##### 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, 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
(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 August 3, 2007Common Stock, $.33 1/3 par value
    
    7,627,494 shares




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##### 



DAWSON GEOPHYSICAL COMPANY
  PageNumberPart I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Statements of Operations for the Three Months and the Nine Months Ended June 30, 2007 and 2006 (unaudited)
    
    
    1Balance Sheets at June 30, 2007 (unaudited) and September 30, 2006
    
    
    2Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006 (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
    
    
    14Item 4. Controls and Procedures
    
    
    14Part II. OTHER INFORMATION
    
    
    15Item 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 6. Exhibits
    
    
    16Signatures
    
    
    17Index to Exhibits
    
    
    18Amended and Restated BylawsCertification 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 June 30,
    
    
    Nine Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    68,637,000
    
    
    $
    41,524,000
    
    
    $
    182,226,000
    
    
    $
    117,059,000Operating costs:Operating expenses
    
    
    49,825,000
    
    
    
    30,378,000
    
    
    
    135,157,000
    
    
    
    87,625,000General and administrative
    
    
    1,532,000
    
    
    
    1,117,000
    
    
    
    4,585,000
    
    
    
    3,558,000Depreciation
    
    
    4,685,000
    
    
    
    3,393,000
    
    
    
    12,853,000
    
    
    
    9,557,00056,042,000
    
    
    
    34,888,000
    
    
    
    152,595,000
    
    
    
    100,740,000Income from operations
    
    
    12,595,000
    
    
    
    6,636,000
    
    
    
    29,631,000
    
    
    
    16,319,000Other income:Interest income
    
    
    190,000
    
    
    
    147,000
    
    
    
    616,000
    
    
    
    475,000Other income (expense)
    
    
    230,000
    
    
    
    (81,000
    )
    
    
    229,000
    
    
    
    55,000Income before income tax
    
    
    13,015,000
    
    
    
    6,702,000
    
    
    
    30,476,000
    
    
    
    16,849,000Income tax expense:Current
    
    
    (4,502,000
    )
    
    
    (1,543,000
    )
    
    
    (9,567,000
    )
    
    
    (3,385,000
    )Deferred
    
    
    (952,000
    )
    
    
    (918,000
    )
    
    
    (2,545,000
    )
    
    
    (2,572,000
    )(5,454,000
    )
    
    
    (2,461,000
    )
    
    
    (12,112,000
    )
    
    
    (5,957,000
    )Net income
    
    $
    7,561,000
    
    
    $
    4,241,000
    
    
    $
    18,364,000
    
    
    $
    10,892,000Net income per common share
    
    $
    0.99
    
    
    $
    0.56
    
    
    $
    2.42
    
    
    $
    1.45Net income per common share-assuming dilution
    
    $
    0.98
    
    
    $
    0.56
    
    
    $
    2.40
    
    
    $
    1.44Weighted average equivalent common shares
outstanding
    
    
    7,622,755
    
    
    
    7,535,615
    
    
    
    7,589,022
    
    
    
    7,508,871Weighted average equivalent common shares
outstanding-assuming dilution
    
    
    7,695,371
    
    
    
    7,614,507
    
    
    
    7,660,053
    
    
    
    7,586,117
 See accompanying notes to the financial statements (unaudited).
 1




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DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
 June 30,
    
    
    September 30,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,587,000
    
    
    $
    8,064,000Short-term investments
    
    
    
    
    
    
    6,437,000Accounts receivable, net of allowance for doubtful accounts of $300,000 in June 2007
and $148,000 in September 2006
    
    
    51,818,000
    
    
    
    46,074,000Prepaid expenses and other assets
    
    
    979,000
    
    
    
    690,000Current deferred tax asset
    
    
    810,000
    
    
    
    1,619,000Total current assets
    
    
    55,194,000
    
    
    
    62,884,000Property, plant and equipment:
    
    
    208,682,000
    
    
    
    160,740,000Less accumulated depreciation
    
    
    (86,429,000
    )
    
    
    (74,206,000
    )Net property, plant and equipment
    
    
    122,253,000
    
    
    
    86,534,000$
    177,447,000
    
    
    $
    149,418,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,863,000
    
    
    $
    16,280,000Accrued liabilities:Payroll costs and other taxes
    
    
    1,044,000
    
    
    
    1,958,000Other
    
    
    7,759,000
    
    
    
    4,195,000Deferred revenue
    
    
    1,914,000
    
    
    
    863,000Total current liabilities
    
    
    29,580,000
    
    
    
    23,296,000Deferred tax liability
    
    
    8,651,000
    
    
    
    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, 7,623,744 and
7,549,244 shares issued and outstanding in each period
    
    
    2,541,000
    
    
    
    2,517,000Additional paid-in capital
    
    
    83,957,000
    
    
    
    82,370,000Other comprehensive expense, net of tax
    
    
    
    
    
    
    (33,000
    )Retained earnings
    
    
    52,718,000
    
    
    
    34,354,000Total stockholders equity
    
    
    139,216,000
    
    
    
    119,208,000$
    177,447,000
    
    
    $
    149,418,000
 See accompanying notes to the financial statements (unaudited).
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DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    18,364,000
    
    
    $
    10,892,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    12,853,000
    
    
    
    9,557,000Non-cash compensation
    
    
    474,000
    
    
    
    590,000Deferred income tax expense
    
    
    2,545,000
    
    
    
    2,572,000Excess tax benefit from share based payment arrangement
    
    
    (583,000
    )
    
    
    (180,000
    )Other
    
    
    498,000
    
    
    
    92,000Change in current assets and liabilities:Increase in accounts receivable
    
    
    (5,744,000
    )
    
    
    (6,818,000
    )(Increase) decrease in prepaid expenses
    
    
    (289,000
    )
    
    
    378,000(Decrease) increase in accounts payable
    
    
    (1,317,000
    )
    
    
    2,728,000Increase in accrued liabilities
    
    
    2,650,000
    
    
    
    1,000,000Increase (decrease) in deferred revenue
    
    
    1,051,000
    
    
    
    (122,000
    )Net cash provided by operating activities
    
    
    30,502,000
    
    
    
    20,689,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, net of $3,900,000 noncash capital expenditures in June 2007
    
    
    (44,837,000
    )
    
    
    (32,606,000
    )Proceeds from disposal of assets
    
    
    238,000
    
    
    
    342,000Proceeds from maturity of short-term investments
    
    
    6,500,000
    
    
    
    2,500,000Proceeds from sale of short-term investments
    
    
    
    
    
    
    6,510,000Net cash used in investing activities
    
    
    (38,099,000
    )
    
    
    (23,254,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Excess tax benefit from share based payment arrangement
    
    
    583,000
    
    
    
    180,000Proceeds from exercise of stock options
    
    
    537,000
    
    
    
    369,000Net cash provided by financing activities
    
    
    1,120,000
    
    
    
    549,000Net decrease in cash and cash equivalents
    
    
    (6,477,000
    )
    
    
    (2,016,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    8,064,000
    
    
    
    2,803,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    1,587,000
    
    
    $
    787,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    6,923,000
    
    
    $
    2,340,000NON CASH INVESTING ACTIVITIES:Unrealized loss on investments
    
    $
    
    
    
    $
    (27,000
    )
 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.
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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
    
    
    15.82
    
    
    
    (6,500
    )Exercised
    
    
    7.76
    
    
    
    (71,500
    )Balance as of June 30, 2007
    
    $
    9.69
    
    
    
    93,250
    
    
    
    1.75
    
    
    $
    4,927Exercisable as of June 30, 2007
    
    $
    8.01
    
    
    
    69,250
    
    
    
    1.75
    
    
    $
    3,775
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Number of
    
    
    Weighted AverageNonvested Share
    
    
    Grant Date FairAwards
    
    
    ValueNonvested Shares Outstanding September 30, 2006
    
    
    72,000
    
    
    $
    11.35Vested
    
    
    (41,500
    )
    
    
    8.81Forfeited
    
    
    (6,500
    )
    
    
    15.82Nonvested Shares Outstanding June 30, 2007
    
    
    24,000
    
    
    $
    14.52
        Number of
    
    
    Weighted AverageRestricted Share
    
    
    Grant Date FairAwards
    
    
    ValueNonvested Restricted Shares Outstanding September 30, 2006
    
    
    
    
    
    
    Granted
    
    
    59,000
    
    
    $
    27.05Forfeited
    
    
    (3,000
    )
    
    
    27.05Nonvested Restricted Shares Outstanding June 30, 2007
    
    
    56,000
    
    
    $
    27.05
   6




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Recently Issued Accounting Pronouncements
     3. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006NUMERATOR:Net income and numerator for basic and
diluted net income per common
share-income available to common
shareholders
    
    $
    7,561,000
    
    
    $
    4,241,000
    
    
    $
    18,364,000
    
    
    $
    10,892,000DENOMINATOR:Denominator for basic net income per
common share-weighted average common
shares
    
    
    7,622,755
    
    
    
    7,535,615
    
    
    
    7,589,022
    
    
    
    7,508,871Effect of dilutive securities-employee
stock options and restricted stock grants
    
    
    72,616
    
    
    
    78,892
    
    
    
    71,031
    
    
    
    77,246Denominator for diluted net income per
common share-adjusted weighted average
common shares and assumed conversions
    
    
    7,695,371
    
    
    
    7,614,507
    
    
    
    7,660,053
    
    
    
    7,586,117Net income per common share
    
    $
    0.99
    
    
    $
    0.56
    
    
    $
    2.42
    
    
    $
    1.45Net income per common share-assuming dilution
    
    $
    0.98
    
    
    $
    0.56
    
    
    $
    2.40
    
    
    $
    1.44
 7




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4. DEBT
   5. CONTINGENCY
    Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,315
    
    
    $
    466
    
    
    $
    521
    
    
    $
    328
    
    
    $
    
  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 June 30, 2007
  
    
    We operated fourteen data acquisition crews during the quarter, an increase of three
crews from the same quarter in fiscal 2006.
    
    We deployed our fourteenth data acquisition crew in April.
    
    We continued to make significant investments in our equipment and recording capacity:
 
    
    We deployed a 9,500 channel Aram Aries recording system to replace
an existing I/O system II MRX recording system on an existing crew;
    
    We took delivery of eight I/O vibrator energy source units;
and
    
    We took delivery of two 5,000 Aram Aries recording systems, one of
which will replace an existing I/O System II MRX in August. The second will be
deployed in the fall on a new data acquisition crew, our fifteenth.
 Results of Operations
 Operating Revenues
 Operating Costs
   10




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Taxes
 Liquidity and Capital Resources
 Introduction.
 Cash Flows.
   Capital Expenditures.
   Capital Resources.
  11




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Payments Due by Period ($000)Within
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating lease obligations
    
    $
    1,315
    
    
    $
    466
    
    
    $
    521
    
    
    $
    328
    
    
    $
    
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Revenue Recognition.
  Allowance for Doubtful Accounts.
 Impairment of Long-lived Assets.
 12




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Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
 
    
    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
  13




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting.
 14




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  15




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ITEM 6. EXHIBITS
  16




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SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE: August 7, 2007
    By:
    /s/ Stephen C. JumperStephen C. JumperPresident and Chief Executive OfficerDATE: August 7, 2007
    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).3.2*
    
    Amended and Restated Bylaws of the Company.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
    
    Form of Restricted Stock Agreement for the Dawson Geophysical Company 2006 Stock and
Performance Incentive Plan (the 2006 Plan) (filed on August 6, 2007 as Exhibit 10.1
to the Companys Current Report on Form 8-K and incorporated herein by reference).10.2
    
    Form of Stock Option Agreement for the 2006 Plan (filed on August 6, 2007 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.
    
    Management contract or compensatory plan or arrangement. 18