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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A (Amendment No. 1)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended September 30, 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 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
    
    Name of Each Exchange on which RegisteredCommon Stock, $.33 1/3 par value
    
    Nasdaq
 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 x    No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.    x Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2).    Yes o    No x




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As of March 31, 2004, the aggregate market value of Dawson Geophysical Company common stock,
par value $0.33 1/3 per share, held by non-affiliates (based upon the closing transaction price on
Nasdaq ) was approximately $60,472,798. On February 25,
2005, there were 5,642,794 shares of Dawson Geophysical Company Common stock,
$0.33 1/3 par value, outstanding. As used in this report, the terms we, our, us, Dawson and the Company refer to
Dawson Geophysical Company unless the context indicates otherwise. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrants Proxy Statement for its 2004 Annual Meeting of Shareholders held
on January 25, 2005, are incorporated by reference into Part III of this Annual Report on Form
10-K. EXPLANATORY NOTE Dawson Geophysical Company
(the Company) is filing this Amendment No. 1 on Form 10-K/A for
the fiscal year ended September 30, 2004, primarily to amend its disclosures in Items 1 and 7 of
its annual report on Form 10-K filed on December 10, 2004 (the Annual Report) and
certain notes to
the financial statements. The purpose of this Form 10-K/A is to address comments that the Company
has received from the staff of the Securities and Exchange Commission in connection with the
registration statement that it has filed on Form S-3 for the Companys proposed common stock
offering and certain other filings incorporated therein. Through this amendment the Company has
expanded the disclosure in Item 7 (Managements Discussion and Analysis) regarding its liquidity
and capital resources and critical accounting policies, clarified its discussion of its business
and risks related thereto in Item 1 (Business) and has included or clarified other additional
information. No changes have been made to the previously reported
financial statements of the Company. This Form 10-K/A should be read in conjunction with our filings made with the Securities and
Exchange Commission subsequent to the filing of the original Annual Report, including any
amendments to those filings.




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TABLE OF CONTENTS Part IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    7Item 3.
    
    Legal Proceedings
    
    
    7Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    7Part IIItem 5.
    
    Market for Our Common Equity and Related Stockholder Matters
    
    
    8Item 6.
    
    Selected Financial Data
    
    
    8Item 7.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 8.
    
    Financial Statements and Supplementary Data
    
    
    15Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    15Item 9A.
    
    Controls and Procedures
    
    
    15Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    15Item 11.
    
    Executive Compensation
    
    
    15Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    15Item 13.
    
    Certain Relationships and Related Transactions
    
    
    16Item 14.
    
    Principal Accounting Fees and Services
    
    
    16Part IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    16Signatures
    
    
    
    
    18Index to Exhibits
    
    
    
    
    19Index to Financial Statements
    
    
    F-1Consent of KPMG LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  i




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DAWSON GEOPHYSICAL COMPANY
FORM 10-K/A
For the Fiscal Year Ended September 30, 2004 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS All statements other than statements of historical fact included in this Form 10-K, including
without limitation statements under Managements Discussion and Analysis of Financial Condition
and Results of Operations and Business regarding technological advancements and our financial
position, business strategy and plans and objectives of our management for future operations, are
forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act). When used in this Form
10-K/A, 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 the beliefs of our management as well as assumptions made
by and information currently available to management. 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, weather interruptions, inability to obtain
land access rights of way, the volatility of oil and gas prices, and the availability of capital
resources. See Risks Related to Our Business for more information on these and other factors.
These forward-looking 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 strategies and liquidity. 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. 
 Part I. 
 Item 1.    BUSINESS General Dawson Geophysical 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, we acquire and process 2-D, 3-D, and multi-component seismic data for our clients, ranging
from major oil and gas companies to independent oil and gas operators as well as providers of
multi-client data libraries. Our clients rely on seismic data to identify areas where subsurface
conditions are favorable for the accumulation of hydrocarbons, as well as to optimize the
development and production of hydrocarbon reservoirs. During fiscal 2004, substantially all of our
revenues were derived from 3-D seismic data acquisition operations. As of September 30, 2004, we operated nine 3-D seismic data acquisition crews in the lower 48
states of the United States and a seismic data processing center. We market and supplement our
services from our headquarters in Midland, Texas and from additional offices in Houston, Denver and
Oklahoma City. Our geophysicists perform data processing in our Midland and Houston offices and
our field operations are supported from our field office facility in Midland. The results of a
seismic survey conducted for a client belong to that client. To avoid potential conflicts of
interest with our clients, we do not acquire seismic data for our own account nor do we participate
in oil and gas ventures. In fiscal year 2003, higher commodity prices led to a significant increase in the level of
spending for domestic exploration and development of oil and natural gas reserves. This resulted
in greater demand for newly-acquired seismic data by many oil and gas companies. These factors and
changes in the competitive landscape in our market enabled us to expand our data acquisition and
processing capacity by adding new personnel with technical and operational expertise to our
existing highly skilled workforce. We believe these additions fortified our position as the
leading provider of onshore seismic data acquisition services in the United States and resulted in
increased market share in terms of the number of active crews operating. We accelerated this
expansion during fiscal 2004 with the addition of three data acquisition crews, increased recording
capacity company-wide and improvements to our data processing center. We anticipate further growth
in fiscal 2005. We added a tenth data acquisition crew in January and expect to field our eleventh
crew in the second calendar quarter of 2005. These expansions are in response to continued demand
for our high-resolution 3-D seismic services as well as our clients recognition of our technical
and operational expertise. 1




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Business Strategy Our strategy is to maintain our leadership position in the U.S. onshore market. Key elements
of our strategy include:  
    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.Our business consists of the acquisition and processing of
seismic data to produce an image of the earths subsurface. The seismic method involves the
recording of reflected acoustic or sonic waves from below the ground. In our operations, we
introduce acoustic energy into the ground by using an acoustic energy source, usually large
vibrating machines or occasionally through the detonation of dynamite. We then record the
subsequent reflected energy, or echoes, with recording devices placed along the earths surface.
These recording devices, or geophones, are placed on the ground in groups of six or more and
connected together as a single recording channel. We generally use multiple recording channels in
our seismic surveys. Additional recording channels enhance the clarity of the seismic survey much
in the same way as additional pixels add resolution to televisions and computer monitors. We are able to collect seismic data using either 2-D or 3-D methods. The 2-D method involves
the collection of seismic data in a linear fashion thus generating a single plane of subsurface
seismic data. Recent technological advances in seismic equipment and computing allow us to
economically acquire and process data by placing large numbers of energy sources and recording
channels over a broad area. The industry refers to the technique of broad distribution of energy
sources and recording channels as the 3-D seismic method. The 3-D method produces an immense
volume of seismic data which produces more precise images of the earths subsurface. Geophysicists
use computer workstations to interpret 3-D seismic data volumes, generate geologic models of the
earths subsurface, and identify subsurface anomalies which are favorable for the accumulation of
hydrocarbons. 3-D seismic data are used in the exploration for new reserves and enable oil and gas companies to
better delineate existing fields and to augment their reservoir management techniques. Benefits of
incorporating high resolution 3-D seismic surveys into exploration and development programs include
reducing drilling risk, decreasing oil and gas finding costs and increasing the efficiencies of
reservoir location, delineation and management. In order to meet the requirements necessary to
fully realize the benefits of 3-D seismic data, there is an increasing demand for improved data
quality with greater subsurface resolution. We are prepared to meet such demands with the
implementation of improved techniques and evolving technology. One such technique is better survey
design integrating a greater number of recording channels, more dense energy source distribution
and improved seismic data processing technologies. Our geophysicists perform these design tasks. We continue to pursue the use of multi-component seismic technologies, which utilize shear
wave seismic data. Shear waves vary from the acoustic wave generally used in seismic surveys in
the manner in which they travel through the earth. The use of shear waves in seismic surveys is
relatively new in our industry, and it is believed that the analysis of shear wave data may allow
for a more detailed model of the earths subsurface. Shear wave seismic data are acquired using
both 2-D and 3-D methods. We have been involved in several shear wave projects. Our equipment
includes energy sources and geophones capable of generating and recording shear waves. 2




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Data Acquisition.The seismic survey begins at the time a client requests that we formulate a
proposal to acquire seismic data on its behalf. Geophysicists then assist the client in designing
the specifications of the proposed 3-D survey. If the client accepts our proposal, a permit agent
then obtains access right of way from the landowners where the survey is to be conducted. Utilizing electronic surveying equipment, survey personnel precisely locate the energy source
and receiver positions from which the seismic data are collected. We utilize the satellite global
positioning system, known as GPS, to properly locate the seismic survey positions. We primarily
use vibrator energy sources which are mounted on vehicles, each of which weighs 50,000 to 62,000
pounds, to generate seismic energy, but occasionally we detonate dynamite charges placed in drill
holes below the earths surface. We use third party contractors for the drilling of holes and the
purchasing, handling and disposition of dynamite charges. In 2000, we had an operating capacity of six land-based seismic data acquisition crews with an
aggregate recording channel count of approximately 20,000 and 52 vibrator energy source units. As
of September 30, 2004, we owned equipment for nine crews and 70 vibrator energy source units and
had capacity in excess of 38,000 recording channels, any of which may be configured to meet the
demands of specific survey designs. As a result of our continued expansion, we currently own
equipment for ten crews and 78 vibrator energy source units and have capacity in excess of 46,000
recording channels. Each crew consists of approximately 60 technicians, 25 associated vehicles
with off-road capabilities, 50,000 to 100,000 geophones, a seismic recording system, energy
sources, electronic cables and a variety of other equipment. As of September 30, 2004 we operated
nine Input/Output System Two® recording systems, four with radio capability and five cable-based
systems. In January 2005, we acquired an additional Input/Output System Two® recording system,
with radio capability, in connection with the fielding of our tenth crew. Client demand for more recording channels continues to increase as the industry strives for
improved data quality with greater subsurface resolution. We believe our ability to deploy a large
number of recording channels provides us with the competitive advantages of operational versatility
and increased productivity, in addition to improved data quality. Data Processing.We currently operate a computer center located in Midland, Texas and provide
additional processing services through our Houston office. Such data processing primarily involves
the enhancement of seismic data by improving reflected signal resolution, removing ambient noise
and establishing proper spatial relationships of geological features. The data are then formatted
in such a manner that computer graphic technology may be employed for examination and
interpretation of the data by the user. We continue to improve data processing efficiency and accuracy with the addition of improved
processing software and high-speed computer technology. We purchase, develop or lease, under
non-exclusive licensing arrangements, seismic data processing software. Our computer center processes seismic data collected by our crews, as well as by other
geophysical contractors. In addition, we reprocess previously recorded seismic data using current
technology to enhance the data quality. Our processing contracts may be awarded jointly with, or
independently from, data acquisition services. Data processing services comprise a small portion
of our overall revenues. Integrated Services.We maintain integrated in-house operations necessary to the development
and completion of seismic surveys. Our experienced personnel have the capability to conduct or
supervise the seismic survey design, permitting, surveying, data acquisition and processing
functions for each seismic program. In-house support operations include a health, safety and
environmental program as well as facilities for automotive repair, automotive paint and body
repair, electronics repair, electrical engineering and software development. In addition, we
maintain a fleet of tractor trailers to transport our seismic acquisition equipment to our survey
sites. We believe that maintaining these functions in-house contributes to better quality control
and improved efficiency in our operations. Our clients generally undertake to provide their own
interpretation of the seismic data provided by us. Equipment Acquisition and Capital Expenditures We monitor and evaluate advances in geophysical technology and commit capital funds to
purchase equipment we deem most promising in order to maintain our competitive position.
Purchasing new assets and continually upgrading capital assets require a continuing commitment to
capital spending. For fiscal year 2004, we made capital expenditures of $13,889,000 to fund the
deployment of three new data acquisition crews, expand the capacity of existing crews, improve our
data processing center and meet other necessary operational capital 3




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expenses. We have an approved budget of $30 million for fiscal 2005 to fund the remainder of the
fiscal 2004 expansions, the addition of our tenth data acquisition crew in January 2005 and the
addition of an eleventh crew in the second calendar quarter of 2005, to increase the capacity of
our existing crews and to meet other necessary operational capital requirements. Clients Our services are marketed by supervisory and executive personnel who contact clients to
determine geophysical needs and respond to client inquiries regarding the availability of crews or
processing schedules. These contacts are based principally upon professional relationships
developed over a number of years. Our clients range from major oil companies to small independent oil and gas operators and also
include providers of multi-client data libraries. The services we provide to our clients vary
according to the size and needs of each client. We believe that the loss of any one of our clients
would not have a material impact on our business. During 2004, sales to our two largest clients
represented 17% and 12% of our revenues, respectively. The largest client acts as an agent for
other entities that are the actual purchasers of our services. Sales to each of the actual
purchasers represented less than 10% of our total revenues. Because of our relatively large client
base, our largest clients have varied from year to year. In order to avoid potential conflicts of interest with our clients, we do not acquire data for
our own account or for future sale, maintain any multi-client data library or participate in oil
and gas ventures. The results of a seismic survey conducted for a client belong to that client.
It is also our policy that none of our officers, directors or employees participate in any oil and
gas venture. All of our clients information is maintained in strictest confidence. Contracts Our services are conducted under master service contracts with our clients. These master
service contracts define certain obligations for us and for our clients. A supplemental agreement
setting forth the terms of a specific project, which may be cancelled by either party on short
notice, is entered into for every project. The supplemental agreements are either turnkey
agreements that provide for a fixed fee to be paid to us for each unit of data acquired, or term
agreements that provide for a fixed hourly, daily or monthly fee during the term of the project or
projects. Turnkey agreements generally provide us more profit potential, but involve more risks
because of the potential of crew downtime or operational delays. We attempt to negotiate on a
project by project basis, some level of weather downtime protection within the turnkey agreements.
Under the term agreements, we forego an increased profit potential in exchange for a more
consistent revenue stream with improved protection from crew downtime or operational delays. We currently operate under both turnkey and term supplemental agreements. Currently, the
majority of our supplemental agreements are turnkey agreements. Competition The acquisition and processing of seismic data for the oil and gas industry is a highly
competitive business in the United States. Contracts for such services generally are awarded on
the basis of price quotations, crew experience and availability of crews to perform in a timely
manner, although factors other than price, such as crew safety performance history, technological
and operational expertise are often determinative. Our competitors include companies with
financial resources that are significantly greater than our own as well as companies of comparable
and smaller size. Since the departure of our principal competitor, Western GECO, a subsidiary of
Schlumberger N.V., from our market in 2003, our primary competitors have been Veritas DGC,
Petroleum Geo Services, Trace Energy Services, Quantum Geophysical and Tidelands Geophysical. Employees As of September 30, 2004, we employed approximately 567 persons, of which 508 were engaged in
providing energy sources and acquiring data. We currently employ approximately 640 persons, of
which 581 are engaged in providing energy sources and acquiring data. With respect to the
remainder of our employees, 9 are engaged in data processing, 11 are administrative personnel, 30
are engaged in equipment maintenance and transport and 9 are executive officers. Of the employees
listed above, 10 are geophysicists. Our employees are not represented by a labor union. We
believe we have good relations with our employees. 4




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Risks Related to our Business 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 thisForm 10-K/A.
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. Demand for our services depends upon the level of spending by oil and gas companies for
exploration, production, development and field management activities, which activities depend in
part on oil and gas prices. Fluctuations in oil and gas exploration activities and commodity
prices have adversely affected the demand for our services and our results of operations in years
past and would do so again if prices for oil and gas were to decline. In particular, we incurred
losses in fiscal years 2000 through 2003 as a result of decreased demand for seismic services
during these years due to the effects of lower oil and gas prices. Any significant decline in oil
and gas related spending on behalf of our clients could cause us to alter our capital spending
plans and would have a material adverse effect on our results of operations. Additionally,
increases in oil and gas prices may not increase demand for our products and services or otherwise
have a positive effect on our results of operations or financial condition. Factors affecting the price of oil and gas include:  
    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 markets for oil and gas have historically been volatile and are likely to continue to be so in
the future. The high fixed costs of our operations could result in operating losses. Our business has high fixed costs. As a result, any significant downtime or low productivity
caused by reduced demand, weather interruptions, equipment failures, permit delays or other causes
could adversely affect our results of operations. Our revenues are subject to fluctuations that are beyond our control which could adversely
affect our results of operations in any financial period. Our operating results vary in material respects from quarter to quarter and will continue to
do so in the future. Factors that cause variations include the timing of the receipt and
commencement of contracts for data acquisition, permit delays, weather delays and crew
productivity. Combined with our high fixed costs, these revenue fluctuations could produce
unexpected adverse results of operations in any fiscal period. Our operations are subject to weather conditions which could adversely affect our results of
operations. Our seismic data acquisition operations could be adversely affected by inclement weather
conditions. Delays associated with weather conditions could adversely affect our results of
operations. See Business  Contracts. Our operations are subject to delays related to obtaining land access rights of way from third
parties which could affect our results of operations. Our seismic data acquisition operations could be adversely affected by our inability to obtain
timely right of way usage from both public and private land and/or mineral owners. Delays
associated with obtaining such rights of way could negatively affect our results of operations. 5




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We face intense competition in our business that could result in downward pricing pressure and
the loss of market share. The acquisition and processing of seismic data for the oil and gas industry is a highly
competitive business in the United States. Some of our competitors have financial resources that
are significantly greater than our own. Competition from these and other competitors could result
in downward pricing pressure and the loss of market share. See Business  Competition. We may be unable to attract and retain skilled and technically knowledgeable employees, which
could adversely affect our business. Our success depends upon attracting and retaining highly skilled professionals and other
technical personnel. A number of our employees are highly skilled scientists and highly trained
technicians, and our failure to continue to attract and retain such individuals could adversely
affect our ability to compete in the seismic services industry. We may confront significant and
potentially adverse competition for these skilled and technically knowledgeable personnel,
particularly during periods of increased demand for seismic services. None of our employees are
under employment contracts and we have no key man insurance. 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. Our sources of working capital are limited. We have historically funded our working capital
requirements with cash generated from operations, cash reserves and short term borrowings from
commercial banks. In the past, we have also funded our capital expenditures and other financing
needs through public equity offerings. Our working capital requirements continue to increase,
primarily due to the expansion of our infrastructure. If we were to expand our operations at a
rate exceeding operating cash flow, or if current demand or pricing of geophysical services were to
decrease substantially, additional financing could be required. If we were not able to obtain such
financing when needed, our failure could have a negative impact on our ability to pursue our
expansion and maintain our profitability. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources. 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. Seismic data acquisition and data processing technologies historically have progressed rather
rapidly and we expect this progression to continue. Our strategy is to regularly upgrade our data
acquisition and processing equipment to maintain our competitive position. However, due to
potential advances in technology and the related costs associated with such technological advances,
we might not be able to fulfill this strategy, thus possibly affecting our ability to compete. We operate under hazardous conditions that subject us to risk of damage to property or
personal injuries and may interrupt our business. Our business is subject to the general risks inherent in land-based seismic data acquisition
activities. Our activities are often conducted in remote areas under extreme weather and other
dangerous conditions. These operations are subject to risks of injury to personnel and equipment.
Our crews are mobile, and equipment and personnel are subject to vehicular accidents. We use
diesel fuel which is classified by the U.S. Department of Transportation as a hazardous material.
These risks could cause us to experience equipment losses, injuries to our personnel and
interruptions in our business. In addition, we could be subject to personal injury or real property damage claims in the
normal operation of our business. Such claims may not be covered under the indemnification
provisions in our master service agreements to the extent that the damage was due to our
negligence, gross negligence or intentional misconduct. We do not carry insurance against certain risks that we could experience, including business
interruption resulting from equipment losses or weather delays. We obtain insurance against
certain property and personal casualty risks and other risks when such insurance is available and
when our management considers it advisable to do so. Such coverage is not always available or
applicable and, when available, is subject to unilateral cancellation by the insuring companies on
very short notice. 6




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Our business is subject to governmental regulation which may adversely affect our future
operations. Our operations are subject to a variety of federal, state and local laws and regulations,
including laws and regulations relating to the protection of the environment and archeological
sites. We are required to expend financial and managerial resources to comply with such laws and
related permit requirements in our operations, and we anticipate that we will continue to be
required to do so in the future. The fact that such laws or regulations change frequently makes it
impossible for us to predict the cost or impact of such laws and regulations on our future
operations. The adoption of laws and regulations that have the effect of reducing or curtailing
exploration and production activities by energy companies could also adversely affect our
operations by reducing the demand for our services. 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. Our articles of incorporation and bylaws contain provisions that authorize the issuance of
preferred stock and establish advance notice requirements for director nominations and actions to
be taken at shareholder meetings. These provisions could discourage or impede a tender offer,
proxy contest or other similar transaction involving control of us, even in situations that may be
viewed as desirable by our shareholders. In addition, we have adopted a shareholder rights plan
that would likely discourage a hostile attempt to acquire control of us. 
 Item 2.    PROPERTIES Our principal facilities are summarized in the table below. Owned or
    
    
    
    Building AreaLocation
    
    Leased
    
    Purpose
    
    Square FeetMidland, TX
    
    Leased
    
    Executive offices and
data processing
    
    
    18,400Midland, TX
    
    Owned
    
    Field office
    
    
    53,000Equipment fabricationMaintenance and repairs
 We lease office space for operations in Houston, Denver and Oklahoma City. Our operations are limited to one industry segment and the United States. 
 Item 3.    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 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter has been submitted during the fourth quarter of the 2004 fiscal year to a vote of
our security holders, through the solicitation of proxies or otherwise. However, please refer to
our Proxy Statement for the Annual Meeting held on January 25, 2005 (the Proxy Statement), filed
with the Securities and Exchange 7




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Commission, notifying security holders as to the election of Directors and selection of KPMG
LLP as our independent registered public accounting firm. 
 Part II. 
 Item 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the Nasdaq Stock Market® under the symbol DWSN. The table below
represents the high and low sales prices for the period shown. Quarter Ended
    
    High
    
    LowDecember 31, 2002
    
    $
    7.18
    
    
    $
    4.95March 31, 2003
    
    $
    7.23
    
    
    $
    5.20June 30, 2003
    
    $
    8.53
    
    
    $
    6.34September 30, 2003
    
    $
    8.40
    
    
    $
    6.56December 31, 2003
    
    $
    8.54
    
    
    $
    6.46March 31, 2004
    
    $
    12.47
    
    
    $
    7.62June 30, 2004
    
    $
    22.39
    
    
    $
    12.00September 30, 2004
    
    $
    26.24
    
    
    $
    16.82
 As of November 26, 2004, we had 200 common stockholders of record as reported by our transfer
agent. We have not paid cash dividends on our Common Stock since becoming a public company and have
no plans to do so in the foreseeable future. The following table summarizes certain information regarding securities authorized for
issuance under our equity compensation plans as of September 30, 2004. Equity Compensation Plan Information Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    
    Weighted-average
    
    
    equity compensation plansbe issued upon exercise
    
    
    exercise price
    
    
    (excluding securitiesPlan Category
    
    of outstanding options
    
    
    of outstanding options
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity Compensation
plans approved
by security holders
    
    
    227,000
    
    
    $
    6.75
    
    
    
    367,500Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    227,000
    
    
    $
    6.75
    
    
    
    367,500
 
 Item 6.    SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations, and Dawson
Geophysical Companys financial statements and related notes included in Item 8, Financial
Statements and Supplementary Data. 8




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##### Table of Contents



Years Ended September 30(in thousands, except per share amounts)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Operating revenues
    
    $
    69,346
    
    
    $
    51,592
    
    
    $
    36,078
    
    
    $
    37,878
    
    
    $
    18,469Net income (loss)
    
    $
    8,618
    
    
    $
    (899
    )
    
    $
    (2,292
    )
    
    $
    (4,978
    )
    
    $
    (11,135
    )Net income (loss) per common share
    
    $
    1.55
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )
    
    $
    (0.91
    )
    
    $
    (2.05
    )Weighted average equivalent common
shares outstanding
    
    
    5,559
    
    
    
    5,485
    
    
    
    5,463
    
    
    
    5,443
    
    
    
    5,425Total assets
    
    $
    56,759
    
    
    $
    42,792
    
    
    $
    44,291
    
    
    $
    45,381
    
    
    $
    49,781Long term debt-less current maturities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stockholders equity
    
    $
    50,282
    
    
    $
    40,662
    
    
    $
    41,586
    
    
    $
    43,582
    
    
    $
    48,468
 
  Item 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read
in conjunction with the financial statements and notes to those statements included elsewhere in
this Form 10-K. This discussion contains forward-looking statements that involve risks and
uncertainties. Please see Risks Related to our Business and Disclosure Regarding Forward
Looking Statements elsewhere in this Form 10-K/A. 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 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. 9




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##### Table of Contents



Fiscal 2004 Highlights Our financial performance for fiscal 2004 significantly improved when compared to our
financial performance for fiscal 2003 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. This increased demand had the following principal effects:  
    In response to increased demand for our services, we added capacity to existing crews
and fielded three additional data acquisition crews. These additions, funded primarily from
cash flow and cash reserves, helped increase our revenues during fiscal 2004.
    As result of increased demand for our services, we experienced price improvements and
more favorable contract terms in our agreements with clients. These factors helped improve
our revenues during fiscal 2004.
    Approximately $0.29 per share of our earnings for fiscal 2004 were due to a deferred
income tax benefit resulting from our elimination of a valuation allowance on a deferred
tax asset generated from net operating loss carryforwards. We believe that our past five
profitable quarters and a continued favorable environment for our services will now enable
us to use the deferred tax asset. Fiscal Year Ended September 30, 2004 Versus Fiscal Year Ended September 30, 2003 Operating Revenues.Our operating revenues increased 34% from $51,592,000 in fiscal 2003 to
$69,346,000 in fiscal 2004 as a result of increased demand for our services. As a result of this
increased demand, we were able to field three 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 and the eighth
and ninth crews were fielded in the fourth quarter of fiscal 2004. Approximately $375,000 of our
revenue is related to a negotiated release from contract performance by one customer. The release
was at the request of the client and did not involve any performance issues. Operating Costs.Our operating expenses increased 21% from $46,151,000 in fiscal 2003 to
$55,618,000 in fiscal 2004 due to the start-up and ongoing expenses of the three new crews added
during the year. General and administrative expenses were 3.9% of revenues in fiscal 2004 as compared to 4.7%
in fiscal 2003. The reduction in the percentage of general and administrative expenses to revenues
in fiscal 2004 reflects our relatively fixed operating costs and the increase in our revenues
during this period. General and administrative expenses are expected to increase to support
expanded field operations and to assimilate Sarbanes-Oxley reporting requirements. In fiscal 2004,
we increased our allowance for doubtful accounts by $100,000 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 the business from new customers that the increases in the prices
of oil and natural gas have generated. We recognized $4,653,000 of depreciation expense in fiscal 2004 as compared to $4,404,000 in
fiscal 2003. Our depreciation expense is expected to increase in fiscal 2005 as a result of our
significant capital expenditures in fiscal 2004. Approximately 39% of the fiscal 2004 capital
expenditures occurred in the fourth quarter. During fiscal 2005, we will reflect a full year of
depreciation expense for these fourth quarter 2004 capital expenditures. Our total operating costs for fiscal 2004 were $62,946,000, an increase of 19% from fiscal
2003 primarily due to the factors described above. Taxes.Because of our past five profitable quarters and the continued favorable environment
for our services, we believe that we will now be able to fully use our net operating loss
carryforwards. Approximately $0.29 per share of our reported earnings for fiscal 2004 resulted
from a deferred income tax benefit resulting from the elimination of a valuation allowance on our
deferred tax asset generated from these net operating loss carryforwards. Current tax expense
reflects alternative minimum tax (AMT) calculated on net income not eligible for offset by AMT loss carryforwards. 10




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Fiscal Year Ended September 30, 2003 Versus Fiscal Year Ended September 30, 2002 Operating Revenues.Our operating revenues increased 43% from $36,078,000 in fiscal 2002 to
$51,592,000 in fiscal 2003 principally as a result of increased demand for our services. We began
fiscal 2003 with five crews and increased to six operating crews in November. During the months
of May, June and July, our production was severely impaired by rain and we operated five crews
during this time. During fiscal 2003, we saw slight price improvements for our services and were
able to maintain the price improvements gained in fiscal 2002. Operating Costs.Our operating expenses increased 39% in fiscal 2003 as compared to fiscal
2002 due to the start up expenses associated with activating a crew, our expanded operations
geographically within the contiguous United States and an increased demand for dynamite energy
sources, which require an expensive drilling component, and for the use of helicopters to achieve
efficient operations. The last two factors are reimbursable out-of-pocket expenses and are
reported in both our revenue and expense lines. Our general and administrative expenses were 4.7% of revenues in fiscal 2003 as compared to
5.5% in fiscal 2002. We increased our allowance for doubtful accounts by $60,000 in fiscal 2003 in
response to working for new clients in new areas. However, relatively favorable prices for crude
oil and natural gas benefited our clients and, therefore, helped us in the collection of accounts
receivable. We recognized $4,404,000 of depreciation expense in fiscal 2003, an increase of 4% from fiscal
2002. The increase in depreciation expense reflects our increase in capital expenditures during
fiscal 2003 and 2002, principally for recording equipment. Our total operating costs for fiscal 2003 were $52,976,000, an increase of 34.3% from fiscal
2002 primarily due to the factors described above. The year over year increase in our revenues of
43% as compared to the year over year increase in our operating expenses of 39% reflects the high
proportion of relatively fixed total operating expenses, including personnel costs of active crews,
inherent in our business. Taxes.We recorded a deferred tax expense due to an increase in the income tax valuation
allowance. The tax expense is related to the tax effect of the unrealized loss on investments
recorded in other comprehensive income. 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 $8,812,000 for fiscal 2004,
$1,244,000 for fiscal 2003 and $3,628,000 for fiscal 2002. These amounts primarily reflect results
of operations offset by changes in working capital components, depreciation and deferred income tax
expense. The changes in our working capital components in fiscal 2004 resulted primarily from the
increase in demand for our services during fiscal 2004 which led to increases in our accounts
receivable, reflecting the increased revenues of our expanding business, and in our accounts
payable, reflecting the costs to provide those services. Net cash used in investing activities was $9,571,000 in fiscal 2004 and $6,657,000 in fiscal
2002. Net cash provided from investing activities was $836,000 in fiscal 2003. These results
primarily represent capital expenditures and activity in the short-term investment portfolio. The
increase in net cash used in investing activities during fiscal 2004 primarily resulted from the
increased capital expenditures we made during fiscal 2004 due to the continued expansion of our
business. Capital expenditures were made with cash generated from operations and short-term
investments. 11




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##### Table of Contents



Net cash provided by financing activities in fiscal 2004 was $957,000 and reflects proceeds
from the exercise of stock options by officers and other key employees. Capital Expenditures.Capital expenditures during fiscal 2004 were $13,889,000, which was
used to acquire additional recording channels, energy source units, three new seismic acquisition
crews and maintenance capital requirements. We have budgeted capital expenditures of approximately $30 million in fiscal year 2005.
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. Of the remaining $20 million budgeted, 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 and the remainder will be used for
maintenance capital requirements. We continually strive to supply our clients with technologically advanced 3-D 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 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 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 period related to our contractual
obligations as of February 1, 2005: 12




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##### Table of Contents



Payments Due by PeriodWithin
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In thousands)Debt obligations(1)
    
    $
    10,000
    
    
    $
    10,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Operating lease obligations
    
    
    500
    
    
    
    143
    
    
    
    357
    
    
    
    0
    
    
    
    0Total
    
    $
    10,500
    
    
    $
    10,143
    
    
    $
    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 September 30, 2004, we had no off-balance sheet arrangements. Effect of Inflation We do not believe that inflation has had a material effect on our business, results of
operations or financial condition during the past three years. 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. 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. 13




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##### Table of Contents



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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The primary sources of market risk include fluctuations in commodity prices which effect
demand for and pricing of our services and interest rate fluctuations. At September 30, 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 September 30, 2004, 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. 14




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##### Table of Contents



Item 8.
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The
information required by this item appears on pages F-1 through F-17 hereof and are
incorporated herein by reference. 
  Item 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 
  Item 9A.
    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 September 30, 2004. Based on that evaluation, our
principal executive officer and principal financial officer concluded that such disclosure controls
and procedures were operating effectively as of September 30, 2004. 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 and year ended September 30, 2004 that have materially
affected or are reasonably likely to materially affect our internal control over financial
reporting. 
 Part III 
  Item 10.
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 with respect to Directors and Executive Officers is
hereby incorporated by reference to the sections entitled Election of Directors, Election of
Directors, Section 16(a) Beneficial Ownership Reporting Compliance, Stockholder Proposals for
Next Annual Meeting, and Other Matters in our Proxy Statement , filed or to be filed by us with
the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934 within 120 days after the end of the fiscal year covered by
this Form 10-K/A. Our code of
ethics (as defined in Item 406 of Regulation S-K) was adopted by our Board of Directors May 25,
2004. The Code of Business Conduct and Ethics applies to our directors, officers and employees,
including our principal executive officer, principal financial officer and principal accounting
officer. Our Code of Business Conduct and Ethics is posted on our website at
http://www.dawson3d.com in the Corporate Governance area. Changes to and waivers granted with
respect to our Code of Business Conduct and Ethics related to officers identified above, and our
other executive officers and directors that we are required to disclose pursuant to applicable
rules and regulations of the SEC will also be posted on our website. 
  Item 11.
    EXECUTIVE COMPENSATION The information required by this Item 11 is hereby incorporated by reference to the section of
the Proxy Statement entitled Management Compensation. 
  Item 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 with respect to security ownership of certain
beneficial owners is hereby incorporated by reference to the section of the Proxy Statement
entitled Security Ownership of Certain Beneficial Owners and Management. The information
required with respect to our equity compensation plans is set forth
in Item 5 of this Form 10-K/A. On July 13, 1999, our Board of Directors authorized and declared a dividend to the holders of
record on July 23, 1999 of one Right (a Right) for each outstanding share of our common stock.
When exercisable, each Right will entitle the holder to purchase one one-hundredth of a share of
our Series A Junior Participating Preferred Stock, par value $1.00 per share (the Preferred
Shares), at an exercise price of $50.00 per Right. The rights are not currently exercisable and
will become exercisable only if a person or group acquires beneficial ownership of 15




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##### Table of Contents



20% or more of our outstanding common stock or announces a tender offer or exchange offer, the
consummating of which would result in attaining the triggering percentage. We may redeem the
Rights for $.01 per Right at any time prior to the tenth day after the first public announcement of
a triggering acquisition. 
  Item 13.
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 
  Item 14.
    PRINCIPAL ACCOUNTING FEES AND SERVICES Information concerning principal accountant fees and services appears in the Proxy Statement
under the heading Fees Paid to the Independent Registered Accounting Firm and is incorporated
herein by reference. 
 Part IV 
  Item 15.
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  (a)
    The following documents are filed as part of this report:  (1)
    Financial Statements. The following financial statements of Dawson Geophysical Company appear on pages F-1 through
F-16 and are incorporated by reference into Part II, Item 8: Report of Independent Registered Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders Equity
Statements of Cash Flows
Notes to Financial Statements  (2)
    Financial Statement Schedules. The following
financial statement schedule appears on page F-17 and is hereby incorporated by
reference: Schedule II
 Valuation and Qualifying Accounts for the three years ended September 30, 2004, 2003 and 2002. All other schedules are omitted because they are either not applicable or the required
information is shown in the financial statements or notes thereto.  (3)
    Exhibits. The information required by this item 15(a)(3) is set forth in the Index to Exhibits
accompanying this Annual Report of Form 10-K/A and is hereby incorporated by reference.  (b)
    Reports on Form 8-K:  (1)
    On July 28, 2004, the Company filed a Current Report on Form 8-K (dated as of July 27, 2004)
for the purpose of furnishing the press release announcing the Companys operating results for the
third quarter ended June 30, 2004. 16




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##### Table of Contents



(2)
    On August 24, 2004, the Company filed a Current Report on Form 8-K (dated as of August 23,
2004) for the purpose of furnishing a press release announcing the Companys intention to field an
additional seismic data acquisition crew.(3)
    On November 15, 2004, the Company filed a Current Report on Form 8-K (dated as of November 12,
2004) for the purpose of furnishing a press release announcing the Companys operating results for
its fiscal year ended September 30, 2004. 17




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Midland, and the State of
Texas, on the 28th day of
February, 2005. DAWSON GEOPHYSICAL COMPANYBy:
    /s/  L. Decker DawsonL. Decker DawsonChairman of the Board of Directors and
Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated. Signature
    
    Title
    
    Date/s/  L. Decker Dawson

L. Decker Dawson
    
    Chairman of the Board 
of Directors and Chief Executive Officer
    
    2 - 28 - 05/s/ Stephen C. Jumper

Stephen C. Jumper
    
    President, Chief Operating
Officer and Director
    
    2 - 28 - 05/s/ Paul H. Brown

Paul H. Brown
    
    Director
    
    2 - 28 - 05/s/ Gary M. Hoover

Gary M. Hoover
    
    Director
    
    2 - 28 - 05/s/ Tim C. Thompson

Tim C. Thompson
    
    Director
    
    2 - 28 - 05/s/ Christina W. Hagan

Christina W. Hagan
    
    Executive Vice President,
Secretary, Treasurer and
Chief Financial Officer
    
    2 - 28 - 05
 18




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##### Table of Contents



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 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).10.1+
    
    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
    
    Revolving Line of Credit Loan Agreement dated December 22, 2004
between the Company and Western National 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).23.1*
    
    Consent of KPMG LLP.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. 19




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS Financial Statements of Dawson
Geophysical Company
    
    PageReport of
Independent Registered Public Accounting Firm, dated
November 11, 2004, except as to Note 12,
which is as of January 18, 2005
    
    
    F-2Report of
Independent Registered Accounting Firm, dated November 11, 2004
    
    
    F-3Balance Sheets as of September 30, 2004 and 2003
    
    
    F-4Statements of Operations for the years ended September 30, 2004, 2003 and 2002
    
    
    F-5Statements of Changes in Stockholders Equity for the years ended September
30, 2004, 2003 and 2002
    
    
    F-6Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002
    
    
    F-7Notes to Financial Statements
    
    
    F-8Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts for the years ended September
30, 2004, 2003 and 2002
    
    
    F-17
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
Stockholders of Dawson Geophysical Company: We have audited the accompanying balance sheets of Dawson Geophysical Company (the Company)
as of September 30, 2004 and 2003, and the related statements of operations, stockholders equity
and comprehensive income, and cash flows for each of the years in the three-year period ended
September 30, 2004. In connection with our audits of the
financial statements, we also have audited financial statement
Schedule II. These financial statements and financial statement
schedules are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Dawson Geophysical Company as of
September 30, 2004 and 2003,
and the results of its operations and its cash flows for each of the years in the three-year period
ended September 30, 2004, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein. KPMG LLP Midland, Texas
November 11, 2004,
     except as to Note 12, which is as
of January 18, 2005 F-2




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##### Table of Contents



Report of Independent Registered Public Accounting
Firm The Board of Directors and Stockholders 
 Dawson Geophysical Company: Under date of November 11, 2004, we reported on the balance
sheets of Dawson Geophysical Company (the Company) as of
September 30, 2004 and 2003, and the related statements of
operations, stockholders equity and comprehensive income,
and cash flows for each of the years in the three-year period
ended September 30, 2004, as contained in the annual report
on Form 10-K for the year 2004. In connection with our
audits of the aforementioned financial statements, we also
audited the related financial statement schedules as listed in
the accompanying index. These financial statement schedules are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.


In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the
information set forth therein.

KPMG LLP

Midland, TX 
November 11, 2004

F-3



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS September 30,2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,587,000
    
    
    $
    3,389,000Short-term investments
    
    
    4,130,000
    
    
    
    8,623,000Accounts receivable, net of allowance
for doubtful accounts of $199,000 in
2004 and $127,000 in 2003
    
    
    16,979,000
    
    
    
    9,713,000Prepaid expenses and other assets
    
    
    440,000
    
    
    
    287,000Total current assets
    
    
    25,136,000
    
    
    
    22,012,000Deferred tax asset
    
    
    1,648,000
    
    
    
    Property, plant and equipment
    
    
    94,050,000
    
    
    
    81,585,000Less accumulated depreciation
    
    
    (64,075,000
    )
    
    
    (60,805,000
    )Net property, plant and equipment
    
    
    29,975,000
    
    
    
    20,780,000$
    56,759,000
    
    
    $
    42,792,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,357,000
    
    
    $
    931,000Accrued liabilities:Payroll costs and other taxes
    
    
    742,000
    
    
    
    478,000Other
    
    
    971,000
    
    
    
    415,000Deferred revenue
    
    
    1,407,000
    
    
    
    306,000Total current liabilities
    
    
    6,477,000
    
    
    
    2,130,000Stockholders 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,
5,633,794 and 5,487,794 shares issued
and outstanding in 2004 and 2003,
respectively
    
    
    1,878,000
    
    
    
    1,829,000Additional paid-in capital
    
    
    39,949,000
    
    
    
    38,931,000Other comprehensive income, net of tax
    
    
    (28,000
    )
    
    
    37,000Retained earnings (deficit)
    
    
    8,483,000
    
    
    
    (135,000
    )Total stockholders equity
    
    
    50,282,000
    
    
    
    40,662,000$
    56,759,000
    
    
    $
    42,792,000
 See accompanying notes to the financial statements. F-4




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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS Years Ended September 30,2004
    
    
    2003
    
    
    2002Operating revenues
    
    $
    69,346,000
    
    
    $
    51,592,000
    
    
    $
    36,078,000Operating costs:Operating expenses
    
    
    55,618,000
    
    
    
    46,151,000
    
    
    
    33,205,000General and administrative
    
    
    2,675,000
    
    
    
    2,421,000
    
    
    
    2,006,000Depreciation
    
    
    4,653,000
    
    
    
    4,404,000
    
    
    
    4,233,00062,946,000
    
    
    
    52,976,000
    
    
    
    39,444,000Income (loss) from operations
    
    
    6,400,000
    
    
    
    (1,384,000
    )
    
    
    (3,366,000
    )Other income:Interest income
    
    
    177,000
    
    
    
    328,000
    
    
    
    507,000Other
    
    
    505,000
    
    
    
    209,000
    
    
    
    96,000Income (loss) before income tax
    
    
    7,082,000
    
    
    
    (847,000
    )
    
    
    (2,763,000
    )Income tax benefit (expense):Current
    
    
    (96,000
    )
    
    
    
    
    
    
    400,000Deferred
    
    
    1,632,000
    
    
    
    (52,000
    )
    
    
    71,0001,536,000
    
    
    
    (52,000
    )
    
    
    471,000Net income (loss)
    
    $
    8,618,000
    
    
    $
    (899,000
    )
    
    $
    (2,292,000
    )Net income (loss) per common share
    
    $
    1.55
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )Net income (loss) per common
share  assuming dilution
    
    $
    1.53
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )Weighted average equivalent
common shares outstanding
    
    
    5,558,646
    
    
    
    5,484,593
    
    
    
    5,462,936Weighted average equivalent
common shares outstanding -
assuming dilution
    
    
    5,631,397
    
    
    
    5,484,593
    
    
    
    5,462,936
 See accompanying notes to the financial statements. F-5




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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AccumulatedCommon Stock
    
    
    Additional
    
    
    Other
    
    
    RetainedNumber
    
    
    
    
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Earningsof Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    (deficit)
    
    
    TotalBalance, September 30, 2001
    
    
    5,445,794
    
    
    $
    1,815,000
    
    
    $
    38,711,000
    
    
    
    
    
    
    $
    3,056,000
    
    
    $
    43,582,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,292,000
    )
    
    
    (2,292,000
    )Other comprehensive income net
of tax:Unrealized gain on securities:Unrealized holding gains
arising during period
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    208,000Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,000
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,427,000Issuance of common stock as
compensation
    
    
    21,500
    
    
    
    7,000
    
    
    
    152,000
    
    
    
    
    
    
    
    
    
    
    
    159,000Balance, September 30, 2002
    
    
    5,467,294
    
    
    
    1,822,000
    
    
    
    38,863,000
    
    
    
    137,000
    
    
    
    764,000
    
    
    
    41,586,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (899,000
    )
    
    
    (899,000
    )Other comprehensive income net
of tax:Unrealized loss on securities:Unrealized holding losses
arising during period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145,000
    )Less: Reclassification
adjustment for gain
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,000Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,000
    )
    
    
    
    
    
    
    (100,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,587,000Issuance of common stock as
compensation
    
    
    20,500
    
    
    
    7,000
    
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    75,000Balance, 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
    
    
    $
    50,282,000
 See accompanying notes to the financial statements. F-6




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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS Years Ended September 30,2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    8,618,000
    
    
    $
    (899,000
    )
    
    $
    (2,292,000
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation
    
    
    4,653,000
    
    
    
    4,404,000
    
    
    
    4,233,000Non-cash compensation
    
    
    110,000
    
    
    
    75,000
    
    
    
    159,000Deferred income tax (benefit) expense
    
    
    (1,632,000
    )
    
    
    52,000
    
    
    
    (71,000
    )Other
    
    
    135,000
    
    
    
    (46,000
    )
    
    
    58,000Change in current assets and liabilities:Decrease (increase) in accounts receivable
    
    
    (7,266,000
    )
    
    
    (2,100,000
    )
    
    
    1,082,000Decrease (increase) in prepaid expenses
    
    
    (153,000
    )
    
    
    (67,000
    )
    
    
    (47,000
    )Decrease (increase) in income taxes receivable
    
    
    
    
    
    
    400,000
    
    
    
    (400,000
    )Increase (decrease) in accounts payable
    
    
    2,426,000
    
    
    
    (747,000
    )
    
    
    784,000Increase (decrease) in deferred revenue
    
    
    1,101,000
    
    
    
    (82,000
    )
    
    
    101,000Increase (decrease) in accrued liabilities
    
    
    820,000
    
    
    
    254,000
    
    
    
    21,000Net cash provided by operating activities
    
    
    8,812,000
    
    
    
    1,244,000
    
    
    
    3,628,000CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from disposal of assets
    
    
    40,000
    
    
    
    27,000
    
    
    
    10,000Capital expenditures
    
    
    (13,889,000
    )
    
    
    (6,153,000
    )
    
    
    (2,047,000
    )Proceeds from sale of short-term investments
    
    
    2,973,000
    
    
    
    5,964,000
    
    
    
    Proceeds from maturity of short-term investments
    
    
    7,550,000
    
    
    
    4,000,000
    
    
    
    10,598,000Acquisition of short-term investments
    
    
    (6,245,000
    )
    
    
    (3,002,000
    )
    
    
    (15,218,000
    )Net cash provided by (used in) investing activities
    
    
    (9,571,000
    )
    
    
    836,000
    
    
    
    (6,657,000
    )CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    957,000
    
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    198,000
    
    
    
    2,080,000
    
    
    
    (3,029,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:
    
    
    3,389,000
    
    
    
    1,309,000
    
    
    
    4,338,000CASH AND CASH EQUIVALENTS AT END OF YEAR:
    
    $
    3,587,000
    
    
    $
    3,389,000
    
    
    $
    1,309,000NON CASH INVESTING ACTIVITIES:UNREALIZED GAIN (LOSS) ON INVESTMENTS
    
    $
    (42,000
    )
    
    $
    (145,000
    )
    
    $
    208,000
 See accompanying notes to the financial statements. F-7




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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS 1.       Summary of Significant Accounting Policies 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 seismic and multi-component
seismic data for its clients. ranging from major oil and gas companies to independent oil and gas
operations as well as providers of multi-client data libraries. Cash Equivalents For purposes of the statements of cash flows, the Company considers demand deposits,
certificates of deposit and all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. Short-Term Investments The Company accounts for its short-term investments in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities
(Statement 115). In accordance with Statement 115, the Company has classified its investment
portfolio consisting of U.S. Treasury Securities as available-for-sale and records the net
unrealized holding gains and losses as accumulated comprehensive income in stockholders equity.
The cost of short-term investments sold is based on the specific identification method. Fair Value of Financial Instruments The carrying amounts for cash and cash equivalents, accounts receivable, other current assets,
accounts payable and other current liabilities approximate their fair values based on their
short-term nature. The fair value of investments are based on quoted market prices. Concentrations of Credit Risk Financial instruments which potentially expose the Company to concentrations of credit risk,
as defined by Statement of Financial Accounting Standards No. 105, consist primarily of trade
accounts receivable and short-term investments. The Companys sales are to clients whose
activities relate to oil and gas exploration and production. However, accounts receivable are well
diversified among many clients, and a significant portion of the receivables are from major oil
companies, which management believes minimizes potential credit risk. The Company generally
extends unsecured credit to these clients; therefore, collection of receivables may be affected by
the economy surrounding the oil and gas industry. The Company closely monitors extensions of
credit and initiated an allowance for doubtful accounts in fiscal 1999 as a result of the downturn
in oil prices which occurred during the year and negatively impacted the Companys clients. The
Company invests primarily in short-term U.S. Treasury Securities which it believes are a low risk
investment. Property, Plant and Equipment Property, plant and equipment are 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. As circumstances change and new information becomes available these estimates could change. Depreciation is computed using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and
any resulting gain or loss is
reflected in the results of operations for the period. F-8




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Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment when triggering events occur suggesting a
deterioration in the assets recoverability or fair value. Recognition of an impairment is required
if future expected net cash flows are insufficient to recover the carrying value of the amounts.
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. No impairment charges were recognized in the Statement of Operations
for the years ended September 30, 2004, 2003 and 2002. Revenue Recognition Contracts for service are provided for under cancelable 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 contract, revenue
is recognized and the customer is billed for services performed up to the date of cancellation.
In the current year, approximately $375,000 of the Companys revenue is related to a negotiated
release from one contract. The Company also receives reimbursements for certain out-of-pocket expenses under the terms of
its master contracts. Amounts billed to clients are recorded in revenue at the gross amount
including out-of-pocket expenses which are reimbursed by the client. In some instances, customers are billed in advance of services performed, and 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 clients. Income Taxes The Company accounts for state and federal income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Under the
asset and liability method of Statement 109, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under Statement 109,
the effect on deferred taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. Use of Estimates in the Preparation of Financial Statements Preparation of the accompanying financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. F-9




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Reclassifications Certain prior year numbers have been reclassified in the current year in order to be
consistent with the current year presentation. Stock-Based Compensation In accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), 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 price on the grant date. The Company accounts for stock-based compensation utilizing the intrinsic value method
prescribed by 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 or
other stock-based awards issued since September 30, 1997 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. The SFAS 123 pro forma information for the fiscal years ended September 30, 2004, 2003 and 2002 is
as follows: September 30,2004
    
    
    2003
    
    
    2002Net income (loss), as reported
    
    $
    8,618,000
    
    
    $
    (899,000
    )
    
    $
    (2,292,000
    )Add: Stock-based employee compensation expense
included in net income (loss), net of tax
    
    
    110,000
    
    
    
    75,000
    
    
    
    159,000Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123),
net of tax
    
    
    (426,000
    )
    
    
    (434,000
    )
    
    
    (516,000
    )Net income (loss), pro forma
    
    $
    8,302,000
    
    
    $
    (1,258,000
    )
    
    $
    (2,649,000
    )Basic:Net income (loss) per common share, as reported
    
    $
    1.55
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )Net income (loss) per common share, pro forma
    
    $
    1.49
    
    
    $
    (0.23
    )
    
    $
    (0.48
    )Diluted:Net income (loss) per common share, as reported
    
    $
    1.53
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )Net income (loss) per common share, pro forma
    
    $
    1.47
    
    
    $
    (0.23
    )
    
    $
    (0.48
    )
 2.       Short-Term Investments Investment in securities consists of U.S. Treasury Securities. At September 30, 2004, the
Company reported an unrealized loss on short-term investments of $28,000, which was $42,000 net of
the tax effect of $14,000 and is in Other comprehensive income, net of tax. Short-term investments held at September 30, 2004 consisting of U.S. Treasury Securities have
contractual maturities from December, 2005 through May, 2006. F-10




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3.       Property, Plant and Equipment Property, plant and equipment, together with annual depreciation rates, consist of the
following: September 30
    
    
    Useful Lives2004
    
    
    2003Land, building and other
    
    $
    3,213,000
    
    
    $
    2,975,000
    
    
    
    5 to 40 yearsRecording equipment
    
    
    65,269,000
    
    
    
    55,885,000
    
    
    
    6 to 10 yearsVibrator energy sources
    
    
    15,312,000
    
    
    
    13,730,000
    
    
    
    10 to 15 yearsVehicles
    
    
    9,427,000
    
    
    
    7,957,000
    
    
    
    5 to 10 yearsEquipment in process (a)
    
    
    829,000
    
    
    
    1,038,000
    
    
    
    94,050,000
    
    
    
    81,585,000Less accumulated depreciation
    
    
    (64,075,000
    )
    
    
    (60,805,000
    )Net property, plant and equipment
    
    $
    29,975,000
    
    
    $
    20,780,000
    )
 (a) Equipment in process has not been placed into service and accordingly is not yet subject to
depreciation. 4.       Stock Options The Company adopted the 2000 Incentive Stock Plan during fiscal 1999, which provides options
to purchase 500,000 shares of authorized but unissued common stock of the Company. The option price
is the market value of the Companys common stock at date of grant. Options are exercisable 25%
annually from the date of the grant and the options expire five years from date of grant. The 2000
Plan provides that 50,000 of the 500,000 shares of authorized but unissued common stock may be
awarded to officers, directors and employees of the Company for the purpose of additional
compensation. In fiscal 2004, the Company adopted the 2004 Incentive Stock Plan which provides 375,000
shares of authorized but unissued common stock of the Company. The 2004 Incentive Stock Plan
operates like the 2000 Incentive Stock Plan except that of the 375,000 shares, up to 125,000 shares
may be awarded to officers, directors, and employees of the Company for the purpose of additional
compensation and up to 125,000 shares may be awarded with restrictions. The transactions under the Plans are summarized as follows: Weighted
    
    
    Number ofAverage Price
    
    
    Optioned SharesBalance as of September 30, 2002
    
    $
    7.25
    
    
    
    319,000Granted
    
    $
    5.21
    
    
    
    105,000Cancelled or expired
    
    $
    7.02
    
    
    
    (17,000
    )Balance as of September 30, 2003
    
    $
    6.72
    
    
    
    407,000Granted
    
    $
    7.06
    
    
    
    40,000Cancelled or expired
    
    $
    6.48
    
    
    
    (82,500
    )Exercised
    
    $
    6.96
    
    
    
    (137,500
    )Balance as of September 30, 2004
    
    $
    6.75
    
    
    
    227,000
 Options for 55,500, 204,750 and 130,750 shares were exercisable with weighted average exercise
prices of $7.42, $6.94 and $6.79 as of September 30, 2004, 2003 and 2002, respectively. F-11




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Outstanding options at September 30, 2004 expire between April, 2006 and October, 2008 and
have exercise prices ranging from $5.21 to $8.65. Options for 40,000 shares were granted in fiscal year 2004. The expected life of the options
granted is five years. The weighted average fair value of options granted during 2004 is $1.24.
The fair value of each option grant is estimated on the date of grant, using the Black-Scholes
options-pricing model. The model assumed expected volatility of .5% and risk-free interest rate of 3.14% for grants
in 2004. As the Company has not declared dividends since it became a public entity, no dividend
yield was used. Actual value realized, if any, is dependent on the future performance of the
Companys common stock and overall stock market conditions. There is no assurance the value
realized by an optionee will be at or near the value estimated by the Black-Scholes model. 5.       Employee Benefit Plans The Company had an employee stock purchase plan to invest in the Companys common stock for
the benefit of eligible employees. Participants were entitled to contribute a percentage, not to
exceed 5%, of their bi-weekly salary to the plan. On a bi-weekly basis, the Company matched the
participants contributions and directed the purchase of shares of the Companys common stock.
There were no vesting requirements for the participants. The Company contributed $56,116 to the
plan during the fiscal first quarter of 2002. The Company discontinued the Plan effective January
1, 2002. Effective January 1, 2002, the Company initiated a 401(k) plan as part of its employee
benefits package in order to retain quality personnel. During 2004, 2003 and 2002, the Company
elected to match 100% of employee contributions up to a maximum of 5% of the participants gross
salary. The Companys matching contributions for fiscal 2004, 2003 and 2002 were approximately
$438,000, $373,000 and $259,000, respectively. 6.       Income Taxes The Company recorded an income tax benefit in the current year of approximately $1,536,000.
The benefit is due to the elimination of the income tax valuation allowance. Current U.S. federal
tax is related to the tax effect of the unrealized loss on investments recorded in other
comprehensive income and alternative minimum tax. A valuation allowance is provided when it is more likely than not that some portion of the
deferred tax assets will not be realized. Based on the Companys return to profitability and
budgeted expectations, management has determined that taxable income of the Company will more
likely than not be sufficient to fully utilize available net operating loss carryforwards prior to
their ultimate expiration. As such, the Company has eliminated the valuation allowance of
$4,232,000 to reflect the realizability of its net deferred tax assets. Income tax expense (benefit) attributable to income before extraordinary item consists of: Year Ended September 30,2004
    
    
    2003
    
    
    2002Current:U.S. federal
    
    $
    96,000
    
    
    
    
    
    
    $
    (400,000
    )State
    
    
    
    
    
    
    
    
    
    
    96,000
    
    
    
    
    
    
    
    (400,000
    )Deferred: U. S. Federal
    
    
    (1,632,000
    )
    
    
    52,000
    
    
    
    (71,000
    )Total
    
    $
    (1,536,000
    )
    
    $
    52,000
    
    
    $
    (471,000
    )
 F-12




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##### Table of Contents



Income tax expense varies from the amount computed by multiplying income before taxes by the
statutory income tax rate. The reason for these differences and the related tax effects are as follows: Year Ended September 30,2004
    
    
    2003
    
    
    2002Expense (benefit) computed at statutory
rates
    
    $
    2,585,000
    
    
    $
    (287,000
    )
    
    $
    (939,000
    )Effect of:Change in valuation allowance
    
    
    (4,232,000
    )
    
    
    297,000
    
    
    
    428,000Other
    
    
    111,000
    
    
    
    42,000
    
    
    
    40,000Income tax expense (benefit)
    
    $
    (1,536,000
    )
    
    
    52,000
    
    
    $
    (471,000
    )
 September 30,2004
    
    
    2003Deferred tax assets:Net operating loss carryforwards
    
    $
    4,555,000
    
    
    $
    6,687,000Alternative minimum tax credit carryforwards
    
    
    509,000
    
    
    
    413,000Receivables
    
    
    71,000
    
    
    
    45,000Other
    
    
    209,000
    
    
    
    116,000Total deferred tax assets
    
    
    5,344,000
    
    
    
    7,261,000Less valuation allowance
    
    
    
    
    
    
    (4,232,000
    )Total gross deferred tax assets
    
    
    5,344,000
    
    
    
    3,029,000Deferred tax liabilities:Other property and equipment
    
    
    (3,645,000
    )
    
    
    (2,938,000
    )Investments
    
    
    (23,000
    )
    
    
    (21,000
    )Other
    
    
    (28,000
    )
    
    
    (70,000
    )Total gross deferred tax liabilities
    
    
    (3,696,000
    )
    
    
    (3,029,000
    )Net deferred tax asset (liability)
    
    $
    1,648,000
    
    
    $
    
 As of September 30, 2004, the Company had a net operating loss carryforward for U.S. federal
income tax purposes of approximately $13,277,000, which is available to offset future regular
taxable income, if any. Net operating loss carryforward will begin to expire in 2022. The Company
has alternative minimum tax credit carryforwards totaling $509,000 to offset regular income tax,
which have no scheduled expiration date. 7.       Net Income (Loss) 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). Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options, warrants and convertible
securities. F-13




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##### Table of Contents



The following table sets forth the computation of basic and diluted net income per common
share: 2004
    
    
    2003
    
    
    2002Numerator:Net income (loss) and numerator for basic and diluted
net income (loss) per common share-income
available to common stockholders
    
    $
    8,618,000
    
    
    $
    (899,000
    )
    
    $
    (2,292,000
    )Denominator:Denominator for basic net income (loss) per common
share-weighted average common shares
    
    
    5,558,646
    
    
    
    5,484,593
    
    
    
    5,462,936Effect of dilutive securities-employee stock options
    
    
    72,751
    
    
    
    
    
    
    
    Denominator for diluted net income (loss) per common
share-adjusted weighted average common shares
and assumed conversions
    
    
    5,631,397
    
    
    
    5,484,593
    
    
    
    5,462,936Net income (loss) per common share
    
    $
    1.55
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )Net income (loss) per common share-assuming
dilution
    
    $
    1.53
    
    
    $
    (0.16
    )
    
    $
    (0.42
    )
 Employee stock options to purchase shares of common stock were outstanding during fiscal
year 2003 but were not included in the computation of diluted net loss per share because either (i)
the employee stock options exercise price was greater than the average market price of the common
stock of the Company, or (ii) the Company had a net loss from continuing operations and, therefore,
the effect would be antidilutive. 8.       Major Customers The Company operates in only one business segment, contract seismic data acquisition and
processing services. During 2004, sales to the Companys two largest clients represented 17% and
12% of the Companys revenues, respectively. During 2003 and 2002, sales to only one client, which
was not the same client in each year or in 2004, exceeded 10% of operating revenues. 9.       Contingencies The Company is party to various legal actions arising in the ordinary course of its business,
none of which management believes will result in a material adverse effect on the Companys
financial position or results of operation, as the Company believes it is adequately insured. On February 18, 1998 the Company entered into a five year, non-cancellable operating lease for
office space. On June 30, 2003, the lease was amended to extend the term of the lease for five
years beginning July 1, 2003 and ending June 30, 2008. Future minimum lease commitments under the
lease at September 30 of each year are $142,716 through 2007, and $107,037 in fiscal year 2008. 10.       Rights Agreement On July 13, 1999, the Board of Directors of the Company authorized and declared a dividend to
the holders of record on July 23, 1999 of one Right (a Right) for each outstanding share of the
Companys common stock. When exercisable, each Right will entitle the holder to purchase one
one-hundredth of a share of a Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the Preferred Shares) at an exercise price of $50.00 per Right. The
rights are not currently exercisable and will become exercisable only if a person or group acquires
beneficial ownership of 20% or more of the Companys outstanding common stock or announces a tender
offer or exchange offer, the consummating of which would result in attaining the triggering
percentage. The Rights are subject to redemption by the Company for $.01 per Right at any time
prior to the tenth day after the first public announcement of a triggering acquisition. If the Company is acquired in a merger or other business combination transaction after a
person has acquired beneficial ownership of 20% or more of the Companys common stock, each Right
will entitle its holder to purchase, at the Rights then current exercise price, a number of the
acquired Companys shares of common stock having a market value of two times such price. In
addition, if a person or group acquires beneficial ownership of 20% or more of the Companys common
stock, each Right will entitle its holder (other than the acquiring person or F-14




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##### Table of Contents



group) to purchase, at the Rights then current exercise price, a number of the Companys shares of
common stock having a market value of two times the exercise price. Subsequent to the acquisition by a person or group of beneficial ownership of 20% or more of
the Companys common stock and prior to the acquisition of beneficial ownership of 50% or more of
the Companys common stock, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such acquiring person or group, which will have become null and void and
nontransferable), in whole or in part, at an exchange ratio of one share of the Companys common
stock (or one one-hundredth of a Preferred Share) per Right. The Rights dividend distribution was made on July 23, 1999, payable to shareholders of record
at the close of business on that date. The Rights will expire on July 23, 2009. 11.       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 fiscal years 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 by the Company is dependent on the
value of the Companys common stock and the number of options awarded. 12.       Subsequent Events 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. 13.       Events (Unaudited) Subsequent to the Date of the Report of the Independent Auditor 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. F-15




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14.       Quarterly Financial Data (Unaudited) Quarter EndedDecember 31
    
    
    March 31
    
    
    June 30
    
    
    September 30Fiscal 2003:Operating revenues
    
    $
    11,410,000
    
    
    $
    14,196,000
    
    
    $
    11,291,000
    
    
    $
    14,695,000Income (loss) from operations
    
    $
    (1,007,000
    )
    
    $
    579,000
    
    
    $
    (1,483,000
    )
    
    $
    527,000Net income (loss)
    
    $
    (893,000
    )
    
    $
    844,000
    
    
    $
    (1,407,000
    )
    
    $
    557,000Net income (loss) per common
share
    
    $
    (0.16
    )
    
    $
    0.15
    
    
    $
    (0.26
    )
    
    $
    0.10Net income (loss) per common
share assuming dilution
    
    $
    (0.16
    )
    
    $
    0.15
    
    
    $
    (0.26
    )
    
    $
    0.10Fiscal 2004:Operating revenues
    
    $
    15,475,000
    
    
    $
    15,203,000
    
    
    $
    17,112,000
    
    
    $
    21,556,000Income from operations
    
    $
    438,000
    
    
    $
    1,843,000
    
    
    $
    1,804,000
    
    
    $
    2,315,000Net income
    
    $
    506,000
    
    
    $
    1,999,000
    
    
    $
    1,989,000
    
    
    $
    4,124,000Net income per common
share
    
    $
    0.09
    
    
    $
    0.36
    
    
    $
    0.36
    
    
    $
    0.73Net income per common
share assuming dilution
    
    $
    0.09
    
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.72
 (a) Reflects a change in certain estimates as described in footnote 3. F-16




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Schedule II Dawson Geophysical Company
Valuation and Qualifying Accounts Balance at
    
    
    Charged tobeginning
    
    
    costs
    
    
    
    
    
    
    Balance atof period
    
    
    and expenses
    
    
    Deductions*
    
    
    end of periodAllowance for doubtful accounts:Fiscal Year:2004
    
    $
    127,000
    
    
    $
    100,000
    
    
    $
    28,000
    
    
    $
    199,0002003
    
    
    71,000
    
    
    
    60,000
    
    
    
    4,000
    
    
    
    127,0002002
    
    
    121,000
    
    
    
    
    
    
    
    50,000
    
    
    
    71,000
 *Represents amounts related to accounts receivable that have been deemed uncollectable and written
off by the Company. F-17