##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    September 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    From          to   Commission File
    No. 0-10144
  DAWSON GEOPHYSICAL
    COMPANY
  Texas

75-0970548(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification
    No.)   508 West Wall, Suite 800, Midland, Texas 79701
 (Principal Executive Office)
 Telephone Number: 432-684-3000
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
  Title of Each Class
  1 3
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2).
  o þ o
  Rule 12b-2 o þ
  1 3
  1 3
    DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


2Item 1A.


Risk
    Factors


7Item 1B.


Unresolved Staff
    Comments


10Item 2.


Properties


10Item 3.


Legal
    Proceedings


10Item 4.


Submission of
    Matters to a Vote of Security Holders


10PART IIItem 5.


Market for Our
    Common Equity and Related Stockholder Matters


10Item 6.


Selected Financial
    Data


11Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


11Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


17Item 8.


Financial
    Statements and Supplementary Data


17Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


17Item 9A.


Controls and
    Procedures


18Item 9B.


Other
    Information


18PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


18Item 11.


Executive
    Compensation


18Item 12.


Security Ownership
    of Certain Beneficial Owners and Management


19Item 13.


Certain
    Relationships and Related Transactions


19Item 14.


Principal
    Accounting Fees and Services


19PART IVItem 15.


Exhibits, Financial
    Statement Schedules and Reports on
    Form 8-K


19Signatures


20Index to Financial
    Statements


F-1Index to
    ExhibitsConsent of Independent Registered Public Accounting FirmCertification 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)   1




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  FORM 10-K
    For the Fiscal Year Ended September 30, 2006
  DISCLOSURE
    REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K, Form 10-K,
 Part I  Item 1.
    BUSINESS  General
  2-D, 3-D, 3-D
  3-D
   2




---



##### Table of Contents



3-D
  Business
    Strategy
    
    Attracting and retaining skilled and experienced personnel for
    our data acquisition and processing operations;
    Providing integrated in-house services necessary in each phase
    of seismic data acquisition and processing, including project
    design, land access permitting, surveying and related support
    functions as well as continuing the enhancement of our in-house
    health, safety and environmental program;
    Maintaining the focus of our operations solely on the domestic
    onshore seismic market;
    Continuing to operate with conservative financial discipline;
    Updating our capabilities to incorporate advances in geophysical
    and supporting technologies; and
    Acquiring equipment to expand the recording channel capacity on
    each of our existing crews and equipping additional crews as
    customer demand dictates.  Business
    Description
  Geophysical Services Overview.
  2-D 3-D 2-D 3-D 3-D 3-D
  3-D 3-D 3-D
 3




---



##### Table of Contents



2-D 3-D 3-D
  Data Acquisition. 3-D
      ®
     4




---



##### Table of Contents



Data Processing.
      Integrated Services.
  Equipment
    Acquisition and Capital Expenditures
    Clients
     5




---



##### Table of Contents



Contracts
      Competition
    Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
 6




---



##### Table of Contents



Form 10-K. 1-800-SEC-0330
  Item 1A.
    RISK
    FACTORS  An investment in our common stock is subject to a number of
    risks discussed below. You should carefully consider these
    discussions of risk and the other information included in this
    Form 10-K.
    If any of the following risks were actually to occur, our
    business, financial condition or results of operations could be
    materially adversely affected.
  If oil
    and gas prices or the level of capital expenditures by oil and
    gas companies were to decline, demand for our services would
    decline and our results of operations would be adversely
    affected.
      
    level of demand for oil and gas;
    worldwide political, military and economic conditions, including
    the ability of the Organization of Petroleum Exporting Countries
    to set and maintain production levels and prices for oil;
    level of oil and gas production;
    government policies regarding the exploration for, and
    production and development of, oil and gas reserves;
    level of taxation relating to the energy industry, including
    taxation of consumption of energy sources; and
    weather conditions.    The
    high fixed costs of our operations could result in operating
    losses.
  Our business has high fixed costs.
  Our
    revenues are subject to fluctuations that are beyond our control
    which could adversely affect our results of operations in any
    financial period.
   7




---



##### Table of Contents



Our
    operations are subject to weather conditions which could
    adversely affect our results of operations.
    Our
    operations are subject to delays related to obtaining land
    access rights of way from third parties which could affect our
    results of operations.
  and/or
  We
    face intense competition in our business that could result in
    downward pricing pressure and the loss of market
    share.
    If we
    do not manage our recent growth effectively our results of
    operations could be affected.
    We may
    be unable to attract and retain skilled and technically
    knowledgeable employees, which could adversely affect our
    business.
    Capital
    requirements for our operations are large. If we are unable to
    finance these requirements, our ability to continue our
    expansion and maintain our profitability could be
    affected.
   8




---



##### Table of Contents



Technological
    change in our business creates risks of technological
    obsolescence and requirements for future capital expenditures.
    If we are unable to keep up with these technological advances,
    we may not be able to compete effectively.
    We
    operate under hazardous conditions that subject us to risk of
    damage to property or personal injuries and may interrupt our
    business.
        Our
    industry is subject to governmental regulation which may
    adversely affect our future operations.
    Certain
    provisions of our charter and bylaws and our shareholder rights
    plan may make it difficult for a third party to acquire us, even
    in situations that may be viewed as desirable by
    shareholders.
    Failure
    to maintain effective internal controls in accordance with
    Section 404 of the Sarbanes-Oxley Act could have a material
    adverse effect on our stock price.
   9




---



##### Table of Contents



Sarbanes-Oxley
  Item 1B.
    UNRESOLVED
    STAFF COMMENTS    Item 2.
    PROPERTIES    Owned or



Building AreaLocation

Leased

Purpose

Square FeetMidland, TX

Leased

Executive offices and data
    processing


29,960Midland, TX

Owned

Field office


58,472Equipment fabricationMaintenance and repairs       Item 3.
    LEGAL
    PROCEEDINGS    Item 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   Part II  Item 5.
    MARKET
    FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS  ®
  Quarter Ended

High


LowDecember 31, 2004

$
27.66


$
17.13March 31, 2005

$
25.62


$
17.91June 30, 2005

$
25.40


$
19.11September 30, 2005

$
32.99


$
20.96December 31, 2005

$
32.44


$
25.00March 31, 2006

$
34.74


$
23.74June 30, 2006

$
39.06


$
27.51September 30, 2006

$
32.85


$
25.70  10




---



##### Table of Contents



Equity
    Compensation Plan Information
  Number ofSecurities RemainingAvailable forNumber of





Future IssuanceSecurities to





Under Equitybe Issued





Compensation PlansUpon Exercise


Weighted-Average Exercise


(Excluding Securitiesof Outstanding


Price of


Reflected inPlan Category

Options


Outstanding Options


Column (a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


171,250


$
9.12



300,550Equity compensation plans not
    approved by security holders










Total


171,250


$
9.12



300,550   Item 6.
    SELECTED
    FINANCIAL DATA    Years Ended September 30

2006


2005


2004


2003


2002(In thousands, except per share amounts)Operating revenues

$
168,550


$
116,663


$
69,346


$
51,592


$
36,078Net income (loss)

$
15,855


$
10,016


$
8,618


$
(899
)

$
(2,292
)Net income (loss) per common share

$
2.11


$
1.50


$
1.55


$
(0.16
)

$
(0.42
)Weighted average equivalent common
    shares outstanding


7,518



6,706



5,559



5,485



5,463Total assets

$
149,418


$
114,127


$
56,759


$
42,792


$
44,291Long term debt-less current
    maturities

$



$



$



$



$
Stockholders equity

$
119,208


$
101,904


$
50,282


$
40,662


$
41,586     Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Form 10-K. Form 10-K.
  Overview
   11




---



##### Table of Contents



Fiscal
    2006 Highlights
    
    We deployed and operated the Companys twelfth data
    acquisition crew equipped with an Aram ARIES recording system in
    June of 2006. We added a second Aram ARIES recording system in
    September.
    We continued to experience price improvements and more favorable
    contract terms in our agreements with clients.
    Our areas of operations during fiscal 2006 included South Texas,
    California, Utah, West Texas, the Fort Worth Basin of
    Texas, Oklahoma, North Dakota, Wyoming, Arkansas, West Virginia,
    New York, Mississippi, and New Mexico.
    We increased channel count in 2006, from approximately 58,000 to
    in excess of 70,000.
    We increased the size of the vibrator energy source fleet to
    95 units.
    We commenced operations under an agreement with WesternGeco, a
    subsidiary of Schlumberger, to provide Q-Land seismic data
    acquisition services in the Lower 48 United States.
    We completed the data acquisition phase of a
    large 3-D
    multi-component seismic project in West Texas, our seventh such
    project in the last three years.
    We joined the Russell 3000 Index. 12




---



##### Table of Contents



Fiscal
    Year Ended September 30, 2006 Versus Fiscal Year Ended
    September 30, 2005
  Operating Revenues.
  Operating Costs. start-up
        Taxes.
  Fiscal
    Year Ended September 30, 2005 Versus Fiscal Year Ended
    September 30, 2004
  Operating Revenues.
  Operating Costs. start-up
     13




---



##### Table of Contents



Taxes.
  Liquidity
    and Capital Resources
  Introduction.
  Cash Flows.
      Capital Expenditures.
  3-D
  Capital Resources.
 14




---



##### Table of Contents



Payments Due by PeriodWithin

1-3

3-5

AfterTotal

1 Year

Years

Years

5 Years(In thousands)Operating lease obligations

$
1,336


$
376


$
550


$
367


$
43     Off-Balance
    Sheet Arrangements
    Effect of
    Inflation
    Critical
    Accounting Policies
   15




---



##### Table of Contents



Revenue Recognition. out-of-pocket out-of-pocket
    Allowance for Doubtful Accounts.
  Impairment of Long-lived Assets.
  Depreciable Lives of Property, Plant and
    Equipment.
  Tax Accounting.
  Stock Based Compensation.
 16




---



##### Table of Contents



Recently
    Issued Accounting Pronouncements
          Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   17




---



##### Table of Contents



Item 9A.
    CONTROLS
    AND PROCEDURES  Managements
    Evaluation of Disclosure Controls and Procedures
  Rule 13a-15(e)
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f) Internal Control  Integrated
    Framework page F-3.
  Changes
    in Internal Control over Financial Reporting
  Rule 13a-15(f)
  Item 9B.
    OTHER
    INFORMATION   Part III  Item 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT  Form 10-K. Regulation S-K)
  Item 11.
    EXECUTIVE
    COMPENSATION   18




---



##### Table of Contents



Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT  Form 10-K.
     Item 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS     Item 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES    Part IV   Item 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
    FORM 8-K    Financial Statements.
           Financial Statement Schedules.
  page F-18
      Exhibits.
  Form 10-K
 19




---



##### Table of Contents



SIGNATURES      By:
    /s/  Stephen
    C. Jumper          Signature

Title

Date/s/  L.
    Decker DawsonL.
    Decker Dawson

Chairman of the Board of Directors

12-4-06/s/  Stephen
    C. JumperStephen
    C. Jumper

President, Chief Executive Officer
    and
    Director

12-4-06/s/  Paul
    H. BrownPaul
    H. Brown

Director

12-4-06/s/  Gary
    M. HooverGary
    M. Hoover

Director

12-4-06/s/  Tim
    C. ThompsonTim
    C. Thompson

Director

12-4-06/s/  Christina
    W. HaganChristina
    W. Hagan

Executive Vice President,
    Secretary and
    Chief Financial Officer

12-4-06  20




---



##### Table of Contents



INDEX TO
    FINANCIAL STATEMENTS  Financial Statements of Dawson Geophysical Company

PageReports of
    Independent Registered Public Accounting Firm, dated
    November 30, 2006


F-2Balance Sheets as
    of September 30, 2006 and 2005


F-4Statements of
    Operations for the years ended September 30, 2006, 2005 and
    2004


F-5Statements of
    Stockholders Equity and Other Comprehensive Income for the
    years ended September 30, 2006, 2005 and 2004


F-6Statements of Cash
    Flows for the years ended September 30, 2006, 2005 and
    2004


F-7Notes to Financial
    Statements


F-8Financial Statement Schedule:Schedule II 
    Valuation and Qualifying Accounts for the years ended
    September 30, 2006, 2005 and 2004


F-18  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Internal Control 
    Integrated Framework
    KPMG LLP
  Dallas,
    Texas
    November 30, 2006
 F-2




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated Framework
        Internal Control  Integrated Framework Internal Control  Integrated Framework
    KPMG LLP
  Dallas,
    Texas
    November 30, 2006
 F-3




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  BALANCE
    SHEETS
  September 30,


September 30,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
8,064,000


$
2,803,000Short-term investments


6,437,000



20,326,000Accounts receivable, net of
    allowance for doubtful accounts of $148,000 in 2006 and $331,000
    in 2005


46,074,000



28,696,000Prepaid expenses and other assets


690,000



1,127,000Current deferred tax asset


1,619,000



1,229,000Total current assets


62,884,000



54,181,000Property, plant and
    equipment


160,740,000



124,478,000Less accumulated depreciation


(74,206,000
)


(64,532,000
)Net property, plant and equipment


86,534,000



59,946,000$
149,418,000


$
114,127,000LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
16,280,000


$
6,601,000Accrued liabilities:Payroll costs and other taxes


1,958,000



1,198,000Other


4,195,000



2,182,000Deferred revenue


863,000



190,000Total current liabilities


23,296,000



10,171,000Deferred tax
    liability


6,914,000



2,052,000Stockholders
    equity:Preferred stock-par value
    $1.00 per share; 5,000,000 shares authorized, none
    outstanding






Common stock-par value
    $.331/3
    per share; 50,000,000 and 10,000,000 shares authorized in
    each period; 7,549,244 and 7,484,044 shares issued and
    outstanding in each period


2,517,000



2,495,000Additional paid-in capital


82,370,000



80,987,000Other comprehensive income, net of
    tax


(33,000
)


(77,000
)Retained earnings


34,354,000



18,499,000Total stockholders equity


119,208,000



101,904,000$
149,418,000


$
114,127,000    F-4




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  STATEMENTS
    OF OPERATIONS
  Years Ended September 30,2006


2005


2004Operating revenues

$
168,550,000


$
116,663,000


$
69,346,000Operating costs:Operating expenses


125,848,000



90,465,000



55,618,000General and administrative


4,808,000



4,490,000



2,675,000Depreciation


13,338,000



8,179,000



4,653,000143,994,000



103,134,000



62,946,000Income from operations


24,556,000



13,529,000



6,400,000Other income:Interest income


582,000



507,000



177,000Other


75,000



486,000



505,000Income before income tax


25,213,000



14,522,000



7,082,000Income tax expense:Current


(4,886,000
)


(2,035,000
)


(96,000
)Deferred


(4,472,000
)


(2,471,000
)


1,632,000(9,358,000
)


(4,506,000
)


1,536,000Net income

$
15,855,000


$
10,016,000


$
8,618,000Net income per common share

$
2.11


$
1.50


$
1.55Net income per common
    share-assuming dilution

$
2.09


$
1.48


$
1.53Weighted average equivalent common
    shares outstanding


7,518,372



6,705,791



5,558,646Weighted average equivalent common
    shares outstanding-assuming dilution


7,599,555



6,795,295



5,631,397    F-5




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  STATEMENTS
    OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE
    INCOME
  AccumulatedCommon Stock


Additional


Other


RetainedNumber





Paid-in


Comprehensive


Earningsof Shares


Amount


Capital


Income


(Deficit)


TotalBalance September 30,
    2003


5,487,794


$
1,829,000


$
38,931,000


$
37,000


$
(135,000
)

$
40,662,000Net income


















8,618,000



8,618,000Other comprehensive income net of
    tax:Unrealized loss on securities:Unrealized holding losses arising
    during period














(126,000
)Less: Reclassification adjustment
    for gain included in net income














47,000Income tax expense














14,000Other comprehensive income














(65,000
)






(65,000
)Comprehensive income






















49,215,000Issuance of common stock as
    compensation


8,500



3,000



107,000











110,000Exercise of stock options


137,500



46,000



911,000











957,000Balance September 30,
    2004


5,633,794



1,878,000



39,949,000



(28,000
)


8,483,000



50,282,000Net income


















10,016,000



10,016,000Other comprehensive income net of
    tax:Unrealized loss on securities:Unrealized holding losses arising
    during period














(194,000
)Less: Reclassification adjustment
    for gain included in net income














100,000Income tax expense














45,000Other comprehensive income














(49,000
)






(49,000
)Comprehensive income






















60,249,000Excess tax benefit of employee
    stock plan










243,000











243,000Issuance of common stock-public
    offering


1,800,000



600,000



40,396,000











40,996,000Issuance of common stock as
    compensation


3,500



1,000



73,000











74,000Exercise of stock options


46,750



16,000



326,000











342,000Balance September 30,
    2005


7,484,044



2,495,000



80,987,000



(77,000
)


18,499,000



101,904,000Net income


















15,855,000



15,855,000Other comprehensive income net of
    tax:Unrealized loss on securities:Unrealized holding gain arising
    during period














35,000Less: Reclassification adjustment
    for gain included in net income














31,000Income tax benefit














(22,000
)Other comprehensive income














44,000







44,000Comprehensive income






















117,803,000Excess tax benefit of employee
    stock plan










180,000











180,000Stock based compensation expense










289,000











289,000Issuance of common stock as
    compensation


18,450



6,000



560,000











566,000Exercise of stock options


46,750



16,000



354,000











370,000Balance September 30,
    2006


7,549,244


$
2,517,000


$
82,370,000


$
(33,000
)

$
34,354,000


$
119,208,000    F-6




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  STATEMENTS
    OF CASH FLOWS
  Years Ended September 30,2006


2005


2004CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
15,855,000


$
10,016,000


$
8,618,000Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation


13,338,000



8,179,000



4,653,000Non-cash compensation


855,000



74,000



110,000Deferred income tax expense
    (benefit)


4,472,000



2,471,000



(1,632,000
)Excess tax benefit from share
    based payment arrangement


(180,000
)






Other


119,000



270,000



135,000Change in current assets and
    liabilities:Increase in accounts receivable


(17,378,000
)


(11,717,000
)


(7,266,000
)Decrease (increase) in prepaid
    expenses


437,000



(687,000
)


(153,000
)Increase in accounts payable


4,779,000



3,244,000



2,426,000Increase in accrued liabilities


2,773,000



1,667,000



820,000Increase (decrease) in deferred
    revenue


673,000



(1,217,000
)


1,101,000Net cash provided by operating
    activities


25,743,000



12,300,000



8,812,000CASH FLOWS FROM INVESTING
    ACTIVITIES:Proceeds from disposal of assets


453,000



191,000



40,000Capital expenditures, net of
    $4,900,000 noncash capital expenditures in 2006


(35,477,000
)


(38,219,000
)


(13,889,000
)Proceeds from sale of short-term
    investments


8,993,000



16,334,000



2,973,000Proceeds from maturity of
    short-term investments


5,000,000







7,550,000Acquisition of short-term
    investments






(32,737,000
)


(6,245,000
)Net cash used in investing
    activities


(21,031,000
)


(54,431,000
)


(9,571,000
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Proceeds from exercise of stock
    options


369,000



343,000



957,000Proceeds from line of credit






10,000,000



Repayment on line of credit






(10,000,000
)


Proceeds from stock offering






41,004,000



Excess tax benefit from share
    based payment arrangement


180,000







Net cash provided by financing
    activities


549,000



41,347,000



957,000Net increase (decrease) in cash
    and cash equivalents


5,261,000



(784,000
)


198,000CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD


2,803,000



3,587,000



3,389,000CASH AND CASH EQUIVALENTS AT
    END OF PERIOD

$
8,064,000


$
2,803,000


$
3,587,000SUPPLEMENTAL CASH FLOW
    INFORMATION:Cash paid for interest expense

$



$
65,000


$
Cash paid during the period for
    income taxes

$
4,177,000


$
1,882,000


$
NON CASH INVESTING
    ACTIVITIES:Unrealized loss on investments

$
(10,000
)

$
(194,000
)

$
(42,000
)    F-7




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS
  1.
    Summary
    of Significant Accounting Policies  Organization
    and Nature of Operations
  2-D, 3-D
  Cash
    Equivalents
    Short-Term
    Investments
  available-for-sale
  Fair
    Value of Financial Instruments
    Concentrations
    of Credit Risk
    Property,
    Plant and Equipment
     F-8




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Impairment
    of Long-Lived Assets
    Revenue
    Recognition
    out-of-pocket out-of-pocket
    Allowance
    for Doubtful Accounts
    Income
    Taxes
    Use of
    Estimates in the Preparation of Financial
    Statements
   F-9




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Stock-Based
    Compensation
        September2005


2004Net income, as reported

$
10,016,000


$
8,618,000Add: Stock-based employee
    compensation expense included in net income, net of tax


74,000



110,000Deduct: Stock-based employee
    compensation expense determined under fair value based method
    (SFAS 123), net of tax


(495,000
)


(426,000
)Net income, pro forma

$
9,595,000


$
8,302,000Basic:Net income per common share, as
    reported

$
1.50


$
1.55Net income per common share, pro
    forma

$
1.43


$
1.49Diluted:Net income per common share, as
    reported

$
1.48


$
1.53Net income per common share, pro
    forma

$
1.41


$
1.47      F-10




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    No. 00-15.
           F-11




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    WeightedAverageNumber of


RemainingWeighted


Optioned


Contractual


Aggregate IntrinsicAverage Price


Shares


Term in Years


Value ($000)Balance as of September 30,
    2004

$
6.75



227,000Granted

$
17.91



45,000Cancelled or expired

$
5.21



(750
)Exercised

$
7.34



(46,750
)Balance as of September 30,
    2005

$
8.87



224,500



2.65


$
4,803Expired

$
9.27



(6,500
)Exercised

$
7.90



(46,750
)Balance as of September 30,
    2006

$
9.12



171,250



2.22


$
3,535Exercisable as of
    September 30, 2005

$
7.02



80,500



2.65


$
1,871Exercisable as of
    September 30, 2006

$
7.50



99,250



2.22


$
2,210     2.
    Short-Term
    Investments      3.
    Property,
    Plant and Equipment    September 302006


2005


Useful LivesLand, building and other

$
3,843,000


$
3,166,000



3 to 40 yearsRecording equipment


110,874,000



86,766,000



5 to 10 yearsVibrator energy sources


29,189,000



21,548,000



10 to 15 yearsVehicles


16,609,000



12,452,000



2 to 10 yearsOther(a)


225,000



546,000



160,740,000



124,478,000Less accumulated depreciation


(74,206,000
)


(64,532,000
)Net property, plant and equipment

$
86,534,000


$
59,946,000     (a)
    
    Other represents accumulated costs associated with equipment
    fabrication and modification not yet completed. F-12




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  4.
    Debt    5.
    Employee
    Benefit Plans    6.
    Income
    Taxes      Year Ended September 30,2006


2005


2004Current:


4,886,000



2,035,000



96,000Deferred:


4,472,000



2,471,000



(1,632,000
)Total

$
9,358,000


$
4,506,000


$
(1,536,000
)     Year Ended September 30,2006


2005


2004Tax expense (benefit) computed at
    statutory rates

$
8,573,000


$
4,900,000


$
2,585,000Change in valuation allowance


90,000



-0-



(4,232,000
)State income tax


569,000



113,000



200,000Other


126,000



(507,000
)


(89,000
)Income tax expense (benefit)

$
9,358,000


$
4,506,000


$
(1,536,000
)  F-13




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    September 30,2006


2005Deferred tax assets:Net operating loss carryforwards

$
29,000


$
1,111,000Alternative minimum tax credit
    carryforwards


1,119,000



2,605,000Receivables


52,000



118,000Other


509,000



273,000Total deferred tax assets


1,709,000



4,107,000Less valuation allowance


(90,000
)


Total gross deferred tax assets


1,619,000



4,107,000Deferred tax liabilities:Property and equipment


(6,914,000
)


(4,930,000
)Total gross deferred tax
    liabilities


(6,914,000
)


(4,930,000
)Net deferred tax asset (liability)

$
(5,295,000
)

$
(823,000
)Current portion of net deferred
    tax asset/liability

$
1,619,000


$
1,229,000Noncurrent portion of net deferred
    tax asset/liability


(6,914,000
)


(2,052,000
)Total net deferred tax asset
    (liability)

$
(5,295,000
)

$
(823,000
)     7.
    Net
    Income per Common Share   F-14




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    2006


2005


2004Numerator:Net income and numerator for basic
    and diluted net income per common share-income available to
    common shareholders

$
15,855,000


$
10,016,000


$
8,618,000Denominator:Denominator for basic net income
    per common share-weighted average common shares


7,518,372



6,705,791



5,558,646Effect of dilutive
    securities-employee stock options


81,183



89,504



72,751Denominator for diluted net income
    per common share-adjusted weighted average common shares and
    assumed conversions


7,599,555



6,795,295



5,631,397Net income per common share

$
2.11


$
1.50


$
1.55Net income per common
    share-assuming dilution

$
2.09


$
1.48


$
1.53   8.
    Major
    Customers    2006


2005


2004A


24
%


10
%


B


11
%


15
%


17
%C






13
%


D










12
%     9.
    Commitments
    and Contingencies     F-15




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Payments Due by PeriodWithin





AfterTotal

1 Year

1-3 Years

3-5 Years

5 Years(In thousands)Operating lease obligations

$
1,336


$
376


$
550


$
367


$
43   10.
    Rights
    Agreement          11.
    Recently
    Issued Accounting Pronouncements     F-16




---



##### Table of Contents



DAWSON
    GEOPHYSICAL COMPANY
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        12.
    Quarterly
    Financial Data (Unaudited)  Quarter EndedDecember 31


March 31


June 30


September 30Fiscal 2005:Operating revenues

$
21,559,000


$
26,515,000


$
31,500,000


$
37,089,000Income from operations

$
2,451,000


$
2,486,000


$
4,826,000


$
3,766,000Net income

$
1,600,000


$
2,327,000


$
3,357,000


$
2,732,000Net income per common share

$
0.28


$
0.37


$
0.45


$
0.37Net income per common share
    assuming dilution

$
0.28


$
0.37


$
0.45


$
0.36Fiscal 2006:Operating revenues

$
35,493,000


$
40,042,000


$
41,524,000


$
51,491,000Income from operations

$
3,252,000


$
6,431,000


$
6,636,000


$
8,237,000Net income

$
2,300,000


$
4,351,000


$
4,241,000


$
4,963,000Net income per common share

$
.31


$
.58


$
.56


$
.66Net income per common share
    assuming dilution

$
.30


$
.57


$
.56


$
.65  F-17




---



##### Table of Contents



Schedule II  Dawson
    Geophysical Company
  Valuation
    and Qualifying Accounts
  Balance at


Charged to





Balance atBeginning


Costs and





End ofof Period


Expenses


Deductions


PeriodAllowance for doubtful accounts*:Fiscal Year:2006

$
331,000


$
20,000


$
203,000


$
148,0002005


199,000



136,000



4,000



331,0002004


127,000



100,000



28,000



199,000Valuation allowance for deferred
    tax assets:Fiscal Year:2006

$



$
90,000


$



$
90,0002005














2004


4,232,000



(4,232,000
)






     *
    
    Deductions related to allowance for doubtful accounts represent
    amounts that have been deemed uncollectible and written off by
    the Company. F-18




---



##### Table of Contents



INDEX TO
    EXHIBITS  Number

Exhibit3
.1

Second Restated Articles of
    Incorporation of the Company (filed on August 8, 2006 as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q
    for the third quarter ended June 30, 2006 (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 Registrants Annual Report on
    Form 10-K
    for the fiscal year ended September 30, 2003 (File
    No. 000-10144)
    and incorporated herein by reference).10
.1

Dawson Geophysical Company 2004
    Incentive Stock Plan (filed as Exhibit 10.1 to the
    Companys Registration Statement on
    Form S-8
    filed March 12, 2004 (File
    No. 333-113576)
    and incorporated herein by reference).10
.2

Dawson Geophysical Company 2000
    Incentive Stock Plan (filed as Exhibit 10.1 to the
    Companys Registration Statement on
    Form S-8
    filed August 3, 2001 (File
    No. 333-66666)
    and incorporated herein by reference).10
.3

Form of Master Geophysical Data
    Acquisition Agreement (filed on December 11, 2003 as
    Exhibit 10 to the Registrant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

First Amendment to Loan Agreement,
    dated January 18, 2006, between the Company and Western
    National Bank (filed on May 10, 2006 as Exhibit 10.1
    to the Companys Quarterly Report on
    Form 10-Q
    (File
    No. 000-10144)
    and incorporated herein by reference).10
.5

Revolving Line of Credit Loan
    Agreement, dated January 18, 2006, between the Company and
    Western National Bank (filed on February 9, 2006 as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    (File
    No. 000-10144)
    and incorporated herein by reference).23
.1*

Consent of Independent Registered
    Public Accounting Firm.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.
    
    Identifies Exhibit that consists of or includes a management
    contract or compensatory plan or arrangement.