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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, 2004 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 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o
No þ Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date. Title of Each Class
    
    Outstanding at February 11, 2005Common Stock, $.33 1/3 par value
    
    5,642,794 shares




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DAWSON GEOPHYSICAL COMPANY INDEX PageNumberPart I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Statements of Operations for the Three Months Ended
December 31, 2004 and 2003 (unaudited)
    
    
    1Balance Sheets at December 31, 2004 (unaudited) and September 30, 2004
    
    
    2Statements of Cash Flows for the Three Months Ended
December 31, 2004 and 2003 (unaudited)
    
    
    3Notes to Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    12Item 4. Controls and Procedures
    
    
    13Part II. OTHER INFORMATION
    
    
    13Item 1. Legal Proceedings
    
    
    13Item 6. Exhibits
    
    
    13Signatures
    
    
    14Index to Exhibits
    
    
    15Certification 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 
 
 Three Months Ended December 31,2004
    
    
    2003Operating revenues
    
    $
    21,559,000
    
    
    $
    15,475,000Operating costs:Operating expenses
    
    
    16,844,000
    
    
    
    13,311,000General and administrative
    
    
    794,000
    
    
    
    618,000Depreciation
    
    
    1,470,000
    
    
    
    1,108,00019,108,000
    
    
    
    15,037,000Income from operations
    
    
    2,451,000
    
    
    
    438,000Other income:Interest income
    
    
    24,000
    
    
    
    69,000Loss on disposal of assets
    
    
    
    
    
    
    (3,000
    )Other
    
    
    6,000
    
    
    
    2,000Income before income tax
    
    
    2,481,000
    
    
    
    506,000Income tax
expense:Current
    
    
    
    
    
    
    Deferred
    
    
    (881,000
    )
    
    
    Net income
    
    $
    1,600,000
    
    
    $
    506,000Net income per common share
    
    
    0.28
    
    
    $
    0.09Net income per common share-assuming dilution
    
    $
    0.28
    
    
    $
    0.09Weighted average equivalent common shares outstanding
    
    
    5,638,365
    
    
    
    5,487,794Weighted average equivalent common
shares outstanding-assuming dilution
    
    
    5,742,149
    
    
    
    5,521,243
 See accompanying notes to the financial statements. -1-




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Dawson Geophysical Company 
  December 31,
    
    
    September 30,2004
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,568,000
    
    
    $
    3,587,000Short-term investments
    
    
    4,088,000
    
    
    
    4,130,000Accounts receivable, net of allowance
for doubtful accounts of $236,000 in December 2004and $199,000 in September 2004
    
    
    14,010,000
    
    
    
    16,979,000Prepaid expenses and other assets
    
    
    437,000
    
    
    
    440,000Total current assets
    
    
    20,103,000
    
    
    
    25,136,000Deferred tax asset
    
    
    767,000
    
    
    
    1,648,000Property, plant and equipment
    
    
    104,540,000
    
    
    
    94,050,000Less accumulated depreciation
    
    
    (65,544,000
    )
    
    
    (64,075,000
    )Net property, plant and equipment
    
    
    38,996,000
    
    
    
    29,975,000$
    59,866,000
    
    
    $
    56,759,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,010,000
    
    
    $
    3,357,000Accrued liabilities:Payroll costs and other taxes
    
    
    328,000
    
    
    
    742,000Other
    
    
    660,000
    
    
    
    971,000Deferred revenue
    
    
    1,920,000
    
    
    
    1,407,000Total current liabilities
    
    
    7,918,000
    
    
    
    6,477,000Stockholders 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, 5,642,794
and 5,633,794 shares issued and outstanding
in each period
    
    
    1,881,000
    
    
    
    1,878,000Additional paid-in capital
    
    
    40,026,000
    
    
    
    39,949,000Other comprehensive income, net of tax
    
    
    (42,000
    )
    
    
    (28,000
    )Retained earnings
    
    
    10,083,000
    
    
    
    8,483,000Total stockholders equity
    
    
    51,948,000
    
    
    
    50,282,000$
    59,866,000
    
    
    $
    56,759,000
 See accompanying notes to the financial statements. -2-




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DAWSON GEOPHYSICAL COMPANY 
 STATEMENTS OF CASH FLOWS
 Three Months Ended December 31,2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,600,000
    
    
    $
    506,000Adjustments to reconcile net loss to
net cash provided by operating activities:Depreciation
    
    
    1,470,000
    
    
    
    1,108,000Non-cash compensation
    
    
    45,000
    
    
    
    Deferred income tax expense
    
    
    881,000
    
    
    
    Other
    
    
    27,000
    
    
    
    16,000Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    2,969,000
    
    
    
    (760,000
    )Decrease (increase) in prepaid expenses
    
    
    3,000
    
    
    
    (700,000
    )Increase in accounts payable
    
    
    1,653,000
    
    
    
    3,130,000Increase in deferred revenue
    
    
    513,000
    
    
    
    Increase (decrease) in accrued liabilities
    
    
    (725,000
    )
    
    
    290,000Net cash provided by operating activities
    
    
    8,436,000
    
    
    
    3,590,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (10,490,000
    )
    
    
    (1,602,000
    )Proceeds from maturity of short-term investments
    
    
    
    
    
    
    4,000,000Acquisition of short-term investments
    
    
    
    
    
    
    (4,017,000
    )Net cash provided by (used in) investing activities
    
    
    (10,490,000
    )
    
    
    (1,619,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    35,000
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (2,019,000
    )
    
    
    1,971,000CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    3,587,000
    
    
    
    3,389,000CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
    
    $
    1,568,000
    
    
    $
    5,360,000NON CASH INVESTING ACTIVITIES:Unrealized gain (loss) on investments
    
    $
    (14,000
    )
    
    $
    (57,000
    )
 See accompanying notes to the financial statements. -3-




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DAWSON GEOPHYSICAL COMPANY 
 NOTES TO FINANCIAL STATEMENTS
 1. ORGANIZATION AND NATURE
OF OPERATIONS Dawson
Geophysical Company (the Company) is the leading provider of onshore seismic
data acquisition services in the United States as measured by the number of active data acquisition crews.
Founded in 1952, the Company acquires and processes 2-D, 3-D and multi-component seismic
data for its clients, ranging from major oil and gas companies to
 independent oil and gas operators as well as providers of multi-client data libraries. 2. OPINION OF MANAGEMENT Although the information furnished is unaudited, in the opinion of management of the
Company, the accompanying financial statements reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial condition and results
of operations for the periods presented. The results of operations for the three months
ended December 31, 2004, are not necessarily indicative of the results to be expected for the
fiscal year. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted
in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the financial statements and notes
included in the Companys 2004 Form 10-K. Critical Accounting Policies The preparation of the Companys financial statements in conformity with generally accepted
accounting principles requires that certain assumptions and estimates be made that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Because of the use of assumptions and
estimates inherent in the reporting process, actual results could differ from those estimates. Revenue Recognition.Contracts for services are provided under cancelable service contracts.
These contracts are either turnkey or term agreements. The Company recognizes revenues when
services are performed under both types of agreements. Services are defined as the commencement of
data acquisition or processing operations. Under turnkey agreements, revenue is recognized on a per
unit of data acquired rate, as services are performed. Under term agreements, revenue is recognized
on a per unit of time worked rate, as services are performed. In the case of a cancelled service
contract, revenue is recognized and the customer is billed for services performed up to the date of
cancellation. The Company receives reimbursements for certain out-of-pocket expenses under the
terms of our service contracts. Amounts billed to clients are recorded in revenue at the gross
amount including out-of-pocket expenses that are reimbursed by the client. In some instances, clients are billed in advance of the services performed. In those cases,
the Company recognizes the liability as deferred revenue. Allowance for Doubtful Accounts.Management prepares its allowance for doubtful accounts
receivable based on its past experience of historical write-offs, its current customer base and
review of past due accounts. The inherent volatility of the energy industrys business cycle can
cause swift and unpredictable changes in the financial stability of the Companys customers. Impairment of Long-lived Assets.Long-lived assets are reviewed for impairment when
triggering events occur suggesting deterioration in the assets recoverability or fair value.
Recognition of an impairment charge is required if future expected net cash flows are insufficient
to recover the carrying
value of the asset. Managements forecast of future cash flow used to perform impairment
analysis includes estimates of future revenues and future gross margins. If the Company is unable
to achieve these cash flows, managements estimates would be revised potentially resulting in an
impairment charge in the period of revision. Depreciable Lives of Property, Plant and Equipment.Property, plant and equipment is
capitalized at historical cost and depreciated over the useful life of the asset. Managements
estimation of this useful life is based on circumstances that exist in the seismic industry and
information available at the time of the purchase of the asset. The technology of the equipment
used to gather data in the seismic industry has -4-




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historically evolved such that obsolescence does
not occur quickly. As circumstances change and new information becomes available, these estimates
could change. Depreciation is computed using the straight-line method. Tax Accounting.The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires the recognition of amounts of taxes payable or
refundable for the current year and an asset and liability approach in recognizing the amount of
deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in the Companys financial statements or tax returns. Management determines deferred
taxes by identifying the types and amounts of existing temporary differences, measuring the total
deferred tax asset or liability using the applicable tax rate and reducing the deferred tax asset
by a valuation allowance if, based on available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Managements methodology for
recording income taxes requires judgment regarding assumptions and the use of estimates, including
determining the annual effective tax rate and the valuation of deferred tax assets, which can
create variance between actual results and estimates. The process involves making forecasts of
current and future years taxable income and unforeseen events may significantly effect these
estimates. Those factors, among others, could have a material impact on the Companys provision or
benefit for income taxes. Stock Based Compensation.In accordance with the Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, no compensation is recorded for stock options or other
stock-based awards that are granted to employees or non-employee directors with an exercise price
equal to or above the common stock market price on the grant date. The Company accounts for stock-based compensation utilizing the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (APB 25)
and related interpretations. The following pro forma information, as required by Statement of
Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (SFAS 123), as
amended by Statement of Financial Accounting Standards No. 148 (SFAS 148), presents net income
and earnings per share information as if the stock options issued since February 2, 1999 were
accounted for using the fair value method. The fair value of stock options issued for each year
was estimated at the date of grant using the Black-Scholes option pricing model. -5-




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The SFAS 123 pro forma information for the three months ended December 31, 2004 and 2003 is as
follows: Three Months EndedDecember 31,2004
    
    
    2003Net income, as reported
    
    $
    1,600,000
    
    
    $
    506,000Add: Stock-based employee compensation expense
included in net income (loss), net of tax
    
    
    45,000
    
    
    
    Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123),
net of tax
    
    
    (143,000
    )
    
    
    (78,000
    )Net income, pro forma
    
    $
    1,502,000
    
    
    $
    428,000Basic:Net income per common share, as reported
    
    $
    0.28
    
    
    $
    0.09Net income per common share, pro forma
    
    $
    0.27
    
    
    $
    0.08Diluted:Net income per common share, as reported
    
    $
    0.28
    
    
    $
    0.09Net income per common share, pro forma
    
    $
    0.26
    
    
    $
    0.08
 Recently Issued Accounting Pronouncements The Financial Accounting Standards Board (FASB) has announced it will require all public
companies to expense the fair value of employee stock awards. The final requirements will be
effective for periods beginning after June 15, 2005. The impact to the Companys financial
statements will be in the form of additional compensation expense upon the award of any stock
options. The amount of the compensation expense recognized will be dependent on the value of the
Companys common stock and the number of options awarded. 3. NET INCOME PER COMMON SHARE The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per
Share (Statement 128). Statement 128
replaced the calculation of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and when appropriate, restated to conform to the
Statement 128 requirements. -6-




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The following table sets forth the computation of basic and diluted net income per common
share: Three Months EndedDecember 31,2004
    
    
    2003Numerator:Net income and numerator for basic
and diluted net income per
common share-income available
to common stockholders
    
    $
    1,600,000
    
    
    $
    506,000Denominator:Denominator
for basic net loss per common share-weighted average common shares
    
    
    5,638,365
    
    
    
    5,487,794Effect of dilutive securities-
employee stock options
    
    
    103,784
    
    
    
    33,449Denominator for diluted net
income per common share-
adjusted weighted average
common shares and assumed
conversions
    
    
    5,742,149
    
    
    
    5,521,243Net income per common share
    
    $
    .28
    
    
    $
    .09Net income per common share-
assuming dilution
    
    $
    .28
    
    
    $
    .09
 4. DEBT On December 22, 2004, the Company entered into a revolving line of credit loan agreement with
Western National Bank under which it may borrow, repay and reborrow, from time to time until
December 22, 2005, up to $10.0 million. This agreement is secured by a security interest in the
Companys accounts receivable and related collateral. Interest on the outstanding amount under the
line of credit loan agreement is payable monthly (beginning on January 22, 2005) at a rate equal to
the greater of (i) the Prime Rate and (ii) 5.0%. In
connection with equipping and deploying its eighth data
acquisition crew, on January 12, 2005 the Company borrowed $5.0
million under the loan agreement. In connection with equipping and deploying its ninth data acquisition crew, the Company borrowed the remaining $5.0
million available under the loan agreement on February 1, 2005. The loan agreement contains customary covenants for
credit facilities of this type, including limitations on distributions and dividends, disposition
of assets and mergers and acquisitions. There are certain financial covenants under the loan
agreement, including maintaining a minimum tangible net worth (as defined in the loan agreement) of
$40.0 million and maintaining specified ratios with respect to cash flow coverage, current assets
and liabilities, and debt to tangible net worth. 5. CONTINGENCY In
connection with a 2004 geophysical survey, the
Company received a demand letter in January 2005 from a
landowner alleging surface
damage by the Company in the amount of $2,255,000. The Company
believes that the actual amount of any surface damage will not be
material and that the master service contract between the Company
and its client requires the client to indemnify the Company against
non-negligent surface damage claims incurred
in the course of a geophysical survey. The Company has notified
its client of the demand letter and its belief that the indemnification provision applies to the
underlying event. If the client fails to indemnify the Company, the Companys insurance may not
cover the claim. -7-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Companys financial statements
and the notes thereto included elsewhere in this Form 10-Q. Forward Looking Statements All statements other than statements of historical fact included in this report, including without
limitation, statements under Managements Discussion and Analysis of Financial Condition and
Results of Operations regarding our financial position, business strategy and plans and objectives
for future operations, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this
report, words such as anticipate, believe, estimate, expect, intend and similar
expressions, as they relate to us or our management, identify forward-looking statements. Such
forward-looking statements are based on our beliefs as well as assumptions made by and information
currently available to us. Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, including but not limited to dependence
upon energy industry spending, the volatility of oil and gas prices,
weather interruptions, the ability
to obtain land access rights of way and the availability of capital resources. Such statements
reflect our current views with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to our operations, results of operations, growth strategy
and liquidity. A discussion of these factors, including risks and uncertainties, is set forth in
our Form 10-K and in our other reports filed from time to time with the Securities and Exchange
Commission. All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this paragraph. We
assume no obligation to update any such forward-looking statements. Overview We are the leading provider of onshore seismic data acquisition services in the United States
as measured by the number of active data acquisition crews. Substantially all of our revenues are
derived from the seismic data acquisition services we provide to our clients, mainly domestic oil
and gas companies. Demand for our services depends upon the level of spending by these oil and gas
companies for exploration, production, development and field management activities, which
activities depend, in part, on oil and natural gas prices. Fluctuations in domestic oil and natural
gas exploration activities and commodity prices have affected the demand for our services and our
results of operations in years past and continue to be the single most important factor affecting
our business and results of operations. Accordingly, our return to profitability in fiscal 2004 after several years of losses is
directly related to an increase in the level of exploration for domestic oil and natural gas
reserves by the petroleum industry since 2003. The increased level of exploration is a function of
higher prices for oil and natural gas. As a result of the increase in domestic exploration
spending, we have experienced an increased demand for our seismic data acquisition and processing
services. While the markets for oil and natural gas have historically been volatile and are likely
to continue to be so in the future and we can make no assurances as to future levels of domestic
exploration or commodity prices, we believe opportunities exist for
us to expand our market position. We continue to focus on increasing revenues and profitability. While our revenues are mainly
affected by the level of client demand for our services, our revenues are also affected by the
pricing for our services that we negotiate with our clients and the productivity of our data
acquisition crews, including crew downtime related to inclement weather or delays in acquiring land
access permits. Consequently, our successful efforts to negotiate more favorable weather protection
provisions in our supplemental service -8-




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agreements, to mitigate access permit delays and to improve overall crew productivity may
contribute to growth in our revenues. Although our clients may cancel their supplemental service
agreements with us on short notice, we believe we currently have a sufficient order book to sustain
operations at full capacity well into fiscal 2005. In response to the additional demand for our
services, we added our tenth crew in January 2005,
and expect to field our eleventh crew in the second calendar quarter of 2005. Highlights of the Quarter Ended December 31, 2004 Our financial performance from operations for the first quarter of fiscal 2005 significantly
improved when compared to our financial performance for the first quarter of fiscal 2004 as a
result of increased demand for our services due to increased exploration and development activity
by domestic oil and gas companies and increases in oil and gas prices during 2004. This increased
demand had the following principal effects:  
    During the first fiscal quarter of 2005, we operated nine data acquisition crews as
compared to six crews in the first fiscal quarter of 2004.  
    We experienced price improvements and more favorable contract terms in our agreements
with clients during 2004. These factors helped improve our revenues during the first
quarter of fiscal 2005.  
    We experienced a deferred tax expense of $0.16 in the first quarter of fiscal 2005.
There was no deferred tax expense in the first quarter of fiscal 2004. At December 31,
2004, we had a deferred tax asset of $767,000 reflecting available net operating loss
carryforwards. We expect to recognize additional deferred tax expense in subsequent
quarters in order to fully utilize our deferred tax asset. After we
have fully utilized our deferred tax asset, we will recognize current
income tax expense on our income before income tax. Results of Operations Operating Revenues.Our operating revenues for the first quarter of fiscal 2005 increased 39%
to $21,559,000 from $15,475,000 in the first quarter of fiscal 2004 as a result of increased demand
for our services. As a result of this increased demand during fiscal 2004, we were able to field
three additional data acquisition crews, obtain price improvements in the markets for our services
and negotiate more favorable contract provisions. We began fiscal 2004 with six data acquisition crews.
The seventh crew was added in February and the eighth and ninth crews were fielded in the fourth
quarter of fiscal 2004. Operating
Costs.Our operating expenses increased 27% from $13,311,000 in
the first quarter of fiscal 2004 to
$16,844,000 in the first quarter of fiscal 2005 due to the ongoing expenses of the three crews added after the first
quarter of fiscal 2004. General and administrative expenses were approximately 3.7% and 3.9% of revenues in the first
quarter of fiscal 2005 and 2004, respectively. General and administrative expenses are expected to
increase to support expanded field operations and to assimilate Sarbanes-Oxley reporting
requirements. In the first quarter of fiscal 2005, we increased our allowance for doubtful accounts
by $40,000 in response to the increase in business activity and accounts receivable. Historically,
we have had no significant write-offs of trade accounts receivable; however, we believe that it is
prudent to increase the allowance for doubtful accounts in response
to increased demand from new customers. We recognized $1,470,000 of depreciation expense in the first quarter of fiscal 2005 as
compared to $1,108,000 in the comparable quarter of fiscal 2004 as a result of the significant
capital expenditures we made during 2004. Our depreciation expense is also expected to increase
during the remaining quarters of fiscal 2005 reflecting our significant capital expenditures in
fiscal 2004 and the first quarter of fiscal 2005 and our expected capital budget for the remainder
of fiscal 2005. Our total operating costs for the first quarter of fiscal 2005 were $19,108,000, an increase
of 27% from -9-




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the first quarter of fiscal 2004 primarily due to the factors described above. Taxes.We experienced a deferred tax expense of $0.16 during the first quarter of 2005.
There was no deferred tax expense in the first quarter of fiscal 2004. At December 31, 2004, we
have a deferred tax asset of $767,000 reflecting available net operating loss carryforwards. We
expect to recognize additional deferred tax expense in subsequent quarters in order to fully
utilize our deferred tax asset. After we have fully utilized our
deferred tax asset, we will recognize current income tax expense on our income
before income tax. Liquidity and Capital Resources Introduction.Our principal sources of cash are amounts earned from the seismic data
acquisition services we provide to our clients. Our principal uses of cash are the amounts used to
provide these services, including expenses related to our operations and acquiring new equipment.
Accordingly, our cash position depends (as do our revenues) on the level of demand for our
services. Historically, cash generated from our operations along with cash reserves and short term
borrowings from commercial banks have been sufficient to fund our working capital requirements, and
to some extent, our capital expenditures. Cash Flows.Net cash provided by operating activities
was $8,436,000 for the first quarter of
fiscal 2005 and $3,590,000 for the first quarter of fiscal 2004. These amounts primarily reflect
results of operations offset by changes in working capital
components, depreciation and other non-cash items, including deferred
income tax expense. The increase in cash
provided by operating activities in the first quarter of fiscal 2005 resulted primarily from the
decrease in accounts receivable, due to increased receivable collections during the first fiscal quarter, and the increase in net income, due to the continued expansion of our business. Net cash used in investing activities was $10,490,000 in the
quarter ended December 31, 2004
and $1,619,000 in the quarter ended December 31, 2003. These results represent capital expenditures
and activity in the short-term investment portfolio. The increase in net cash used in investing activities during the first quarter
 of fiscal
2005 primarily resulted from the capital expenditures we made during the quarter due to the continued expansion of our business.
Capital expenditures were made with cash
generated from operations and short-term investments and during the first quarter of fiscal 2005 with cash from our new revolving
line of credit agreement discussed below. Net cash provided by financing activities in the quarter ended December 31, 2004 was $36,000
and reflects proceeds from the exercise of stock options. Capital Expenditures.During the first quarter of fiscal 2005, capital expenditures of
$10,490,000 were used to acquire additional recording channels and energy source units to equip our
eighth and ninth data acquisition crews and to prepare to field our tenth crew in January 2005 and
for maintenance capital requirements. We have budgeted capital expenditures of approximately $20 million for the remainder of fiscal
year 2005, of which approximately $7 million will be used to complete the funding of our January
2005 crew expansion, approximately $5 million will be used to field our
eleventh crew in the second calendar quarter of 2005, approximately $4 million will be used to increase the capacity of our existing crews, and the remainder will be used for maintenance capital
requirements. We
continually strive to supply our clients with technologically advanced 3-D seismic data
acquisition recording systems and data processing capabilities. We maintain equipment in and out of
service in anticipation of increased future demand for our services. Capital Resources.Historically, we have primarily relied on cash generated from operations,
cash reserves and short term borrowings from commercial banks to fund our working capital
requirements and, to some extent, capital expenditures. In the past, we have also funded our
capital expenditures and other financing needs through public equity
offerings. As a result of our recent increased capital needs
resulting from the continued expansion of our business, we obtained
in December 2004 the $10 million revolving line of credit loan
agreement discussed below. On December 14, 2005, we filed a registration statement with the Securities and Exchange
Commission for a proposed offering of up to 1,725,000 shares of our
common stock. A portion of the proceeds from such offering, if
successful, will be used to repay our recent borrowings under the
revolving line of credit agreement described below. On December 22, 2004, we entered into a revolving line of credit loan agreement with Western
National Bank under which we may borrow, repay and reborrow, from time to time until December 22,
2005, up to $10.0 million. Our obligations under this agreement are secured by a security interest
in our -10-




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accounts receivable and related collateral. Interest on the outstanding amount under the line
of credit loan agreement is payable monthly (beginning on January 22, 2005) at a rate equal to the
greater of (i) the Prime Rate and (ii) 5.0%. In connection
with equipping and deploying our eighth data acquisition
crew, on January 12, 2005 we borrowed $5.0 million under the
loan agreement. In connection with equipping and deploying our ninth data acquisition crew, we borrowed the remaining $5.0 million available under the
loan agreement on February 1, 2005. The loan agreement contains customary covenants for credit facilities of this type,
including limitations on distributions and dividends, disposition of assets and mergers and
acquisitions. We are also obligated to meet certain financial covenants under the loan agreement,
including maintaining a minimum tangible net worth (as defined in the loan agreement) of $40.0
million and maintaining specified ratios with respect to cash flow coverage, current assets and
liabilities, and debt to tangible net worth. The following table summarizes payments due in specific periods related to our contractual
obligations as of February 1, 2005: Payments Due by PeriodWithin
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Debt obligations(1)
    
    $
    10,000
    
    
    $
    10,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Operating lease obligations
    
    
    500
    
    
    
    143
    
    
    
    357
    
    
    
    0
    
    
    
    0Total
    
    $
    5,500
    
    
    $
    5,143
    
    
    $
    357
    
    
    $
    0
    
    
    $
    0
   (1)
    
    Amounts represent our current borrowings under our revolving line of credit loan agreement
and do not include interest payments required under the agreement. We believe that our capital resources, including our short-term investments and cash flow from
operations are adequate to meet our current operational needs. We believe we will be able to
finance our remaining fiscal 2005 capital requirements through short-term investments and cash
flow from operations, through borrowings under our revolving line of credit loan agreement and from the proceeds
of the common stock offering discussed above. If we were not able to complete the common stock offering discussed above,
we would have to find other funding sources for our business expansion or alter or delay our spending plans.
We believe that other sources of funding would be available to us, including increasing the size of our revolving
line of credit or issuing long-term debt. Our ability to continue to satisfy our working capital
requirements and to fund future capital requirements will depend principally upon our future
operating performance, which is subject to the risks inherent in our business. Off-Balance Sheet Arrangements As
of December 31, 2004 we had no off-balance sheet arrangements. Critical Accounting Policies The preparation of our financial statements in conformity with generally accepted accounting
principles requires us to make certain assumptions and estimates that affect the reported amounts
of assets and liabilities at the date of our financial statements and the reported amounts of
revenues and expenses during the reporting period. Because of the use of assumptions and estimates
inherent in the reporting process, actual results could differ from those estimates. Revenue Recognition.Our services are provided under cancelable service contracts. These
contracts are either turnkey or term agreements. The Company recognizes revenues when services
are performed under both types of agreements. Services are defined as the commencement of data
acquisition or processing operations. Under turnkey agreements, revenue is recognized on a per unit
of data acquired rate, as services are performed. Under term agreements, revenue is recognized on a
per unit of time worked rate, as services are performed. In the case of a cancelled service
contract, we recognize revenue and bill our client for services performed up to the date of
cancellation. We also receive reimbursements for certain out-of-pocket expenses under the terms of
our service contracts. We record amounts billed to clients in revenue at the gross amount including
out-of-pocket expenses that are reimbursed by the client. In some instances, we bill clients in advance of the services performed. In those cases, we
recognize the liability as deferred revenue. -11-




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Allowance for Doubtful Accounts.We prepare our allowance for doubtful accounts receivable
based on our past experience of historical write-offs, our current customer base and our review of
past due accounts. The inherent volatility of the energy industrys business cycle can cause swift
and unpredictable changes in the financial stability of our customers. Impairment of Long-lived Assets.We review long-lived assets for impairment when triggering
events occur suggesting deterioration in the assets recoverability or fair value. Recognition of an
impairment charge is required if future expected net cash flows are insufficient to recover the
carrying value of the asset. Our forecast of future cash flows used to perform impairment analysis
includes estimates of future revenues and future gross margins based on our historical results and
analysis of future oil and gas prices which is fundamental in assessing demand for our services. If
we are unable to achieve these cash flows, our estimates would be revised potentially resulting in
an impairment charge in the period of revision. Depreciable Lives of Property, Plant and Equipment.Our property, plant and equipment are
capitalized at historical cost and depreciated over the useful life of the asset. Our estimation of
this useful life is based on circumstances that exist in the seismic industry and information
available at the time of the purchase of the asset. The technology of the equipment used to gather
data in the seismic industry has historically evolved such that obsolescence does not occur
quickly. As circumstances change and new information becomes available, these estimates could
change. We amortize these capitalized items using the straight-line method. Tax Accounting.We account for our income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which requires the recognition of amounts of taxes payable or refundable for the
current year and an asset and liability approach in recognizing the amount of deferred tax
liabilities and assets for the future tax consequences of events that have been recognized in our
financial statements or tax returns. We determine deferred taxes by identifying the types and
amounts of existing temporary differences, measuring the total deferred tax asset or liability
using the applicable tax rate and reducing the deferred tax asset by a valuation allowance if,
based on available evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Our methodology for recording income taxes requires judgment
regarding assumptions and the use of estimates, including determining our annual effective tax rate
and the valuation of deferred tax assets, which can create variance between actual results and
estimates. The process involves making forecasts of current and future years taxable income and
unforeseen events may significantly effect these estimates. Those factors, among others, could have
a material impact on our provision or benefit for income taxes. Stock Based Compensation.In accordance with the Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, we do not record compensation for stock options or
other stock-based awards that are granted to employees or non-employee directors with an exercise
price equal to or above the common stock market price on the grant date. Recently Issued Accounting Pronouncements The Financial Accounting Standards Board (FASB) has announced it will require all public
companies to expense the fair value of employee stock awards. The final requirements will be
effective for periods beginning after June 15, 2005. The impact to our financial statements will be
in the form of additional compensation expense upon the award of any stock options. The amount of
the compensation expense we will recognize is dependent on the value of our common stock and the
number of options we award. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The
primary sources of market risk include fluctuations in commodity prices, which affect
demand for and pricing of our services, and interest rate fluctuations. At December 31, 2004, we
had no indebtedness. Our short-term investments were fixed-rate and we do not necessarily intend to
hold them to maturity, and therefore, the short-term investments expose us to the risk of earnings
or cash flow loss due to changes in market interest rates. As of December 31, 2004, the carrying
value of our investments approximated fair -12-




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value. We have not entered into any hedge arrangements, commodity swap agreements, commodity
futures, options or other derivative financial instruments. We do not currently conduct business
internationally, so we are generally not subject to foreign currency exchange rate risk. 
 ITEM 4. CONTROLS AND PROCEDURES Under the supervision, and with the participation, of our management, including our principal
executive officer and principal financial officer, we have performed an evaluation of the design,
operation and effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
of the Securities Exchange Act) as of December 31, 2004. Based on that evaluation, our principal
executive officer and principal financial officer concluded that such disclosure controls and
procedures are effective in enabling us to record, process, summarize and report information
required to be included in our reports filed or submitted under the Exchange Act within the
required time period. There have not been any changes in our internal controls over financial
reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended
December 31, 2004 that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS In
connection with a 2004 geophysical survey, we received a
demand letter in January 2005 from a landowner alleging surface
damage by us in the
amount of $2,255,000. We believe that
the actual amount of any surface damage will not be material and that
the master service contract between us and our client requires the client to indemnify us against
non-negligent surface damage claims incurred in the course of a geophysical survey. We have
notified our client of the demand letter and our belief that the indemnification provision applies
to the underlying event. If the client fails to indemnify us, our insurance may not cover the
claim. In addition to the foregoing, from time to time we are a party to various legal proceedings
arising in the ordinary course of business. Although we cannot predict the outcomes of any such
legal proceedings, our management believes that the resolution of pending legal actions will not
have a material adverse effect on our financial condition, results of operations or liquidity. 
 ITEM 6. EXHIBITS The information required by this Item 6 is set forth in the Index to Exhibits accompanying
this Form 10-Q and is hereby incorporated by reference. -13-




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report be signed on its behalf by the undersigned thereunto duly authorized. DAWSON GEOPHYSICAL COMPANYDATE: February 14, 2005
    By:
    /s/ L. Decker DawsonL. Decker DawsonChairman of the Board of Directors and
Chief Executive Officer DATE: February 14, 2005
    By:
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Treasurer,
Secretary and Chief Financial Officer -14-




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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).10.4
    
    Revolving Line of Credit Loan Agreement dated December 22, 2004
between the Company and Western Bank (filed on
December 22, 2004 as an exhibit to the Companys Current Report on
Form 8-K (File No. 2-71058) 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. 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.
    -15-