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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, 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
incorporation or organization)
    
    (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 March 31, 2005Common Stock, $.33 1/3 par value
    
    7,442,794 shares




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DAWSON GEOPHYSICAL COMPANY INDEX PageNumberPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsStatements of Operations for the Three Months and Six Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    3Balance Sheets at March 31, 2005 (unaudited) and September 30, 2004
    
    
    4Statements of Cash Flows for the Six Months Ended March 31, 2005 and 2004 (unaudited)
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Index to ExhibitsCertification 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 March 31,
    
    
    Six Months Ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenues
    
    $
    26,515,000
    
    
    $
    15,203,000
    
    
    $
    48,074,000
    
    
    $
    30,678,000Operating costs:Operating expenses
    
    
    21,378,000
    
    
    
    11,642,000
    
    
    
    38,222,000
    
    
    
    24,953,000General and administrative
    
    
    989,000
    
    
    
    601,000
    
    
    
    1,783,000
    
    
    
    1,219,000Depreciation
    
    
    1,662,000
    
    
    
    1,117,000
    
    
    
    3,132,000
    
    
    
    2,225,00024,029,000
    
    
    
    13,360,000
    
    
    
    43,137,000
    
    
    
    28,397,000Income from operations
    
    
    2,486,000
    
    
    
    1,843,000
    
    
    
    4,937,000
    
    
    
    2,281,000Other income:Interest income
    
    
    99,000
    
    
    
    48,000
    
    
    
    123,000
    
    
    
    117,000Interest expense
    
    
    (65,000
    )
    
    
    
    
    
    
    (65,000
    )
    
    
    Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Other
    
    
    233,000
    
    
    
    108,000
    
    
    
    239,000
    
    
    
    110,000Income before income tax
    
    
    2,753,000
    
    
    
    1,999,000
    
    
    
    5,234,000
    
    
    
    2,505,000Income tax (expense) benefit:Current
    
    
    (733,000
    )
    
    
    
    
    
    
    (733,000
    )
    
    
    Deferred
    
    
    307,000
    
    
    
    
    
    
    
    (574,000
    )(426,000
    )
    
    
    
    
    
    
    (1,307,000
    )
    
    
    Net income
    
    $
    2,327,000
    
    
    $
    1,999,000
    
    
    $
    3,927,000
    
    
    $
    2,505,000Net income per common share
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.66
    
    
    $
    0.45Net income per common share-assuming dilution
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.65
    
    
    $
    0.45Weighted average equivalent common shares outstanding
    
    
    6,262,794
    
    
    
    5,535,514
    
    
    
    5,947,148
    
    
    
    5,511,524Weighted average equivalent common
shares outstanding-assuming dilution
    
    
    6,360,345
    
    
    
    5,596,164
    
    
    
    6,051,413
    
    
    
    5,552,206
 See accompanying notes to the financial statements. 3




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Dawson Geophysical Company 
  March 31,
    
    
    September 30,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,644,000
    
    
    $
    3,587,000Short-term investments
    
    
    25,260,000
    
    
    
    4,130,000Accounts receivable, net of allowance
for doubtful accounts of $236,000 in
2005 and $199,000 in 2004
    
    
    15,224,000
    
    
    
    16,979,000Prepaid expenses and other assets
    
    
    570,000
    
    
    
    440,000Current deferred tax asset
    
    
    3,425,000
    
    
    
    Total current assets
    
    
    56,123,000
    
    
    
    25,136,000Deferred tax asset
    
    
    
    
    
    
    1,648,000Property, plant and equipment
    
    
    115,458,000
    
    
    
    94,050,000Less accumulated depreciation
    
    
    (67,207,000
    )
    
    
    (64,075,000
    )Net property, plant and
equipment
    
    
    48,251,000
    
    
    
    29,975,000$
    104,374,000
    
    
    $
    56,759,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,612,000
    
    
    $
    3,357,000Accrued liabilities:Payroll costs and other taxes
    
    
    424,000
    
    
    
    742,000Other
    
    
    1,072,000
    
    
    
    971,000Deferred revenue
    
    
    1,774,000
    
    
    
    1,407,000Total current liabilities
    
    
    6,882,000
    
    
    
    6,477,000Deferred tax liability
    
    
    2,351,000
    
    
    
    Stockholders 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,
7,442,794
and 5,633,794 shares issued and
outstanding
in each period
    
    
    2,481,000
    
    
    
    1,878,000Additional paid-in capital
    
    
    80,422,000
    
    
    
    39,949,000Other comprehensive income, net of tax
    
    
    (172,000
    )
    
    
    (28,000
    )Retained earnings
    
    
    12,410,000
    
    
    
    8,483,000Total stockholders equity
    
    
    95,141,000
    
    
    
    50,282,000$
    104,374,000
    
    
    $
    56,759,000
 See accompanying notes to the financial statements. 4




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DAWSON GEOPHYSICAL COMPANY 
 STATEMENTS OF CASH FLOWS
  Six Months Ended March 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    3,927,000
    
    
    $
    2,505,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    3,132,000
    
    
    
    2,225,000Gain on disposal of assets
    
    
    
    
    
    
    (3,000
    )Deferred income tax expense
    
    
    574,000
    
    
    
    Non-cash compensation
    
    
    45,000
    
    
    
    92,000Other
    
    
    27,000
    
    
    
    22,000Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    1,755,000
    
    
    
    (1,202,000
    )Increase in prepaid expenses
    
    
    (130,000
    )
    
    
    (125,000
    )Increase in accounts payable
    
    
    255,000
    
    
    
    170,000Increase in deferred revenue
    
    
    367,000
    
    
    
    Increase (decrease) in accrued liabilities
    
    
    (217,000
    )
    
    
    178,000Net cash provided by operating activities
    
    
    9,735,000
    
    
    
    3,862,000CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (21,408,000
    )
    
    
    (3,787,000
    )Proceeds from maturity of short-term investments
    
    
    
    
    
    
    5,550,000Acquisition of short-term investments
    
    
    (21,309,000
    )
    
    
    (6,245,000
    )Net cash used in investing activities
    
    
    (42,717,000
    )
    
    
    (4,482,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    35,000
    
    
    
    474,000Proceeds from line of credit
    
    
    10,000,000
    
    
    
    Repayment on line of credit
    
    
    (10,000,000
    )
    
    
    Proceeds from stock offering
    
    
    41,004,000
    
    
    
    Net cash provided by financing activities
    
    
    41,039,000
    
    
    
    474,000Net increase (decrease) in cash and cash equivalents
    
    
    8,057,000
    
    
    
    (146,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    3,587,000
    
    
    
    3,389,000CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    11,644,000
    
    
    $
    3,243,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    376,000
    
    
    $
    14,000NON CASH INVESTING ACTIVITIES:Unrealized gain (loss) on investments
    
    $
    (144,000
    )
    
    $
    (46,000
    )
 See accompanying notes to the financial statements. 5




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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
necessary for the periods presented. The results of operations for the three months and six months
ended March 31, 2005, 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 report pursuant to certain rules and regulations of the Securities and Exchange
Commission. These financial statements should be read 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 6




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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 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. 7




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The SFAS 123 pro forma information for the three months and the six months ended March 31,
2005 and 2004 is as follows: Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    2,327,000
    
    
    $
    1,999,000
    
    
    $
    3,927,000
    
    
    $
    2,505,000Add: Stock-based employee compensation expense
included in net income, net of tax
    
    
    
    
    
    
    73,000
    
    
    
    45,000
    
    
    
    73,000Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123), net of tax
    
    
    (107,000
    )
    
    
    (152,000
    )
    
    
    (251,000
    )
    
    
    (230,000
    )Net income, pro forma
    
    $
    2,220,000
    
    
    $
    1,920,000
    
    
    $
    3,721,000
    
    
    $
    2,348,000Basic:Net income per common share, as reported
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.66
    
    
    $
    0.45Net income per common share, pro forma
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.63
    
    
    $
    0.43Diluted:Net income per common share, as reported
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.65
    
    
    $
    0.45Net income per common share, pro forma
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    0.61
    
    
    $
    0.42
 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 the first annual period 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 SFAS No. 128, Earnings per
Share. SFAS No. 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 SFAS 128 requirements. 8




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The following table sets forth the computation of basic and diluted net income per common
share: Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312005
    
    
    2004
    
    
    2005
    
    
    2004NUMERATOR:Net income and numerator for basic and diluted
net income per common share-income
available to common shareholders
    
    $
    2,327,000
    
    
    $
    1,999,000
    
    
    $
    3,927,000
    
    
    $
    2,505,000DENOMINATOR:Denominator for basic net income per common
share-weighted average common shares
    
    
    6,262,794
    
    
    
    5,535,514
    
    
    
    5,947,148
    
    
    
    5,511,524Effect of dilutive securities-employee stock options
    
    
    97,551
    
    
    
    60,650
    
    
    
    104,265
    
    
    
    40,682Denominator for diluted net income per common
share-adjusted weighted average common shares
and assumed conversions
    
    
    6,360,345
    
    
    
    5,596,164
    
    
    
    6,051,413
    
    
    
    5,552,206Net income per common share
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.66
    
    
    $
    0.45Net income per common share-assuming dilution
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.65
    
    
    $
    0.45
 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 and ninth data acquisition crews, the Company borrowed $5.0 million on January 12, 2005 and
the remaining $5.0 million available under the loan agreement on February 1, 2005. As of March 31,
2005, the Company had repaid the $10.0 million balance outstanding under the credit loan agreement
and the associated interest as a partial use of proceeds from the Companys public offering of
1,800,000 shares of its common stock. 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. The matter has now been settled
without litigation for an immaterial amount. 9




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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 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, 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 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 agreement with us on short notice, we believe we currently have a
sufficient order book to sustain operations at full capacity for the remainder of calendar 2005.
In response to the additional demand for our services, we added our tenth 10




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crew in January 2005, and will field our eleventh crew in May, 2005. Highlights of the Quarter Ended March 31, 2005 Our financial performance from operations for the second quarter of fiscal 2005 significantly
improved when compared to our financial performance for the second 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 and into 2005.
This increased demand had the following principal effects:  
    During the second fiscal quarter of 2005, we operated ten data acquisition crews as
compared to six crews that operated in the second quarter of fiscal 2004.
    We continued to experience price improvements and more favorable contract terms in our
agreements with clients. These factors helped improve our revenues during the second
quarter of fiscal 2005.
    The offering raised net proceeds of approximately $41 million
that were used to fund our continued expansion and to repay
borrowings under our revolving line of credit agreement.
    The provision for income taxes for the three and six months ended March 31, 2005 increased to
$426,000 and $1,307,000, respectively, from zero for the
comparable periods in 2004 primarily due to the increase in our income before taxes and the fact
that we fully utilized our alternative minimum tax net operating loss carryforwards during the
quarter ending March 31, 2005. Results of Operations Operating Revenues.Our operating revenues for the first six months of fiscal 2005 increased
56.7% from $30,678,000 to $48,074,000 for the first six months of fiscal 2004. For the three
months ended March 31, 2005, operating revenues totaled $26,515,000 versus $15,203,000 for the same
period of fiscal 2004, a 74.4% increase as a result of increased demand for our services. As a
result of increased demand during the first six months of fiscal 2005, we were able to field
additional data acquisition crews, obtain price improvements in the markets for our services and
negotiate favorable contract provisions. We began fiscal 2004 with six data acquisition crews. The
seventh crew was added in March of 2004 and the eighth and ninth crews were fielded in the fourth
quarter of fiscal 2004. Our tenth crew went into operation in January 2005, and we expect to field
an additional crew, our eleventh, in May 2005. Operating Costs.Operating expenses for the six months ended March 31, 2005 totaled
$38,222,000 versus $24,953,000 for the same period of fiscal 2004. For the quarter ended March 31,
2005, operating expenses totaled $21,378,000 versus $11,642,000 for the quarter ended March 31,
2004. Increases in operating expenses are 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 4.0% of revenues in the first
six months of fiscal 2005 and 2004, respectively. For the quarter ended March 31, 2005 general and
administrative expenses totaled $989,000 as compared to $601,000 for the same period in fiscal
2004. General and administrative expenses are expected to increase to support expanded field
operations and to assimilate Sarbanes-Oxley reporting requirements. Depreciation for the six months ended March 31, 2005 totaled $3,132,000 as compared to
$2,225,000 for the six months ended March 31, 2004. We recognized $1,662,000 of depreciation
expense in the second quarter of fiscal 2005 as compared to $1,117,000 in the comparable quarter of
fiscal 2004 as a result of the significant capital expenditures we made from April to September of
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 six months of
fiscal 2005, and our expected capital budget for the remainder of fiscal 2005. Our total operating costs for the first six months of fiscal 2005 were $43,137,000, an
increase of 51.9% from the first six months of fiscal 2004. For the quarter ended March 31, 2005,
our operating expenses 11




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were $24,029,000 representing a 79.9% increase from the comparable quarter of fiscal 2004.
These increases in the first six month period and for the second quarter were primarily due to the
factors described above. Taxes.The provision for income taxes for the three and six months ended March 31, 2005
increased to $426,000 ($.07 per share) and $1,307,000 ($.22 per share), respectively, from zero for
the comparable periods in 2004. This change resulted primarily from the increase in our income
before taxes and the fact that we had fully utilized our alternative minimum tax net operating loss
carryforwards during the quarter ending March 31, 2005. We anticipate we will continue to
recognize current income tax expense in subsequent quarters. Liquidity and Capital Resources Introduction.Our principal source of cash is 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 has been sufficient to fund our working capital requirements, and
to some extent, our capital expenditures. In March 2005, we successfully completed a public
offering of 1,800,000 shares of our common stock. The offering raised net proceeds of
approximately $41 million that were used to fund our continued expansion and to repay borrowings
under our revolving line of credit agreement. Cash Flows.Net cash provided by operating activities was $9,735,000 for the first six months
of fiscal 2005 and $3,862,000 for the first six months 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 six months of fiscal 2005 resulted primarily from the decrease in
accounts receivable due to increased receivable collections during fiscal 2005, and the increase in
net income due to the continued expansion of our business. Net cash used in investing activities was $42,717,000 through March 31, 2005 and $4,482,000
through the six months ended March 31, 2004. These results represent capital expenditures and
activity in the short-term investment portfolio. Capital expenditures were made with cash
generated from operations and short-term investments and during fiscal 2005 with cash from our
revolving line of credit agreement discussed below. Net cash provided by financing activities for the six months period ending March 31, 2005 was
$41,039,000 and primarily reflects proceeds from the public stock offering completed February 28,
2005 discussed elsewhere in this report. Capital Expenditures.During the first six months of fiscal 2005, capital expenditures of
$21,408,000, were used to complete the outfitting of our eighth and ninth data acquisition crews,
to deploy our tenth crew, and to prepare to deploy our eleventh crew in the May 2005 and for
maintenance capital requirements. We have budgeted capital expenditures of approximately $12 million for the remainder of fiscal
2005, of which approximately $1 million will be used to complete the funding of our January 2005
crew expansion, approximately $5 million will be used to field an additional crew, our eleventh, in
May 2005, 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. 12




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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 continued expansion of our business, we obtained
a $10 million revolving line of credit loan agreement in December 2004 and completed a public
offering of our common stock in March 2005. In March 2005 we successfully completed a public offering of 1,800,000 shares of our common
stock. Net proceeds from the offering were approximately $41.1
million and were used to fund our continued expansion and to repay
borrowings under our revolving line of credit agreement. 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 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 and ninth data acquisition crews we borrowed $5.0 million under the loan agreement on
January 12, 2005, and the remaining $5.0 million available under the loan agreement on February 1,
2005. As of March 31, 2005 we repaid the $10,000,000 balance outstanding under the loan agreement
and the associated interest as a partial use of proceeds from our public offering of 1,800,000
shares of our common stock. 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 March 31, 2005: Payments Due by PeriodWithin
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating lease obligations
    
    $
    476
    
    
    $
    143
    
    
    $
    333
    
    
    $
    0
    
    
    $
    0
 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 our short-term investments and cash
flow from operations, through borrowings under our revolving line of credit and from the proceeds
of the common stock offering discussed above. However, our ability 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 March 31, 2005, 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. 13




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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. 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. 14




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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 the first annual period 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 March 31, 2005, 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 March 31, 2005, the carrying value
of our investments approximates fair 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 March 31, 2005. 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
March 31, 2005 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. The matter has been settled without litigation for an
immaterial amount. 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. 15




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ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At our Annual Meeting of Stockholders held on January 25, 2005, the following actions were taken: 1. The following directors were elected to serve for a term of one year or until their
successors are duly elected and qualified: Name
    
    For
    
    WithheldPaul H. Brown

    
    
    5,317,280
    
    
    
    4,900L. Decker Dawson
    
    
    5,305,330
    
    
    
    16,850Gary M. Hoover
    
    
    5,319,646
    
    
    
    2,534Stephen C. Jumper
    
    
    5,301,080
    
    
    
    21,100Tim C. Thompson
    
    
    5,312,280
    
    
    
    9,900
 Pursuant to the terms of our Notice of Annual Meeting and Proxy Statement, proxies received
were voted, unless authority was withheld, in favor of the election of the five nominees named. 2. A proposal by the Board of Directors to ratify the appointment of KPMG LLP as our
independent registered public accounting firm for fiscal year 2005 was approved by the
stockholders. The stockholders cast 4,896,433 votes in favor of the proposal and 61,841 votes
against the proposal. There were 388,218 abstentions. 
 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. 16




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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: May 12, 2005
    By:
    /s/ L. Decker DawsonL. Decker DawsonChairman of the Board of Directors and
Chief Executive Officer DATE: May 12, 2005
    By:
    /s/ Christina W. HaganChristina W. HaganExecutive Vice President, Treasurer,
Secretary and Chief Financial Officer 17




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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).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.