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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, 2005
 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
  o þ o
 o þ
  Title of Each Class
    
    Outstanding at January 31, 2006Common Stock, $.33 1/3 par value
    
    7,502,994 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, 2005 and 2004 (unaudited)


1Balance Sheets at December 31, 2005 and September 30, 2005 (unaudited)


2Statements of Cash Flows for the Three Months Ended
December 31, 2005 and 2004 (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


15Item 4. Controls and Procedures


15Part II. OTHER INFORMATION


15Item 1. Legal Proceedings


15Item 6. Exhibits


15Signatures


16Index to Exhibits


17Revolving 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 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
  
 
 Three Months Ended December 31,2005
    
    
    2004Operating revenues
    
    $
    35,493,000
    
    
    $
    21,559,000Operating costs:Operating expenses
    
    
    28,138,000
    
    
    
    16,844,000General and administrative
    
    
    1,127,000
    
    
    
    794,000Depreciation
    
    
    2,976,000
    
    
    
    1,470,00032,241,000
    
    
    
    19,108,000Income from operations
    
    
    3,252,000
    
    
    
    2,451,000Other income:Interest income
    
    
    161,000
    
    
    
    24,000Loss on disposal of assets
    
    
    (6,000
    )
    
    
    Loss on sale of investments
    
    
    (11,000
    )
    
    
    Other
    
    
    40,000
    
    
    
    6,000Income before income tax
    
    
    3,436,000
    
    
    
    2,481,000Income tax (expense) benefit:Current
    
    
    (535,000
    )Deferred
    
    
    (601,000
    )
    
    
    (881,000
    )Net income
    
    $
    2,300,000
    
    
    $
    1,600,000Net income per common share
    
    
    0.31
    
    
    
    0.28Net income per common share-assuming dilution
    
    $
    0.30
    
    
    $
    0.28Weighted average equivalent common shares outstanding
    
    
    7,486,389
    
    
    
    5,638,365Weighted average equivalent common
shares outstanding-assuming dilution
    
    
    7,584,165
    
    
    
    5,742,149
 See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
 
 BALANCE
SHEETS
 December 31,
    
    
    September 30,2005
    
    
    2005(Unaudited)ASSETSCurrent
assets:Cash and cash equivalents
    
    $
    1,155,000
    
    
    $
    2,803,000Short-term investments
    
    
    16,314,000
    
    
    
    20,326,000Accounts receivable, net of allowance
for doubtful accounts of $108,000 in December 2005
and $331,000 in September 2005
    
    
    33,300,000
    
    
    
    28,696,000Prepaid expenses and other assets
    
    
    220,000
    
    
    
    1,127,000Current deferred tax asset
    
    
    239,000
    
    
    
    1,229,000Total current assets
    
    
    51,228,000
    
    
    
    54,181,000Property,
plant and equipment
    
    
    137,914,000
    
    
    
    124,478,000Less accumulated depreciation
    
    
    (67,392,000
    )
    
    
    (64,532,000
    )Net property, plant and equipment
    
    
    70,522,000
    
    
    
    59,946,000$
    121,750,000
    
    
    $
    114,127,000LIABILITIES
AND STOCKHOLDERS EQUITYCurrent
liabilities:Accounts payable
    
    $
    10,857,000
    
    
    $
    6,601,000Accrued liabilities:Payroll costs and other taxes
    
    
    725,000
    
    
    
    1,198,000Other
    
    
    1,590,000
    
    
    
    2,182,000Deferred
revenue
    
    
    2,444,000
    
    
    
    190,000Total current liabilities
    
    
    15,616,000
    
    
    
    10,171,000Deferred tax liability
    
    
    1,663,000
    
    
    
    2,052,000Stockholders
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;
10,000,000 shares authorized, 7,493,544
and 7,484,044 shares issued and outstanding
in each period
    
    
    2,498,000
    
    
    
    2,495,000Additional paid-in capital
    
    
    81,250,000
    
    
    
    80,987,000Other comprehensive income, net of tax
    
    
    (76,000
    )
    
    
    (77,000
    )Retained earnings
    
    
    20,799,000
    
    
    
    18,499,000Total stockholders equity
    
    
    104,471,000
    
    
    
    101,904,000$
    121,750,000
    
    
    $
    114,127,000
 See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
 
 STATEMENTS OF CASH FLOWS
 Three Months Ended December 31,2005
    
    
    2004CASH
FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,300,000
    
    
    $
    1,600,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    2,976,000
    
    
    
    1,470,000Non-cash compensation
    
    
    186,000
    
    
    
    45,000Deferred income tax expense
    
    
    601,000
    
    
    
    881,000Loss on disposal of assets
    
    
    6,000
    
    
    
    Realized loss on sale of marketable securities
    
    
    11,000
    
    
    
    Excess tax benefit from share based payment arrangement
    
    
    (37,000
    )
    
    
    Other
    
    
    (10,000
    )
    
    
    27,000Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    (4,604,000
    )
    
    
    2,969,000Decrease in prepaid expenses
    
    
    907,000
    
    
    
    3,000Increase in accounts payable
    
    
    4,256,000
    
    
    
    1,653,000Increase in deferred revenue
    
    
    2,254,000
    
    
    
    513,000Decrease in accrued liabilities
    
    
    (1,065,000
    )
    
    
    (725,000
    )Net cash provided by operating activities
    
    
    7,781,000
    
    
    
    8,436,000CASH
FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (13,535,000
    )
    
    
    (10,490,000
    )Proceeds from disposal of assets
    
    
    4,000
    
    
    
    Proceeds from sale of short-term investments
    
    
    4,022,000
    
    
    
    Net cash used in investing activities
    
    
    (9,509,000
    )
    
    
    (10,490,000
    )CASH FLOW
FROM FINANCING ACTIVITIES:Excess tax benefit from share based payment arrangement
    
    
    37,000
    
    
    
    Proceeds from exercise of stock options
    
    
    43,000
    
    
    
    35,000Net cash provided by financing activities
    
    
    80,000
    
    
    
    35,000Net decrease in cash and cash equivalents
    
    
    (1,648,000
    )
    
    
    (2,019,000
    )CASH AND
CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    2,803,000
    
    
    
    3,587,000CASH AND
CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    1,155,000
    
    
    $
    1,568,000NON CASH
INVESTING ACTIVITIES:Unrealized loss on investments
    
    $
    (11,000
    )
    
    $
    (14,000
    )
 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.
 4




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Depreciable Lives of Property, Plant and Equipment.
 Tax Accounting.
 Stock Based Compensation.
   5




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Three Months EndedDecember 31,2004Net income, as reported
    
    $
    1,600,000Add: Stock-based employee compensation expense
included in net income (loss), net of tax
    
    
    45,000Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123),
net of tax
    
    
    (143,000
    )Net income, pro forma
    
    $
    1,502,000Basic:Net income per common share, as reported
    
    $
    0.28Net income per common share, pro forma
    
    $
    0.27Diluted:Net income per common share, as reported
    
    $
    0.28Net income per common share, pro forma
    
    $
    0.26
     6




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Weighted
    
    
    Number of OptionedAverage Price
    
    
    SharesBalance as of September 30, 2005
    
    $
    8.87
    
    
    
    224,500Exercised
    
    $
    6.54
    
    
    
    (6,500
    )Balance as of December 31, 2005
    
    $
    8.94
    
    
    
    218,000
  Recently Issued Accounting Pronouncements
  2. NET INCOME PER COMMON SHARE
  7




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Three Months EndedDecember 31,2005
    
    
    2004Numerator:Net income and numerator for basic
and diluted net income per
common share-income available
to common stockholders
    
    $
    2,300,000
    
    
    $
    1,600,000Denominator:Denominator
for basic net loss per common share-weighted average common shares
    
    
    7,486,389
    
    
    
    5,638,365Effect of dilutive securities-employee stock options
    
    
    97,776
    
    
    
    103,784Denominator for diluted net
income per common share-adjusted weighted average
common shares and assumed
conversions
    
    
    7,584,165
    
    
    
    5,742,149Net income per common share
    
    $
    .31
    
    
    $
    .28Net income per common share-assuming dilution
    
    $
    .30
    
    
    $
    .28
 3. DEBT
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4. CONTINGENCY
  
 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, 2005
  
    
    We operated eleven acquisition crews during the first fiscal quarter of 2006, as
compared to nine crews in the first fiscal quarter of 2005.
    
    We continued to experience price improvements and more favorable contract terms in
our agreements with clients. These factors helped improve our revenues during the first
quarter of fiscal 2006.
    
    We continued to grow by upgrading our recording capacity, expanding the channel count of
existing crews, adding to our energy source fleet and making technical improvements in all
phases of our operations.
 Results of Operations
 Operating Revenues.
 Operating Costs.
  10




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




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Capital Resources.
    Payments Due by PeriodWithin
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating lease obligations
    
    $
    377
    
    
    $
    151
    
    
    $
    226
    
    
    
    0
    
    
    
    0
  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.
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Stock Based Compensation.
  §
    
    Expected volatility of our stock price on historical volatility over the expected term
of the option.§
    
    Expected term of the option 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 within the expected term of the option§
    
    Dividend yield.
   Recently Issued Accounting Pronouncements
  14




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Internal Control  Integrated Framework
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  15




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SIGNATURES
  DAWSON GEOPHYSICAL COMPANYDATE:
February 9, 2006
    
    By:
    
    /s/ Stephen C. JumperStephen C. JumperPresident andChief Executive OfficerDATE:
February 9, 2006
    
    By:
    
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Treasurer,Secretary and Chief Financial Officer
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INDEX TO EXHIBITS
 Number
    
    Exhibit3.1
    
    Restated Articles of Incorporation of the Company (filed on
December 10, 2004 as Exhibit 3.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2004 (File No.
000-10144) and incorporated herein by reference).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 (File No. 000-10144) 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 (File No. 000-10144) and
incorporated herein by reference).10.1*
    
    Revolving Line of Credit Loan Agreement, dated January 18, 2006,
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. Pursuant to SEC Release
34-47551, this Exhibit is furnished to the SEC and shall not be
deemed to be filed.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. Pursuant to SEC Release
34-47551, this Exhibit is furnished to the SEC and shall not be
deemed to be filed.
 
 *
    
    Filed herewith. 17