
    
    Revolving Line of Credit Loan Agreement, dated June 2, 2008,
between the Company and Western National Bank (filed on June 5,
2008 as Exhibit 10.1 to the Companys Current Report on Form 8-K
and incorporated herein by reference).10.2
    
    Security Agreement, dated June 2, 2008, between the Company and
Western National Bank (filed on June 5, 2008 as Exhibit 10.2 to the
Companys Current Report on Form 8-K 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. 19