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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 March 31, 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 May 9, 2008Common Stock, $.33 1/3 par value
    
    7,729,494 shares




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##### 



DAWSON GEOPHYSICAL COMPANY
  PageNumberPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsStatements of Operations for the Three Months and the Six Months Ended March 31, 2008 and 2007 (unaudited)
    
    
    1Balance Sheets at March 31, 2008 (unaudited) and September 30, 2007
    
    
    2Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2007 (unaudited)
    
    
    3Notes to Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Index to Exhibits
    
    
    18Rule 13a-14(a) Certification of CEORule 13a-14(a) Certification of CFOSection 1350 CertificationSection 1350 Certification




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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 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues
    
    $
    78,363,000
    
    
    $
    59,935,000
    
    
    $
    155,962,000
    
    
    $
    113,589,000Operating costs:Operating expenses
    
    
    57,529,000
    
    
    
    45,608,000
    
    
    
    115,654,000
    
    
    
    85,332,000General and administrative
    
    
    1,837,000
    
    
    
    1,605,000
    
    
    
    3,543,000
    
    
    
    3,053,000Depreciation
    
    
    5,854,000
    
    
    
    4,154,000
    
    
    
    11,405,000
    
    
    
    8,168,00065,220,000
    
    
    
    51,367,000
    
    
    
    130,602,000
    
    
    
    96,553,000Income from operations
    
    
    13,143,000
    
    
    
    8,568,000
    
    
    
    25,360,000
    
    
    
    17,036,000Other income:Interest income
    
    
    116,000
    
    
    
    272,000
    
    
    
    334,000
    
    
    
    426,000Interest expense
    
    
    (95,000
    )
    
    
    
    
    
    
    (200,000
    )
    
    
    Other income (expense)
    
    
    115,000
    
    
    
    (33,000
    )
    
    
    99,000
    
    
    
    (1,000
    )Income before income tax
    
    
    13,279,000
    
    
    
    8,807,000
    
    
    
    25,593,000
    
    
    
    17,461,000Income tax expense:Current
    
    
    (4,110,000
    )
    
    
    (3,138,000
    )
    
    
    (8,650,000
    )
    
    
    (5,065,000
    )Deferred
    
    
    (877,000
    )
    
    
    (301,000
    )
    
    
    (947,000
    )
    
    
    (1,593,000
    )(4,987,000
    )
    
    
    (3,439,000
    )
    
    
    (9,597,000
    )
    
    
    (6,658,000
    )Net income
    
    $
    8,292,000
    
    
    $
    5,368,000
    
    
    $
    15,996,000
    
    
    $
    10,803,000Net income per common share
    
    $
    1.08
    
    
    $
    0.71
    
    
    $
    2.09
    
    
    $
    1.43Net income per common share-assuming dilution
    
    $
    1.07
    
    
    $
    0.70
    
    
    $
    2.07
    
    
    $
    1.41Weighted average equivalent common shares
outstanding
    
    
    7,667,071
    
    
    
    7,590,911
    
    
    
    7,663,556
    
    
    
    7,572,156Weighted average equivalent common shares
outstanding-assuming dilution
    
    
    7,728,437
    
    
    
    7,650,405
    
    
    
    7,724,269
    
    
    
    7,642,709
 See accompanying notes to the financial statements (unaudited).
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DAWSON
GEOPHYSICAL COMPANY
 
 BALANCE SHEETS
 March 31,
    
    
    September 30,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,144,000
    
    
    $
    14,875,000Accounts receivable, net of allowance for doubtful accounts of $242,000 and $176,000 in
2008 and 2007, respectively
    
    
    70,174,000
    
    
    
    56,707,000Prepaid expenses and other assets
    
    
    1,394,000
    
    
    
    815,000Current deferred tax asset
    
    
    936,000
    
    
    
    693,000Total current assets
    
    
    81,648,000
    
    
    
    73,090,000Property, plant and equipment:
    
    
    229,435,000
    
    
    
    207,427,000Less accumulated depreciation
    
    
    (91,060,000
    )
    
    
    (84,655,000
    )Net property, plant and equipment
    
    
    138,375,000
    
    
    
    122,772,000$
    220,023,000
    
    
    $
    195,862,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,434,000
    
    
    $
    12,816,000Accrued liabilities:Payroll costs and other taxes
    
    
    2,807,000
    
    
    
    2,325,000Other
    
    
    11,939,000
    
    
    
    14,263,000Deferred revenue
    
    
    587,000
    
    
    
    2,922,000Line of credit
    
    
    10,000,000
    
    
    
    5,000,000Total current liabilities
    
    
    43,767,000
    
    
    
    37,326,000Deferred tax liability
    
    
    10,572,000
    
    
    
    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, 7,729,494 and
7,658,494 shares issued and outstanding in each period
    
    
    2,577,000
    
    
    
    2,553,000Additional paid-in capital
    
    
    85,807,000
    
    
    
    85,090,000Retained earnings
    
    
    77,300,000
    
    
    
    61,512,000Total stockholders equity
    
    
    165,684,000
    
    
    
    149,155,000$
    220,023,000
    
    
    $
    195,862,000
 See accompanying notes to the financial statements (unaudited).
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DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended March 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    15,996,000
    
    
    $
    10,803,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    11,405,000
    
    
    
    8,168,000Noncash compensation
    
    
    612,000
    
    
    
    415,000Deferred income tax expense
    
    
    947,000
    
    
    
    1,593,000Excess tax benefit from share-based payment arrangement
    
    
    (92,000
    )
    
    
    (243,000
    )Other
    
    
    (115,000
    )
    
    
    343,000Change in current assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (9,604,000
    )
    
    
    887,000Increase in prepaid expenses
    
    
    (579,000
    )
    
    
    (1,081,000
    )Increase (decrease) in accounts payable
    
    
    2,108,000
    
    
    
    (3,198,000
    )(Decrease) increase in accrued liabilities
    
    
    (1,842,000
    )
    
    
    2,024,000(Decrease) increase in deferred revenue
    
    
    (2,335,000
    )
    
    
    1,317,000Net cash provided by operating activities
    
    
    16,501,000
    
    
    
    21,028,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, net of $4,300,000 and $6,120,000 noncash capital
expenditures in 2008 and 2007, respectively
    
    
    (27,370,000
    )
    
    
    (13,521,000
    )Proceeds from disposal of assets
    
    
    9,000
    
    
    
    4,000Net cash used in investing activities
    
    
    (27,361,000
    )
    
    
    (13,517,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from line of credit
    
    
    5,000,000
    
    
    
    Excess tax benefit from share-based payment arrangement
    
    
    92,000
    
    
    
    243,000Proceeds from exercise of stock options
    
    
    37,000
    
    
    
    519,000Net cash provided by financing activities
    
    
    5,129,000
    
    
    
    762,000Net (decrease) increase in cash and cash equivalents
    
    
    (5,731,000
    )
    
    
    8,273,000CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    14,875,000
    
    
    
    8,064,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    9,144,000
    
    
    $
    16,337,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for interest expense
    
    $
    232,000
    
    
    $
    Cash paid during the period for income taxes
    
    $
    9,274,000
    
    
    $
    4,106,000NONCASH INVESTING ACTIVITIES:Unrealized gain on investments
    
    $
    
    
    
    $
    38,000
 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
    
    $
    1,150
    
    
    $
    358
    
    
    $
    551
    
    
    $
    238
    
    
    $
    3
   6. ADOPTION OF FIN 48
   Unrecognized TaxBenefitsBalance as of October 1, 2007
    
    $
    137,000Increase (decrease) in prior year tax positions
    
    
    0Increase (decrease) in current year tax positions
    
    
    0Settlement with taxing authorities
    
    
    0Expiration of statutes of limitations
    
    
    (2,000
    )Balance as of March 31, 2008
    
    $
    135,000
   7




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7. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007NUMERATOR:Net income and numerator for basic and
diluted net income per common
share-income available to common
shareholders
    
    $
    8,292,000
    
    
    $
    5,368,000
    
    
    $
    15,996,000
    
    
    $
    10,803,000DENOMINATOR:Denominator for basic net income per
common share-weighted average common
shares
    
    
    7,667,071
    
    
    
    7,590,911
    
    
    
    7,663,566
    
    
    
    7,572,156Effect of dilutive securities-employee
stock options and restricted stock grants
    
    
    61,366
    
    
    
    59,494
    
    
    
    60,703
    
    
    
    70,553Denominator for diluted net income per
common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,728,437
    
    
    
    7,650,405
    
    
    
    7,724,269
    
    
    
    7,642,709Net income per common share
    
    $
    1.08
    
    
    $
    0.71
    
    
    $
    2.09
    
    
    $
    1.43Net income per common share-assuming dilution
    
    $
    1.07
    
    
    $
    0.70
    
    
    $
    2.07
    
    
    $
    1.41
 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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th
 Highlights of the Quarter Ended March 31, 2008
  
    
    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 an 8,000-channel
ARAM ARIES recording system;§
    
    Making plans to field our 16th crew by redeploying an existing I/O MRX recording system;§
    
    Increasing total channel count to in excess of 111,000; and§
    
    Taking delivery of thirteen ION vibrator energy source units and bringing the Companys total to 136 units.
 
    
    During the second 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, and the Appalachian
Basin.
 Results of Operations
 Operating Revenues
 Operating Costs
   10




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11




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




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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
    
    $
    1,150
    
    
    $
    358
    
    
    $
    551
    
    
    $
    238
    
    
    $
    3
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  13




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Revenue Recognition.
  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
  14




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 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
   15




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ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    Number of SharesFor
    
    WithheldPaul H. Brown
    
    
    6,400,143
    
    
    
    207,769L. Decker Dawson
    
    
    5,813,560
    
    
    
    794,352Gary M. Hoover
    
    
    6,172,019
    
    
    
    435,893Stephen C. Jumper
    
    
    6,061,928
    
    
    
    545,984Tim C. Thompson
    
    
    6,100,346
    
    
    
    507,566
  For
    
    
    6,101,026Against
    
    
    33,740Abstain
    
    
    473,145Broker Non-Votes
    
    
    0
 
 ITEM 6. EXHIBITS
  16




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SIGNATURES
   DATE: May 12, 2008
    By:
    /s/ Stephen C. JumperStephen C. JumperPresident and Chief Executive OfficerDATE: May 12, 2008
    By:
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Secretary and
Chief Financial Officer 17




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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).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. 18