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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, 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
    
    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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Title of Each Class
    
    Outstanding at February 7, 2008Common Stock, $.33 1/3 par value
    
    7,665,994 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, 2007 and 2006 (unaudited)
    
    
    1Balance Sheets at December 31, 2007 (unaudited) and September 30, 2007
    
    
    2Statements of Cash Flows for the Three Months Ended December 31, 2007 and 2006 (unaudited)
    
    
    3Notes to Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    12Item 4. Controls and Procedures
    
    
    13Part II. OTHER INFORMATION
    
    
    13Item 1. Legal Proceedings
    
    
    13Item 1A. Risk Factors
    
    
    13Item 5. Other Information
    
    
    13Item 6. Exhibits
    
    
    13Signatures
    
    
    14Index to Exhibits
    
    
    15Form of Restricted Stock Agreement for 2006 Stock and Performance Incentive PlanForm of Stock Option Agreement for 2006 Stock and Performance Incentive PlanCertification 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)




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended December 31,2007
    
    
    2006Operating revenues
    
    $
    77,599,000
    
    
    $
    53,654,000Operating costs:Operating expenses
    
    
    58,125,000
    
    
    
    39,724,000General and administrative
    
    
    1,706,000
    
    
    
    1,448,000Depreciation
    
    
    5,551,000
    
    
    
    4,014,00065,382,000
    
    
    
    45,186,000Income from operations
    
    
    12,217,000
    
    
    
    8,468,000Other income (expense):Interest income
    
    
    218,000
    
    
    
    154,000Interest expense
    
    
    (105,000
    )
    
    
    Other
    
    
    (16,000
    )
    
    
    32,000Income before income tax
    
    
    12,314,000
    
    
    
    8,654,000Income tax expense:Current
    
    
    (4,540,000
    )
    
    
    (1,927,000
    )Deferred
    
    
    (70,000
    )
    
    
    (1,292,000
    )(4,610,000
    )
    
    
    (3,219,000
    )Net income
    
    $
    7,704,000
    
    
    $
    5,435,000Net income per common share
    
    $
    1.01
    
    
    $
    0.72Net income per common share-assuming dilution
    
    $
    1.00
    
    
    $
    0.71Weighted average equivalent common shares outstanding
    
    
    7,660,100
    
    
    
    7,553,809Weighted average equivalent common shares outstanding-assuming dilution
    
    
    7,720,101
    
    
    
    7,635,013
 See accompanying notes to the financial statements (unaudited).
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DAWSON GEOPHYSICAL COMPANY
 
 BALANCE SHEETS
 December 31,
    
    
    September 30,2007
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,231,000
    
    
    $
    14,875,000Accounts receivable, net of allowance for doubtful accounts of $176,000 in each period
    
    
    52,633,000
    
    
    
    56,707,000Prepaid expenses and other assets
    
    
    2,651,000
    
    
    
    815,000Current deferred tax asset
    
    
    1,325,000
    
    
    
    693,000Total current assets
    
    
    74,840,000
    
    
    
    73,090,000Property, plant and equipment:
    
    
    222,044,000
    
    
    
    207,427,000Less accumulated depreciation
    
    
    (89,991,000
    )
    
    
    (84,655,000
    )Net property, plant and equipment
    
    
    132,053,000
    
    
    
    122,772,000$
    206,893,000
    
    
    $
    195,862,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,073,000
    
    
    $
    12,816,000Accrued liabilities:Payroll costs and other taxes
    
    
    1,331,000
    
    
    
    2,325,000Other
    
    
    13,858,000
    
    
    
    14,263,000Deferred revenue
    
    
    2,312,000
    
    
    
    2,922,000Line of credit
    
    
    5,000,000
    
    
    
    5,000,000Total current liabilities
    
    
    39,574,000
    
    
    
    37,326,000Deferred tax liability
    
    
    10,084,000
    
    
    
    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, 7,665,994 and
7,658,494 shares issued and outstanding in each period
    
    
    2,555,000
    
    
    
    2,553,000Additional paid-in capital
    
    
    85,564,000
    
    
    
    85,090,000Retained earnings
    
    
    69,116,000
    
    
    
    61,512,000Total stockholders equity
    
    
    157,235,000
    
    
    
    149,155,000$
    206,893,000
    
    
    $
    195,862,000
 See accompanying notes to the financial statements (unaudited).
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DAWSON
GEOPHYSICAL COMPANY
 
 STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended December 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,704,000
    
    
    $
    5,435,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    5,551,000
    
    
    
    4,014,000Noncash compensation
    
    
    347,000
    
    
    
    287,000Deferred income tax expense
    
    
    70,000
    
    
    
    1,292,000Excess tax benefit from share-based payment arrangement
    
    
    (92,000
    )
    
    
    (115,000
    )Other
    
    
    46,000
    
    
    
    120,000Change in current assets and liabilities:Decrease in accounts receivable
    
    
    4,074,000
    
    
    
    810,000(Increase) decrease in prepaid expenses
    
    
    (1,836,000
    )
    
    
    557,000Decrease in accounts payable
    
    
    (1,353,000
    )
    
    
    (9,596,000
    )Decrease in accrued liabilities
    
    
    (1,399,000
    )
    
    
    (389,000
    )(Decrease) increase in deferred revenue
    
    
    (610,000
    )
    
    
    779,000Net cash provided by operating activities
    
    
    12,502,000
    
    
    
    3,194,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital
expenditures, net of $5,610,000 and $606,000 noncash capital expenditures in
2007 and 2006, respectively
    
    
    (9,280,000
    )
    
    
    (2,670,000
    )Proceeds from disposal of assets
    
    
    5,000
    
    
    
    Net cash used in investing activities
    
    
    (9,275,000
    )
    
    
    (2,670,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Excess tax benefit from share-based payment arrangement
    
    
    92,000
    
    
    
    115,000Proceeds from exercise of stock options
    
    
    37,000
    
    
    
    112,000Net cash provided by financing activities
    
    
    129,000
    
    
    
    227,000Net increase in cash and cash equivalents
    
    
    3,356,000
    
    
    
    751,000CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    14,875,000
    
    
    
    8,064,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    18,231,000
    
    
    $
    8,815,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for interest expense
    
    $
    96,000
    
    
    $
    Cash paid during the period for income taxes
    
    $
    1,172,000
    
    
    $
    139,000NONCASH INVESTING ACTIVITIES:Unrealized gain on investments
    
    $
    
    
    
    $
    18,000
 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
   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.
 Recently Issued Accounting Pronouncements
   3. DEBT
  5




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4. STOCK-BASED COMPENSATION
  Incentive Stock Options:
     Stock Awards:
     5. CONTINGENCY
    6




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Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,106
    
    
    $
    394
    
    
    $
    491
    
    
    $
    221
    
    
    $
    
   6. ADOPTION OF FIN 48
   7. NET INCOME PER COMMON SHARE
   Three Months EndedDecember 312007
    
    
    2006NUMERATOR:Net income and numerator for basic and diluted net income per common share-income
available to common shareholders
    
    $
    7,704,000
    
    
    $
    5,435,000DENOMINATOR:Denominator for basic net income per common share-weighted average common shares
    
    
    7,660,100
    
    
    
    7,553,809Effect of dilutive securities-employee stock options and restricted stock grants
    
    
    60,001
    
    
    
    81,204Denominator for diluted net income per common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,720,101
    
    
    
    7,635,013Net income per common share
    
    $
    1.01
    
    
    $
    .72Net income per common share-assuming dilution
    
    $
    1.00
    
    
    $
    .71
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
  Overview
    8




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Highlights of the Quarter Ended December 31, 2007
  
    
    We operated fifteen 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:
 §
    
    Replacing an I/O System II MRX recording system on an existing crew with a 7,500 channel
ARAM ARIES recording system purchased in fiscal 2007;§
    
    Increasing channel count from 10,000 to 11,500 on an existing ARAM ARIES crew;§
    
    Increasing channel count from 9,500 to 10,000 on an existing ARAM ARIES crew;§
    
    Increasing total channel count to in excess of 107,000;§
    
    Taking delivery of ten I/O vibrator energy source units and bringing the Companys total
to 123 units; and
 
    
    We operated in West Texas, South Texas, Fort Worth Basin of Texas, New Mexico, Oklahoma,
Arkansas, Colorado, Utah, Montana and West Virginia.
 Results of Operations
 Operating Revenues
 Operating Costs
   9




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




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Capital Resources.
    Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,106
    
    
    $
    394
    
    
    $
    491
    
    
    $
    221
    
    
    $
    
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Revenue Recognition.
 11




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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
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  12




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ITEM 4. CONTROLS AND PROCEDURES
 Managements 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 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  13




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SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: February 11, 2008
    By:
    /s/ Stephen C. JumperStephen C. JumperPresident and Chief Executive OfficerDATE: February 11, 2008
    By:
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Secretary and
Chief Financial Officer 14




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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 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 as of January 18, 2008, between
the Company and Western National Bank (filed on January 28, 2008 as Exhibit 10.1
to the Companys Current Report on Form 8-K and incorporated herein by
reference).10.2
    
    Description of Profit Sharing Plan (filed on December 3, 2007 as Exhibit 10.1 to
the Companys Current Report on Form 8-K and incorporated herein by reference).10.3*
    
    Form of Restricted Stock Agreement
for the Dawson Geophysical Company 2006 Stock and Performance
Incentive Plan.10.4*
    
    Form of Stock Option Agreement for
the Dawson Geophysical Company 2006 Stock and Performance Incentive
Plan.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. 15