##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the Fiscal Year Ended September 30, 2005                                                
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the Transition Period
    From           to                                             

Commission File No. 0-10144


DAWSON GEOPHYSICAL COMPANY


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Texas                                                              |  | 75-0970548                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

508 West Wall, Suite 800, Midland, Texas 79701


(Principal Executive Office)


Telephone Number: 432-684-3000


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 Registered
|                                        |  |                                          
|Common Stock,
    $.331/3
    par value |  | Nasdaq                                   

o þ


o þ


þ o


þ


þ o


o þ


1 3


1 3




DOCUMENTS INCORPORATED BY REFERENCE












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##### 










TABLE OF CONTENTS


|                                                |  |                                                                                           |     |      |    | 
|----------------------------------------------- |  | ----------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                |  |                                                                                           |     | Page |   
|                                                |  |                                                                                           |     |      |   
|PART I                                         
|Item 1.                                         |  | Business                                                                                  |     |      | 2  | 
|Item 1A.                                        |  | Risk Factors                                                                              |     |      | 6  | 
|Item 1B.                                        |  | Unresolved Staff Comments                                                                 |     |      | 9  | 
|Item 2.                                         |  | Properties                                                                                |     |      | 9  | 
|Item 3.                                         |  | Legal Proceedings                                                                         |     |      | 10 | 
|Item 4.                                         |  | Submission of Matters to a Vote of Security
    Holders                                   |     |      | 10 | 
|                                               
|PART II                                        
|Item 5.                                         |  | Market for Our Common Equity and Related
    Stockholder Matters                          |     |      | 10 | 
|Item 6.                                         |  | Selected Financial Data                                                                   |     |      | 11 | 
|Item 7.                                         |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |     |      | 11 | 
|Item 7A.                                        |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |     |      | 17 | 
|Item 8.                                         |  | Financial Statements and Supplementary
    Data                                           |     |      | 17 | 
|Item 9.                                         |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure  |     |      | 17 | 
|Item 9A.                                        |  | Controls and Procedures                                                                   |     |      | 17 | 
|Item 9B.                                        |  | Other Information                                                                         |     |      | 18 | 
|                                               
|PART III                                       
|Item 10.                                        |  | Directors and Executive Officers of the
    Registrant                                    |     |      | 18 | 
|Item 11.                                        |  | Executive Compensation                                                                    |     |      | 18 | 
|Item 12.                                        |  | Security Ownership of Certain Beneficial
    Owners and Management                        |     |      | 18 | 
|Item 13.                                        |  | Certain Relationships and Related
    Transactions                                        |     |      | 19 | 
|Item 14.                                        |  | Principal Accounting Fees and Services                                                    |     |      | 19 | 
|                                               
|PART IV                                        
|Item 15.                                        |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |     |      | 19 | 
|Signatures                                      |  |                                                                                           | 20  |     
|Index to Financial Statements                   |  |                                                                                           | F-1 |     
|Index to Exhibits                               |  |                                                                                           |     |     
|Consent of KPMG LLP                            
|Certification of CEO Pursuant to Rule 13a-14(a)
|Certification of CFO Pursuant to Rule 13a-14(a)
|Certification of CEO Pursuant to Rule 13a-14(b)
|Certification of CFO Pursuant to Rule 13a-14(b)



1



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DAWSON GEOPHYSICAL COMPANY


FORM 10-K


For the Fiscal Year Ended September 30, 2005


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS







Part I







|        |         
|------- | --------
|Item 1. | BUSINESS

General








2



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Business Strategy






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

Business Description


Geophysical Services Overview.






3



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Data Acquisition.








Data Processing.






Integrated Services.


4



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Equipment Acquisition and Capital Expenditures




Clients








Contracts






5



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Competition




Employees




Available Information


www.dawson3d.com www.sec.gov







|         |             
|-------- | ------------
|Item 1A. | RISK FACTORS

An investment in our common stock is subject to a number of
risks discussed below. You should carefully consider these
discussions of risk and the other information included in this
Form 10-K. If any of the following risks were actually to
occur, our business, financial condition or results of
operations could be materially adversely affected.




| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If oil and gas prices or the level of capital expenditures
    by oil and gas companies were to decline, demand for our
    services would decline and our results of operations would be
    adversely affected.



6



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| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | level of demand for oil and gas;                                                                                                                                                                   
|
| |  | worldwide political, military and economic conditions, including
    the ability of the Organization of Petroleum Exporting Countries
    to set and maintain production levels and prices for oil;
|
| |  | level of oil and gas production;                                                                                                                                                                   
|
| |  | government policies regarding the exploration for, and
    production and development of, oil and gas reserves;                                                                                    
|
| |  | level of taxation relating to the energy industry, including
    taxation of consumption of energy sources; and                                                                                    
|
| |  | weather conditions.                                                                                                                                                                                





| |                                                                             
| | ----------------------------------------------------------------------------
| | The high fixed costs of our operations could result in
    operating losses.





| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our revenues are subject to fluctuations that are beyond
    our control which could adversely affect our results of
    operations in any financial period.





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Our operations are subject to weather conditions which
    could adversely affect our results of operations.





| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operations are subject to delays related to obtaining
    land access rights of way from third parties which could affect
    our results of operations.





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We face intense competition in our business that could
    result in downward pricing pressure and the loss of market
    share.





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | If we do not manage our recent growth effectively our
    results of operations could be affected.



7



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| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to attract and retain skilled and
    technically knowledgeable employees, which could adversely
    affect our business.





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Capital requirements for our operations are large. If we
    are unable to finance these requirements, our ability to
    continue our expansion and maintain our profitability could be
    affected.





| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Technological change in our business creates risks of
    technological obsolescence and requirements for future capital
    expenditures. If we are unable to keep up with these
    technological advances, we may not be able to compete
    effectively.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | We operate under hazardous conditions that subject us to
    risk of damage to property or personal injuries and may
    interrupt our business.







8



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| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our business is subject to governmental regulation which
    may adversely affect our future operations.





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain provisions of our charter and bylaws and our
    shareholder rights plan may make it difficult for a third party
    to acquire us, even in situations that may be viewed as
    desirable by shareholders.





| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to maintain effective internal controls in
    accordance with Section 404 of the Sarbanes-Oxley Act could
    have a material adverse effect on our stock price.








|         |                          
|-------- | -------------------------
|Item 1B. | UNRESOLVED STAFF COMMENTS








|        |           
|------- | ----------
|Item 2. | PROPERTIES



|            |  |          |        |  |         |  |                                       |             |  |  |        | 
|----------- |  | -------- | ------ |  | ------- |  | ------------------------------------- | ----------- |  |  | ------ | 
|            |  | Owned or |        |  |         |  | Building Area                         |            
|Location    |  | Leased   |        |  | Purpose |  |                                       | Square Feet | 
|            |  |          |        |  |         |  |                                       |             | 
|Midland, TX |  |          | Leased |  |         |  | Executive offices and data processing |             |  |  | 18,400 | 
|Midland, TX |  |          | Owned  |  |         |  | Field office                          |             |  |  | 53,000 | 
|            |  |          |        |  |         |  | Equipment fabrication                 |             |  |  |        | 
|            |  |          |        |  |         |  | Maintenance and repairs               |             |  |  |        | 





9



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|        |                  
|------- | -----------------
|Item 3. | LEGAL PROCEEDINGS








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






Part II







|        |                                                                 
|------- | ----------------------------------------------------------------
|Item 5. | MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS



|                   |  |      |       |  |     |   |       | 
|------------------ |  | ---- | ----- |  | --- | - | ----- | 
|Quarter Ended      |  | High |       |  | Low |  
|                   |  |      |       |  |     |  
|December 31, 2003  |  | $    | 8.54  |  |     | $ | 6.46  | 
|March 31, 2004     |  | $    | 12.47 |  |     | $ | 7.62  | 
|June 30, 2004      |  | $    | 22.39 |  |     | $ | 12.00 | 
|September 30, 2004 |  | $    | 26.24 |  |     | $ | 16.82 | 
|December 31, 2004  |  | $    | 27.66 |  |     | $ | 17.13 | 
|March 31, 2005     |  | $    | 25.62 |  |     | $ | 17.91 | 
|June 30, 2005      |  | $    | 25.40 |  |     | $ | 19.11 | 
|September 30, 2005 |  | $    | 32.99 |  |     | $ | 20.96 | 







Equity Compensation Plan Information


|                                                           |  |                      |         |  |                     |                         |                       |                           |  |  |         | 
|---------------------------------------------------------- |  | -------------------- | ------- |  | ------------------- | ----------------------- | --------------------- | ------------------------- |  |  | ------- | 
|                                                           |  |                      |         |  |                     | Number of Securities    |                      
|                                                           |  |                      |         |  |                     | Remaining Available for |                      
|                                                           |  | Number of Securities |         |  |                     |                         | Future Issuance Under |                          
|                                                           |  | to be Issued Upon    |         |  | Weighted-Average    |                         |                       | Equity Compensation Plans | 
|                                                           |  | Exercise of          |         |  | Exercise Price of   |                         |                       | (Excluding Securities     | 
|Plan Category                                              |  | Outstanding Options  |         |  | Outstanding Options |                         |                       | Reflected in Column(a))   | 
|                                                           |  |                      |         |  |                     |                         |                       |                           | 
|                                                           |  | (a)                  |         |  | (b)                 |                         |                       | (c)                       | 
|Equity compensation plans approved by security holders     |  |                      | 224,500 |  |                     | $                       | 8.87                  |                           |  |  | 319,000 | 
|Equity compensation plans not approved by security holders |  |                      |        |  |                     |                         |                      |                           |  |  |        | 
|Total                                                      |  |                      | 224,500 |  |                     | $                       | 8.87                  |                           |  |  | 319,000 | 

10



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|        |                        
|------- | -----------------------
|Item 6. | SELECTED FINANCIAL DATA



|                                                      |  |                                          |         |  |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|----------------------------------------------------- |  | ---------------------------------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|Years Ended September 30                              |  | 2005                                     |         |  | 2004 |   |        | 2003 |  |   | 2002   |   |  | 2001 |       
|                                                      |  |                                          |         |  |      |   |        |      |  |   |        |   |  |      |       
|                                                      |  | (In thousands, except per share amounts) |        
|Operating revenues                                    |  | $                                        | 116,663 |  |      | $ | 69,346 |      |  | $ | 51,592 |   |  | $    | 36,078 |   |  | $ | 37,878 |  
|Net income (loss)                                     |  | $                                        | 10,016  |  |      | $ | 8,618  |      |  | $ | (899   | ) |  | $    | (2,292 | ) |  | $ | (4,978 | )
|Net income (loss) per common share                    |  | $                                        | 1.50    |  |      | $ | 1.55   |      |  | $ | (0.16  | ) |  | $    | (0.42  | ) |  | $ | (0.91  | )
|Weighted average equivalent common shares outstanding |  |                                          | 6,706   |  |      |   | 5,559  |      |  |   | 5,485  |   |  |      | 5,463  |   |  |   | 5,443  |  
|Total assets                                          |  | $                                        | 114,127 |  |      | $ | 56,759 |      |  | $ | 42,792 |   |  | $    | 44,291 |   |  | $ | 45,381 |  
|Long term debt-less current maturities                |  | $                                        |        |  |      | $ |       |      |  | $ |       |   |  | $    |       |   |  | $ |       |  
|Stockholders equity                                  |  | $                                        | 101,904 |  |      | $ | 50,282 |      |  | $ | 40,662 |   |  | $    | 41,586 |   |  | $ | 43,582 |  






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Overview








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Fiscal 2005 Highlights






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We added capacity to existing crews and fielded two additional
    data acquisition crews.                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | We continued to experience price improvements and more favorable
    contract terms in our agreements with clients. These factors
    helped improve our revenues during fiscal 2005.                                                                                                                                                                                                                                                                                                                         
|
| |  | We continued to grow by upgrading our recording capacity,
    expanding the channel count of existing crews, adding to our
    energy source fleet and making technical improvements in all
    phases of our operations.                                                                                                                                                                                                                                                                                     
|
| |  | We recognized income tax expense in fiscal 2005 as a result of
    our continued profitability.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In March 2005 we successfully completed a public offering of
    1,800,000 shares of common stock. The offering raised net
    proceeds of approximately $41 million that were used to
    fund our continued expansion and to repay borrowings under our
    revolving line of credit. Also, in August 2005 we filed a shelf
    registration statement with the Securities and Exchange
    Commission to enable us to act quickly as opportunities arise to
    enhance the capabilities of our operations.

Fiscal Year Ended September 30, 2005 Versus Fiscal Year
Ended September 30, 2004


Operating Revenues.


Operating Costs.








Taxes.


12



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Fiscal Year Ended September 30, 2004 Versus Fiscal Year
Ended September 30, 2003


Operating Revenues.


Operating Costs.








Taxes.


Liquidity and Capital Resources


Introduction.


Cash Flows.


13



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Capital Expenditures.






Capital Resources.








14



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|                            |  |                        |     |        |        |   |     |           |       |   |           |  |  |         |   |  |  |   |   | 
|--------------------------- |  | ---------------------- | --- | ------ | ------ | - | --- | --------- | ----- | - | --------- |  |  | ------- | - |  |  | - | - | 
|                            |  | Payments Due by Period |    
|                            |  |                        |    
|                            |  |                        |     | Within |        |   |     |           | After |  
|                            |  | Total                  |     |        | 1 Year |   |     | 1-3 Years |       |   | 3-5 Years |  |  | 5 Years |  
|                            |  |                        |     |        |        |   |     |           |       |   |           |  |  |         |  
|                            |  | (In thousands)         |    
|Operating lease obligations |  | $                      | 415 |        |        | $ | 151 |           |       | $ | 264       |  |  | $       | 0 |  |  | $ | 0 | 
|                            |  |                        |     |        |        |   |     |           |       |   |           |  |  |         |  



Off-Balance Sheet Arrangements




Effect of Inflation




Critical Accounting Policies




Revenue Recognition.




Allowance for Doubtful Accounts.


15



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Impairment of Long-lived Assets.


Depreciable Lives of Property, Plant and Equipment.


Tax Accounting.


Stock Based Compensation.


Recently Issued Accounting Pronouncements






16



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK








|        |                                            
|------- | -------------------------------------------
|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|Item 9A. | CONTROLS AND PROCEDURES

Managements Evaluation of Disclosure Controls and
Procedures




Managements Report on Internal Control over Financial
Reporting


Internal Control  Integrated Framework


17



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Changes in Internal Control over Financial Reporting









|         |                  
|-------- | -----------------
|Item 9B. | OTHER INFORMATION






Part III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT





18



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|         |                                               
|-------- | ----------------------------------------------
|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






Part IV







|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
    FORM 8-K





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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                           
| | Stockholders Equity and Other Comprehensive Income
| | Statements of Cash Flows                           
| | Notes to Financial Statements                      



| |                                   
| | ----------------------------------
| | (2) Financial Statement Schedules.





| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and Qualifying Accounts
    for the three years ended September 30, 2005, 2004 and 2003.





| |              
| | -------------
| | (3) Exhibits.



19



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SIGNATURES






| |                           
| | --------------------------
| | DAWSON GEOPHYSICAL COMPANY



| |     |                     
| | --- | --------------------
| | By: | /s/ L. Decker Dawson

| |                                                                     
| | --------------------------------------------------------------------
| |                                                                     
| | L. Decker Dawson                                                    
| | Chairman of the Board of Directors and 
     Chief Executive Officer



|                                             |  |                                                                                |  |          |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------- |  | 
|Signature                                    |  | Title                                                                          |  | Date    
|                                             |  |                                                                                |  |         
|                                            
|/s/ L. Decker DawsonL.
    Decker Dawson     |  | Chairman of the Board of Directors and Chief Executive Officer                 |  | 12-14-05
|                                            
|/s/ Stephen C. JumperStephen
    C. Jumper   |  | President, Chief Operating Officer and Director                                |  | 12-14-05
|                                            
|/s/ Paul H. BrownPaul
    H. Brown           |  | Director                                                                       |  | 12-14-05
|                                            
|/s/ Gary M. HooverGary
    M. Hoover         |  | Director                                                                       |  | 12-14-05
|                                            
|/s/ Tim C. ThompsonTim
    C. Thompson       |  | Director                                                                       |  | 12-14-05
|                                            
|/s/ Christina W. HaganChristina
    W. Hagan |  | Executive Vice President, Secretary, Treasurer and Chief
    Financial Officer |  | 12-14-05

20



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INDEX TO FINANCIAL STATEMENTS


|                                                                                                                  |  |      |      | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|Financial Statements of Dawson Geophysical Company                                                                |  | Page |     
|                                                                                                                  |  |      |     
|Reports of Independent Registered Public
    Accounting Firm, dated December 13, 2005                             |  |      | F-2  | 
|Balance Sheets as of September 30,
    2005 and 2004                                                              |  |      | F-4  | 
|Statements of Operations for the years
    ended September 30, 2005, 2004 and 2003                                |  |      | F-5  | 
|Stockholders Equity and Other
    Comprehensive Income for the years ended September 30,
    2005, 2004 and 2003 |  |      | F-6  | 
|Statements of Cash Flows for the years
    ended September 30, 2005, 2004 and 2003                                |  |      | F-7  | 
|Notes to Financial Statements                                                                                     |  |      | F-8  | 
|Financial Statement Schedule:                                                                                     |  |      |      | 
|Schedule II  Valuation and
    Qualifying Accounts for the years ended September 30, 2005,
    2004 and 2003     |  |      | F-17 | 

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting
Firm
















| |         
| | --------
| | KPMG LLP





F-2



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




















| |         
| | --------
| | KPMG LLP





F-3



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY





BALANCE SHEETS


|                                     |                                                                                                                                                          |                               |                                   |             |               |             |            |             |           |            | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | --------------------------------- | ----------- | ------------- | ----------- | ---------- | ----------- | --------- | ---------- | 
|                                     |                                                                                                                                                          | September 30,                 |                                   |             | September 30, |            
|                                     |                                                                                                                                                          | 2005                          |                                   |             | 2004          |            
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|ASSETS                              
|Current assets:                      |                                                                                                                                                          |                               |                                   |             |               |             |            |            
|                                     | Cash and cash equivalents                                                                                                                                |                               | $                                 | 2,803,000   |               |             | $          | 3,587,000   |          
|                                     | Short-term investments                                                                                                                                   |                               |                                   | 20,326,000  |               |             |            | 4,130,000   |          
|                                     | Accounts receivable, net of allowance for doubtful accounts of
    $331,000 in 2005 and $199,000 in 2004                                                 |                               |                                   | 28,696,000  |               |             |            | 16,979,000  |          
|                                     | Prepaid expenses and other assets                                                                                                                        |                               |                                   | 1,127,000   |               |             |            | 440,000     |          
|                                     | Current deferred tax asset                                                                                                                               |                               |                                   | 1,229,000   |               |             |            | 4,694,000   |          
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          |                               | Total current assets              |             |               | 54,181,000  |            |             |           | 29,830,000 | 
|Property, plant and equipment        |                                                                                                                                                          |                               | 124,478,000                       |             |               |             | 94,050,000 |            
|                                     | Less accumulated depreciation                                                                                                                            |                               |                                   | (64,532,000 | )             |             |            | (64,075,000 | )        
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          |                               | Net property, plant and equipment |             |               | 59,946,000  |            |             |           | 29,975,000 | 
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          | $                             | 114,127,000                       |             |               | $           | 59,805,000 |            
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                          |                               |                                   |             |               |             |            |            
|                                     | Accounts payable                                                                                                                                         |                               | $                                 | 6,601,000   |               |             | $          | 3,357,000   |          
|                                     | Accrued liabilities:                                                                                                                                     |                               |                                   |             |               |             |            |             |          
|                                     |                                                                                                                                                          | Payroll costs and other taxes |                                   |             | 1,198,000     |             |            |             | 742,000   |           
|                                     |                                                                                                                                                          | Other                         |                                   |             | 2,182,000     |             |            |             | 971,000   |           
|                                     |                                                                                                                                                          | Deferred revenue              |                                   |             | 190,000       |             |            |             | 1,407,000 |           
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          |                               | Total current liabilities         |             |               | 10,171,000  |            |             |           | 6,477,000  | 
|Deferred tax liability               |                                                                                                                                                          |                               | 2,052,000                         |             |               |             | 3,046,000  |            
|Stockholders equity:                |                                                                                                                                                          |                               |                                   |             |               |             |            |            
|                                     | Preferred stock-par value $1.00 per share;
    5,000,000 shares authorized, none outstanding                                                             |                               |                                   |            |               |             |            |            |          
|                                     | Common stock-par value
    $.331/3
    per share; 10,000,000 shares authorized, 7,484,044 and
    5,633,794 shares issued and outstanding in each period |                               |                                   | 2,495,000   |               |             |            | 1,878,000   |          
|                                     | Additional paid-in capital                                                                                                                               |                               |                                   | 80,987,000  |               |             |            | 39,949,000  |          
|                                     | Other comprehensive income, net of tax                                                                                                                   |                               |                                   | (77,000     | )             |             |            | (28,000     | )        
|                                     | Retained earnings                                                                                                                                        |                               |                                   | 18,499,000  |               |             |            | 8,483,000   |          
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          |                               | Total stockholders equity        |             |               | 101,904,000 |            |             |           | 50,282,000 | 
|                                     |                                                                                                                                                          |                               |                                   |             |               |            
|                                     |                                                                                                                                                          | $                             | 114,127,000                       |             |               | $           | 59,805,000 |            
|                                     |                                                                                                                                                          |                               |                                   |             |               |            



F-4



---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY





STATEMENTS OF OPERATIONS


|                                                                            |                            |                           |             |            |      |   |            |            |   |   |            |            |  
|--------------------------------------------------------------------------- | -------------------------- | ------------------------- | ----------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                            |                            | Years Ended September 30, |            
|                                                                            |                            |                           |            
|                                                                            |                            | 2005                      |             |            | 2004 |   |            | 2003       |  
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Operating revenues                                                          |                            | $                         | 116,663,000 |            |      | $ | 69,346,000 |            |   | $ | 51,592,000 |           
|Operating costs:                                                            |                            |                           |             |            |      |   |            |            |   |   |            |           
|                                                                            | Operating expenses         |                           |             | 90,465,000 |      |   |            | 55,618,000 |   |   |            | 46,151,000 |  
|                                                                            | General and administrative |                           |             | 4,490,000  |      |   |            | 2,675,000  |   |   |            | 2,421,000  |  
|                                                                            | Depreciation               |                           |             | 8,179,000  |      |   |            | 4,653,000  |   |   |            | 4,404,000  |  
|                                                                            |                            |                           |             |            |      |   |            |            |  
|                                                                            |                            |                           | 103,134,000 |            |      |   | 62,946,000 |            |   |   | 52,976,000 |           
|Income (loss) from operations                                               |                            |                           | 13,529,000  |            |      |   | 6,400,000  |            |   |   | (1,384,000 | )         
|Other income:                                                               |                            |                           |             |            |      |   |            |            |   |   |            |           
|                                                                            | Interest income            |                           |             | 507,000    |      |   |            | 177,000    |   |   |            | 328,000    |  
|                                                                            | Other                      |                           |             | 486,000    |      |   |            | 505,000    |   |   |            | 209,000    |  
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Income (loss) before income tax                                             |                            |                           | 14,522,000  |            |      |   | 7,082,000  |            |   |   | (847,000   | )         
|Income tax benefit (expense):                                               |                            |                           |             |            |      |   |            |            |   |   |            |           
|                                                                            | Current                    |                           |             | (2,035,000 | )    |   |            | (96,000    | ) |   |            |           |  
|                                                                            | Deferred                   |                           |             | (2,471,000 | )    |   |            | 1,632,000  |   |   |            | (52,000    | )
|                                                                            |                            |                           |             |            |      |   |            |            |  
|                                                                            |                            |                           | (4,506,000  | )          |      |   | 1,536,000  |            |   |   | (52,000    | )         
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Net income (loss)                                                           |                            | $                         | 10,016,000  |            |      | $ | 8,618,000  |            |   | $ | (899,000   | )         
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Net income (loss) per common share                                          |                            | $                         | 1.50        |            |      | $ | 1.55       |            |   | $ | (0.16      | )         
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Net income (loss) per common share-assuming dilution                        |                            | $                         | 1.48        |            |      | $ | 1.53       |            |   | $ | (0.16      | )         
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Weighted average equivalent common shares outstanding                       |                            |                           | 6,705,791   |            |      |   | 5,558,646  |            |   |   | 5,484,593  |           
|                                                                            |                            |                           |             |            |      |   |            |            |  
|Weighted average equivalent common shares outstanding-assuming
    dilution |                            |                           | 6,795,295   |            |      |   | 5,631,397  |            |   |   | 5,484,593  |           
|                                                                            |                            |                           |             |            |      |   |            |            |  



F-5



---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY





STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME


|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   |             |   |  | 
|---------------------------------------- | ------------------------------ | ----------------------------------------------------------------- | --------- |  | ---------- | - | ----------- | ------- |  | ------------- | ---------- |  | -------- | --------- | -------- | ------ | -------- | - | ---------- | - |  | - | ----------- | - |  | 
|                                         |                                | Common Stock                                                      |           |  |            |   | Accumulated |         |  |               |            | 
|                                         |                                |                                                                   |           |  | Additional |   |             | Other   |  |               | Retained   |  |          |          
|                                         |                                | Number of                                                         |           |  |            |   | Paid-in     |         |  | Comprehensive |            |  | Earnings |           |          |       
|                                         |                                | Shares                                                            |           |  | Amount     |   |             | Capital |  |               | Income     |  |          | (Deficit) |          |        | Total    |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Balance September 30, 2002               |                                |                                                                   | 5,467,294 |  |            | $ | 1,822,000   |         |  | $             | 38,863,000 |  |          | $         | 137,000  |        |          | $ | 764,000    |   |  | $ | 41,586,000  |  
|Net 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             |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          | 52,000 |          |   |            |   |  |   |             |   | 
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Other comprehensive income               |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           | (100,000 | )      |          |   |            |   |  |   | (100,000    | )
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Comprehensive income                     |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   | 40,587,000  |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Issuance of common stock as compensation |                                |                                                                   | 20,500    |  |            |   | 7,000       |         |  |               | 68,000     |  |          |           |          |        |          |   |            |   |  |   | 75,000      |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Balance September 30, 2003               |                                |                                                                   | 5,487,794 |  |            |   | 1,829,000   |         |  |               | 38,931,000 |  |          |           | 37,000   |        |          |   | (135,000   | ) |  |   | 40,662,000  |  
|Net income                               |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   | 8,618,000  |   |  |   | 8,618,000   |  
|Other 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 |           |  |            |   |             |         |  |               |            |  |          |           |          |        | 47,000   |   |            |   |  |   |             |   |  | 
|                                         | Income tax expense             |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          | 14,000 |          |   |            |   |  |   |             |   | 
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Other comprehensive income               |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           | (65,000  | )      |          |   |            |   |  |   | (65,000     | )
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Comprehensive income                     |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   | 49,215,000  |  
|Issuance of common stock as compensation |                                |                                                                   | 8,500     |  |            |   | 3,000       |         |  |               | 107,000    |  |          |           |          |        |          |   |            |   |  |   | 110,000     |  
|Exercise of stock options                |                                |                                                                   | 137,500   |  |            |   | 46,000      |         |  |               | 911,000    |  |          |           |          |        |          |   |            |   |  |   | 957,000     |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Balance September 30, 2004               |                                |                                                                   | 5,633,794 |  |            |   | 1,878,000   |         |  |               | 39,949,000 |  |          |           | (28,000  | )      |          |   | 8,483,000  |   |  |   | 50,282,000  |  
|Net income                               |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   | 10,016,000 |   |  |   | 10,016,000  |  
|Other comprehensive income net of tax:   |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   |             |  
|                                         | Unrealized loss on securities: |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   |             |   | 
|                                         |                                | Unrealized holding losses arising during period                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        | (194,000 | ) |            |   |  |   |             |   |  | 
|                                         |                                | Less: Reclassification adjustment for gain included in net income |           |  |            |   |             |         |  |               |            |  |          |           |          |        | 100,000  |   |            |   |  |   |             |   |  | 
|                                         | Income tax expense             |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          | 45,000 |          |   |            |   |  |   |             |   | 
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Other comprehensive income               |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           | (49,000  | )      |          |   |            |   |  |   | (49,000     | )
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Comprehensive income                     |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |   |            |   |  |   | 60,249,000  |  
|Tax benefit of employee stock plan       |                                |                                                                   |           |  |            |   |             |         |  |               | 243,000    |  |          |           |          |        |          |   |            |   |  |   | 243,000     |  
|Issuance of common stock-public offering |                                |                                                                   | 1,800,000 |  |            |   | 600,000     |         |  |               | 40,396,000 |  |          |           |          |        |          |   |            |   |  |   | 40,996,000  |  
|Issuance of common stock as compensation |                                |                                                                   | 3,500     |  |            |   | 1,000       |         |  |               | 73,000     |  |          |           |          |        |          |   |            |   |  |   | 74,000      |  
|Exercise of stock options                |                                |                                                                   | 46,750    |  |            |   | 16,000      |         |  |               | 326,000    |  |          |           |          |        |          |   |            |   |  |   | 342,000     |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  
|Balance September 30, 2005               |                                |                                                                   | 7,484,044 |  |            | $ | 2,495,000   |         |  | $             | 80,987,000 |  |          | $         | (77,000  | )      |          | $ | 18,499,000 |   |  | $ | 101,904,000 |  
|                                         |                                |                                                                   |           |  |            |   |             |         |  |               |            |  |          |           |          |        |          |  



F-6



---



##### Table of Contents



DAWSON GEOPHYSICAL COMPANY





STATEMENTS OF CASH FLOWS


|                                                                                             |                                                  |                           |             |             |      |   |            |             |   |   |           |            |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------- | ----------- | ----------- | ---- | - | ---------- | ----------- | - | - | --------- | ---------- | -
|                                                                                             |                                                  | Years Ended September 30, |            
|                                                                                             |                                                  |                           |            
|                                                                                             |                                                  | 2005                      |             |             | 2004 |   |            | 2003        |  
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|                                                                                             |                                                  | (Unaudited)               |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Net income (loss)                                |                           | $           | 10,016,000  |      |   | $          | 8,618,000   |   |   | $         | (899,000   | )
|Adjustments to reconcile net income (loss) to net cash provided
    by operating activities: |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Depreciation                                     |                           |             | 8,179,000   |      |   |            | 4,653,000   |   |   |           | 4,404,000  |  
|                                                                                             | Non-cash compensation                            |                           |             | 74,000      |      |   |            | 110,000     |   |   |           | 75,000     |  
|                                                                                             | Deferred income tax (benefit) expense            |                           |             | 2,471,000   |      |   |            | (1,632,000  | ) |   |           | 52,000     |  
|                                                                                             | Other                                            |                           |             | 270,000     |      |   |            | 135,000     |   |   |           | (46,000    | )
|Change in current assets and liabilities:                                                    |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Increase in accounts receivable                  |                           |             | (11,717,000 | )    |   |            | (7,266,000  | ) |   |           | (2,100,000 | )
|                                                                                             | Increase in prepaid expenses                     |                           |             | (687,000    | )    |   |            | (153,000    | ) |   |           | (67,000    | )
|                                                                                             | Decrease in income taxes receivable              |                           |             |            |      |   |            |            |   |   |           | 400,000    |  
|                                                                                             | Increase (decrease) in accounts payable          |                           |             | 3,244,000   |      |   |            | 2,426,000   |   |   |           | (747,000   | )
|                                                                                             | Increase in accrued liabilities                  |                           |             | 1,667,000   |      |   |            | 820,000     |   |   |           | 254,000    |  
|                                                                                             | Increase (decrease) in deferred revenue          |                           |             | (1,217,000  | )    |   |            | 1,101,000   |   |   |           | (82,000    | )
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|Net cash provided by operating activities                                                    |                                                  |                           | 12,300,000  |             |      |   | 8,812,000  |             |   |   | 1,244,000 |           
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                        |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Proceeds from disposal of assets                 |                           |             | 191,000     |      |   |            | 40,000      |   |   |           | 27,000     |  
|                                                                                             | Capital expenditures                             |                           |             | (38,219,000 | )    |   |            | (13,889,000 | ) |   |           | (6,153,000 | )
|                                                                                             | Proceeds from sale of short-term investments     |                           |             | 16,334,000  |      |   |            | 2,973,000   |   |   |           | 5,964,000  |  
|                                                                                             | Proceeds from maturity of short-term investments |                           |             |            |      |   |            | 7,550,000   |   |   |           | 4,000,000  |  
|                                                                                             | Acquisition of short-term investments            |                           |             | (32,737,000 | )    |   |            | (6,245,000  | ) |   |           | (3,002,000 | )
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|Net cash provided by (used in) investing activities                                          |                                                  |                           | (54,431,000 | )           |      |   | (9,571,000 | )           |   |   | 836,000   |           
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Proceeds from exercise of stock options          |                           |             | 343,000     |      |   |            | 957,000     |   |   |           |           |  
|                                                                                             | Proceeds from line of credit                     |                           |             | 10,000,000  |      |   |            |            |   |   |           |           |  
|                                                                                             | Repayment on line of credit                      |                           |             | (10,000,000 | )    |   |            |            |   |   |           |           |  
|                                                                                             | Proceeds from stock offering                     |                           |             | 41,004,000  |      |   |            |            |   |   |           |           |  
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|Net cash provided by financing activities                                                    |                                                  |                           | 41,347,000  |             |      |   | 957,000    |             |   |   |          |           
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|Net increase (decrease) in cash and cash equivalents                                         |                                                  |                           | (784,000    | )           |      |   | 198,000    |             |   |   | 2,080,000 |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                               |                                                  |                           | 3,587,000   |             |      |   | 3,389,000  |             |   |   | 1,309,000 |           
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                   |                                                  | $                         | 2,803,000   |             |      | $ | 3,587,000  |             |   | $ | 3,389,000 |           
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                          |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Cash paid during the period for income taxes     |                           | $           | 1,882,000   |      |   | $          |            |   |   | $         |           |  
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  
|NON CASH INVESTING ACTIVITIES:                                                               |                                                  |                           |             |             |      |   |            |             |   |   |           |           
|                                                                                             | Unrealized gain (loss) on investments            |                           | $           | (194,000    | )    |   | $          | (42,000     | ) |   | $         | (145,000   | )
|                                                                                             |                                                  |                           |             |             |      |   |            |             |  



F-7



---



##### Table of Contents






DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



| |                                      
| | -------------------------------------
| | Organization and Nature of Operations





| |                 
| | ----------------
| | Cash Equivalents





| |                       
| | ----------------------
| | Short-Term Investments





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                              
| | -----------------------------
| | Concentrations of Credit Risk





| |                              
| | -----------------------------
| | Property, Plant and Equipment



F-8



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                    
| | -------------------
| | Revenue Recognition









| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |             
| | ------------
| | Income Taxes





| |                                                                
| | ---------------------------------------------------------------
| | Use of Estimates in the Preparation of Financial
    Statements



F-9



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                  
| | -----------------
| | Reclassifications





| |                         
| | ------------------------
| | Stock-Based Compensation







|                                                                                                                      |                                                 |               |            |           |      |   |           |           |  |   |          |            |  
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------- | ---------- | --------- | ---- | - | --------- | --------- |  | - | -------- | ---------- | -
|                                                                                                                      |                                                 | September 30, |           
|                                                                                                                      |                                                 |               |           
|                                                                                                                      |                                                 | 2005          |            |           | 2004 |   |           | 2003      | 
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|Net income (loss), as reported                                                                                        |                                                 | $             | 10,016,000 |           |      | $ | 8,618,000 |           |  | $ | (899,000 | )         
|Add: Stock-based employee compensation expense included in net
    income (loss), net of tax                          |                                                 |               | 74,000     |           |      |   | 110,000   |           |  |   | 75,000   |           
|Deduct: Stock-based employee compensation expense determined
    under fair value based method (SFAS 123), net of tax |                                                 |               | (495,000   | )         |      |   | (426,000  | )         |  |   | (434,000 | )         
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|                                                                                                                      | Net income (loss), pro forma                    |               | $          | 9,595,000 |      |   | $         | 8,302,000 |  |   | $        | (1,258,000 | )
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|Basic:                                                                                                                |                                                 |               |            |           |      |   |           |           |  |   |          |           
|                                                                                                                      | Net income (loss) per common share, as reported |               | $          | 1.50      |      |   | $         | 1.55      |  |   | $        | (0.16      | )
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|                                                                                                                      | Net income (loss) per common share, pro forma   |               | $          | 1.43      |      |   | $         | 1.49      |  |   | $        | (0.23      | )
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|Diluted:                                                                                                              |                                                 |               |            |           |      |   |           |           |  |   |          |           
|                                                                                                                      | Net income (loss) per common share, as reported |               | $          | 1.48      |      |   | $         | 1.53      |  |   | $        | (0.16      | )
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 
|                                                                                                                      | Net income (loss) per common share, pro forma   |               | $          | 1.41      |      |   | $         | 1.47      |  |   | $        | (0.23      | )
|                                                                                                                      |                                                 |               |            |           |      |   |           |           | 



|   |                       
|-- | ----------------------
|2. | Short-Term Investments



F-10



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                              
|-- | -----------------------------
|3. | Property, Plant and Equipment



|                                  |  |              |             |   |      |   |             |              |  |  |                | 
|--------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | ------------ |  |  | -------------- | 
|                                  |  | September 30 |             |   |     
|                                  |  |              |             |   |     
|                                  |  | 2005         |             |   | 2004 |   |             | Useful Lives | 
|                                  |  |              |             |   |      |   |             |              | 
|Land, building and other          |  | $            | 3,166,000   |   |      | $ | 3,213,000   |              |  |  | 3 to 40 years  | 
|Recording equipment               |  |              | 86,766,000  |   |      |   | 65,269,000  |              |  |  | 5 to 10 years  | 
|Vibrator energy sources           |  |              | 21,548,000  |   |      |   | 15,312,000  |              |  |  | 10 to 15 years | 
|Vehicles                          |  |              | 12,452,000  |   |      |   | 9,427,000   |              |  |  | 2 to 10 years  | 
|Equipment in process(a)           |  |              | 546,000     |   |      |   | 829,000     |              |  |  |               | 
|                                  |  |              |             |   |      |   |             |              | 
|                                  |  |              | 124,478,000 |   |      |   | 94,050,000  |              |  |  |                | 
|Less accumulated depreciation     |  |              | (64,532,000 | ) |      |   | (64,075,000 | )            |  |  |                | 
|                                  |  |              |             |   |      |   |             |              | 
|Net property, plant and equipment |  | $            | 59,946,000  |   |      | $ | 29,975,000  |              |  |  |                | 
|                                  |  |              |             |   |      |   |             |              | 






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(a) | Equipment in process has not been placed into service and
    accordingly is not yet subject to depreciation.



|   |              
|-- | -------------
|4. | Stock Options







|                                 |                      |               |      |       |                 |  |         |          |  
|-------------------------------- | -------------------- | ------------- | ---- | ----- | --------------- |  | ------- | -------- | -
|                                 |                      | Weighted      |      |       | Number of       | 
|                                 |                      | Average Price |      |       | Optioned Shares | 
|                                 |                      |               |      |       |                 | 
|Balance as of September 30, 2003 |                      | $             | 6.72 |       |                 |  | 407,000 |         
|                                 | Granted              |               | $    | 7.06  |                 |  |         | 40,000   |  
|                                 | Cancelled or expired |               | $    | 6.48  |                 |  |         | (82,500  | )
|                                 | Exercised            |               | $    | 6.96  |                 |  |         | (137,500 | )
|                                 |                      |               |      |       |                 | 
|Balance as of September 30, 2004 |                      | $             | 6.75 |       |                 |  | 227,000 |         
|                                 | Granted              |               | $    | 17.91 |                 |  |         | 45,000   |  
|                                 | Cancelled or expired |               | $    | 5.21  |                 |  |         | (750     | )
|                                 | Exercised            |               | $    | 7.34  |                 |  |         | (46,750  | )
|                                 |                      |               |      |       |                 | 
|Balance as of September 30, 2005 |                      | $             | 8.87 |       |                 |  | 224,500 |         
|                                 |                      |               |      |       |                 | 

F-11



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)












|   |                       
|-- | ----------------------
|5. | Employee Benefit Plans





|   |             
|-- | ------------
|6. | Income Taxes





|          |  |                          |           |  |      |   |            |      |  |   |        | 
|--------- |  | ------------------------ | --------- |  | ---- | - | ---------- | ---- |  | - | ------ | 
|          |  | Year Ended September 30, |          
|          |  |                          |          
|          |  | 2005                     |           |  | 2004 |   |            | 2003 | 
|          |  |                          |           |  |      |   |            |      | 
|Current:  |  |                          | 2,035,000 |  |      |   | 96,000     |      |  |   |       | 
|Deferred: |  |                          | 2,471,000 |  |      |   | (1,632,000 | )    |  |   | 52,000 | 
|          |  |                          |           |  |      |   |            |      | 
|Total     |  | $                        | 4,506,000 |  |      | $ | (1,536,000 | )    |  | $ | 52,000 | 
|          |  |                          |           |  |      |   |            |      | 



|                                              |                               |                          |           |          |      |   |            |            |   |   |          |         | 
|--------------------------------------------- | ----------------------------- | ------------------------ | --------- | -------- | ---- | - | ---------- | ---------- | - | - | -------- | ------- | 
|                                              |                               | Year Ended September 30, |          
|                                              |                               |                          |          
|                                              |                               | 2005                     |           |          | 2004 |   |            | 2003       |  
|                                              |                               |                          |           |          |      |   |            |            |  
|Expense (benefit) computed at statutory rates |                               | $                        | 4,900,000 |          |      | $ | 2,585,000  |            |   | $ | (287,000 | )      
|Effect of:                                    |                               |                          |           |          |      |   |            |            |   |   |          |        
|                                              | Change in valuation allowance |                          |           | -0-      |      |   |            | (4,232,000 | ) |   |          | 297,000 | 
|                                              | Other                         |                          |           | (394,000 | )    |   |            | 111,000    |   |   |          | 42,000  | 
|                                              |                               |                          |           |          |      |   |            |            |  
|Income tax expense (benefit)                  |                               | $                        | 4,506,000 |          |      | $ | (1,536,000 | )          |   |   | 52,000   |        
|                                              |                               |                          |           |          |      |   |            |            |  

F-12



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                                       |                                              |               |            |           |      |   |            |           | 
|------------------------------------------------------ | -------------------------------------------- | ------------- | ---------- | --------- | ---- | - | ---------- | --------- | 
|                                                       |                                              | September 30, |           
|                                                       |                                              |               |           
|                                                       |                                              | 2005          |            |           | 2004 |  
|                                                       |                                              |               |            |           |      |  
|Deferred tax assets:                                   |                                              |               |            |           |      |   |            |          
|                                                       | Net operating loss carryforwards             |               | $          | 1,111,000 |      |   | $          | 4,555,000 | 
|                                                       | Alternative minimum tax credit carryforwards |               |            | 2,605,000 |      |   |            | 509,000   | 
|                                                       | Receivables                                  |               |            | 118,000   |      |   |            | 71,000    | 
|                                                       | Other                                        |               |            | 273,000   |      |   |            | 209,000   | 
|                                                       |                                              |               |            |           |      |  
|                                                       | Total deferred tax assets                    |               |            | 4,107,000 |      |   |            | 5,344,000 | 
|                                                       | Less valuation allowance                     |               |            |          |      |   |            |          | 
|                                                       |                                              |               |            |           |      |  
|                                                       | Total gross deferred tax assets              |               |            | 4,107,000 |      |   |            | 5,344,000 | 
|Deferred tax liabilities:                              |                                              |               |            |           |      |   |            |          
|Other property and equipment                           |                                              |               | (4,930,000 | )         |      |   | (3,645,000 | )        
|Investments                                            |                                              |               | -0-        |           |      |   | (23,000    | )        
|Other                                                  |                                              |               | -0-        |           |      |   | (28,000    | )        
|                                                       |                                              |               |            |           |      |  
|Total gross deferred tax liabilities                   |                                              |               | (4,930,000 | )         |      |   | (3,696,000 | )        
|                                                       |                                              |               |            |           |      |  
|Net deferred tax asset (liability)                     |                                              | $             | (823,000   | )         |      | $ | 1,648,000  |          
|                                                       |                                              |               |            |           |      |  
|Current portion of net deferred tax asset/liability    |                                              | $             | 1,229,000  |           |      | $ | 4,694,000  |          
|Noncurrent portion of net deferred tax asset/liability |                                              |               | (2,052,000 | )         |      |   | (3,046,000 | )        
|                                                       |                                              |               |            |           |      |  
|Total net deferred tax asset (liability)               |                                              |               | (823,000   | )         |      |   | 1,648,000  |          
|                                                       |                                              |               |            |           |      |  





|   |                                   
|-- | ----------------------------------
|7. | Net Income (Loss) per Common Share



F-13



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                     |                                                                                                                                      |      |      |            |      |   |      |           |  |   |       |           |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ---- | ---- | ---------- | ---- | - | ---- | --------- |  | - | ----- | --------- | -
|                                                     |                                                                                                                                      | 2005 |      |            | 2004 |   |      | 2003      | 
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 
|Numerator:                                           |                                                                                                                                      |      |      |            |      |   |      |           |  |   |       |          
|                                                     | Net income (loss) and numerator for basic and diluted net income
    (loss) per common share-income available to common stockholders |      | $    | 10,016,000 |      |   | $    | 8,618,000 |  |   | $     | (899,000  | )
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 
|Denominator:                                         |                                                                                                                                      |      |      |            |      |   |      |           |  |   |       |          
|                                                     | Denominator for basic net income (loss) per common
    share-weighted average common shares                                          |      |      | 6,705,791  |      |   |      | 5,558,646 |  |   |       | 5,484,593 |  
|                                                     | Effect of dilutive securities-employee stock options                                                                                 |      |      | 89,504     |      |   |      | 72,751    |  |   |       |          |  
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 
|                                                     | Denominator for diluted net income (loss) per common
    share-adjusted weighted average common shares and assumed
    conversions   |      |      | 6,795,295  |      |   |      | 5,631,397 |  |   |       | 5,484,593 |  
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 
|Net income (loss) per common share                   |                                                                                                                                      | $    | 1.50 |            |      | $ | 1.55 |           |  | $ | (0.16 | )        
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 
|Net income (loss) per common share-assuming dilution |                                                                                                                                      | $    | 1.48 |            |      | $ | 1.53 |           |  | $ | (0.16 | )        
|                                                     |                                                                                                                                      |      |      |            |      |   |      |           | 





|   |                
|-- | ---------------
|8. | Major Customers



|  |  |      |    |   |      |  |    |      |  |  |    |  
|- |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|  |  | 2005 |    |   | 2004 |  |    | 2003 | 
|  |  |      |    |   |      |  |    |      | 
|A |  |      | 15 | % |      |  | 17 | %    |  |  |   |  
|B |  |      | 13 | % |      |  |   |      |  |  |   |  
|C |  |      | 10 | % |      |  |   |      |  |  |   |  
|D |  |      |   |   |      |  | 12 | %    |  |  |   |  
|E |  |      |   |   |      |  |   |      |  |  | 12 | %





|   |              
|-- | -------------
|9. | Contingencies





F-14



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                 
|--- | ----------------
|10. | Rights Agreement











|    |                                          
|--- | -----------------------------------------
|11. | Recently Issued Accounting Pronouncements



F-15



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##### Table of Contents



DAWSON GEOPHYSICAL COMPANY


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                                     
|--- | ------------------------------------
|12. | Quarterly Financial Data (Unaudited)

|             |                                               |               |   |            |          |  |   |            |  |  |              |            |  |  |   |            | 
|------------ | --------------------------------------------- | ------------- | - | ---------- | -------- |  | - | ---------- |  |  | ------------ | ---------- |  |  | - | ---------- | 
|             |                                               | Quarter Ended |  
|             |                                               |               |  
|             |                                               | December 31   |   |            | March 31 |  |   | June 30    |  |  | September 30 |           
|             |                                               |               |   |            |          |  |   |            |  |  |              |           
|Fiscal 2004: |                                               |               |   |            |          |  |   |            |  |  |              |            |  |  |   |           
|             | Operating revenues                            |               | $ | 15,475,000 |          |  | $ | 15,203,000 |  |  | $            | 17,112,000 |  |  | $ | 21,556,000 | 
|             | Income from operations                        |               | $ | 438,000    |          |  | $ | 1,843,000  |  |  | $            | 1,804,000  |  |  | $ | 2,315,000  | 
|             | Net income                                    |               | $ | 506,000    |          |  | $ | 1,999,000  |  |  | $            | 1,989,000  |  |  | $ | 4,124,000  | 
|             | Net income per common share                   |               | $ | 0.09       |          |  | $ | 0.36       |  |  | $            | 0.36       |  |  | $ | 0.73       | 
|             | Net income per common share assuming dilution |               | $ | 0.09       |          |  | $ | 0.36       |  |  | $            | 0.35       |  |  | $ | 0.72       | 
|Fiscal 2005: |                                               |               |   |            |          |  |   |            |  |  |              |            |  |  |   |           
|             | Operating revenues                            |               | $ | 21,559,000 |          |  | $ | 26,515,000 |  |  | $            | 31,500,000 |  |  | $ | 37,089,000 | 
|             | Income from operations                        |               | $ | 2,451,000  |          |  | $ | 2,486,000  |  |  | $            | 4,826,000  |  |  | $ | 3,766,000  | 
|             | Net income                                    |               | $ | 1,600,000  |          |  | $ | 2,327,000  |  |  | $            | 3,357,000  |  |  | $ | 2,732,000  | 
|             | Net income per common share                   |               | $ | .28        |          |  | $ | .37        |  |  | $            | .45        |  |  | $ | .37        | 
|             | Net income per common share assuming dilution |               | $ | .28        |          |  | $ | .37        |  |  | $            | .45        |  |  | $ | .36        | 

F-16



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##### Table of Contents



Schedule II





Dawson Geophysical Company


Valuation and Qualifying Accounts


|                                 |      |            |   |         |            |  |   |             |  |            |        |        |  |  |   |         | 
|-------------------------------- | ---- | ---------- | - | ------- | ---------- |  | - | ----------- |  | ---------- | ------ | ------ |  |  | - | ------- | 
|                                 |      | Balance at |   |         | Charged to |  |   |             |  | Balance at |       
|                                 |      | Beginning  |   |         | Costs and  |  |   |             |  | End of     |       
|                                 |      | of Period  |   |         | Expenses   |  |   | Deductions* |  |            | Period |       
|                                 |      |            |   |         |            |  |   |             |  |            |        |       
|Allowance for doubtful accounts: |      |            |   |         |            |  |   |             |  |            |        |        |  |  |   |        
|Fiscal Year:                     |      |            |   |         |            |  |   |             |  |            |        |        |  |  |   |        
|                                 | 2005 |            | $ | 199,000 |            |  | $ | 136,000     |  |            | $      | 4,000  |  |  | $ | 331,000 | 
|                                 | 2004 |            |   | 127,000 |            |  |   | 100,000     |  |            |        | 28,000 |  |  |   | 199,000 | 
|                                 | 2003 |            |   | 71,000  |            |  |   | 60,000      |  |            |        | 4,000  |  |  |   | 127,000 | 






|  |                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------
|* | Represents amounts related to accounts receivable that have been
    deemed uncollectable and written off by the Company.

F-17



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##### Table of Contents






INDEX TO EXHIBITS


|       |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                              
|------ | -- | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Exhibit
|       |    |        
|       | 3  | .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 | .2     |  | Dawson Geophysical Company 2000 Incentive Stock Plan (filed as
    Exhibit 10.1 to the Companys Registration Statement
    on Form S-8 filed August 3, 2001 (File
    No. 333-66666) and incorporated herein by reference).                                                                                                                                                                 
|      
|       | 10 | .3      |  | Form of Master Geophysical Data Acquisition Agreement (filed on
    December 11, 2003 as Exhibit 10 to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended September 30, 2003 (File No. 000-10144) and
    incorporated herein by reference).                                                                                                                      
|      
|       | 10 | .4      |  | 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.