UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-34404

DAWSON GEOPHYSICAL COMPANY

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

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Title of Each Class		Outstanding at August 6, 2010
Common Stock, $.33 1/3 par value		7,901,856 shares

 

 

DAWSON GEOPHYSICAL COMPANY

INDEX

		Page
		Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements			1
Statements of Operations for the Three Months and the Nine Months Ended June 30, 2010 and 2009 (unaudited)			1
Balance Sheets at June 30, 2010 (unaudited) and September 30, 2009			2
Statements of Cash Flows for the Nine Months Ended June 30, 2010 and 2009 (unaudited)			3
Notes to Financial Statements (unaudited)			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
Item 3. Quantitative and Qualitative Disclosures about Market Risk			15
Item 4. Controls and Procedures			16
Part II. OTHER INFORMATION			16
Item 1. Legal Proceedings			16
Item 1A. Risk Factors			16
Item 6. Exhibits			16
Signatures			17
Index to Exhibits			18
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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)

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DAWSON GEOPHYSICAL COMPANY

STATEMENTS OF OPERATIONS
(UNAUDITED)

		Three Months Ended June 30,								Nine Months Ended June 30,
		2010				2009				2010				2009
Operating revenues		$	61,178,000			$	52,319,000			$	146,093,000			$	197,160,000
Operating costs:
Operating expenses			54,098,000				46,374,000				133,245,000				151,126,000
General and administrative			1,635,000				1,761,000				5,281,000				6,324,000
Depreciation			7,016,000				6,521,000				20,188,000				19,651,000
			62,749,000				54,656,000				158,714,000				177,101,000
(Loss) income from operations			(1,571,000	)			(2,337,000	)			(12,621,000	)			20,059,000
Other income (expense):
Interest income			20,000				73,000				78,000				213,000
Other income (expense)			126,000				(12,000	)			223,000				298,000
(Loss) income before income taxes			(1,425,000	)			(2,276,000	)			(12,320,000	)			20,570,000
Income tax benefit (expense)			406,000				650,000				4,379,000				(8,292,000	)
Net (loss) income		$	(1,019,000	)		$	(1,626,000	)		$	(7,941,000	)		$	12,278,000
Net (loss) income per common share		$	(0.13	)		$	(0.21	)		$	(1.02	)		$	1.57
Net (loss) income per common share-assuming dilution		$	(0.13	)		$	(0.21	)		$	(1.02	)		$	1.57
Weighted average equivalent common shares outstanding			7,779,256				7,810,592				7,776,740				7,802,186
Weighted average equivalent common shares outstanding - -assuming dilution			7,779,256				7,810,592				7,776,740				7,839,324

See accompanying notes to the financial statements (unaudited).

DAWSON GEOPHYSICAL COMPANY

		June 30,				September 30,
		2010				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	27,207,000			$	36,792,000
Short-term investments			20,056,000				25,267,000
Accounts receivable, net of allowance for doubtful accounts of $639,000 in June 2010 and $533,000 in September 2009			52,877,000				40,106,000
Prepaid expenses and other assets			8,183,000				7,819,000
Current deferred tax asset			1,062,000				1,694,000
Total current assets			109,385,000				111,678,000
Property, plant and equipment			245,862,000				240,820,000
Less accumulated depreciation			(124,091,000	)			(115,341,000	)
Net property, plant and equipment			121,771,000				125,479,000
Total assets		$	231,156,000			$	237,157,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	12,958,000			$	6,966,000
Accrued liabilities:
Payroll costs and other taxes			1,951,000				2,720,000
Other			8,993,000				10,600,000
Deferred revenue			—				2,230,000
Total current liabilities			23,902,000				22,516,000
Deferred tax liability			16,006,000				16,262,000
Stockholders’ equity:
Preferred stock-par value $1.00 per share; 5,000,000 shares authorized, none outstanding			—				—
Common stock-par value $.33 1/3 per share; 50,000,000 shares authorized, 7,817,756 and 7,822,994 shares issued and outstanding in each period			2,606,000				2,608,000
Additional paid-in capital			90,000,000				89,220,000
Accumulated other comprehensive income, net of tax			50,000				18,000
Retained earnings			98,592,000				106,533,000
Total stockholders’ equity			191,248,000				198,379,000
Total liabilities and stockholders’ equity		$	231,156,000			$	237,157,000

See accompanying notes to the financial statements (unaudited).

DAWSON GEOPHYSICAL COMPANY

STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Nine Months Ended June 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(7,941,000	)		$	12,278,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation			20,188,000				19,651,000
Noncash compensation			1,153,000				1,315,000
Deferred income tax expense			360,000				1,129,000
Excess tax benefit from share-based payment arrangement			—				(4,000	)
Provision for bad debts			199,000				1,169,000
Other			(234,000	)			32,000
Change in current assets and liabilities:
(Increase) decrease in accounts receivable			(12,970,000	)			21,500,000
Increase in prepaid expenses and other assets			(364,000	)			(5,548,000	)
Increase (decrease) in accounts payable			5,687,000				(4,101,000	)
Decrease in accrued liabilities			(2,376,000	)			(6,286,000	)
(Decrease) increase in deferred revenue			(2,230,000	)			1,373,000
Net cash provided by operating activities			1,472,000				42,508,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of noncash capital additions summarized below in noncash investing activities			(16,585,000	)			(4,062,000	)
Proceeds from disposal of assets			499,000				101,000
Proceeds from maturity of short-term investments			15,000,000				—
Acquisition of short-term investments			(9,971,000	)			(20,192,000	)
Partial proceeds on fire insurance claim			—				2,843,000
Net cash used in investing activities			(11,057,000	)			(21,310,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options			—				407,000
Excess tax benefits from share-based payment arrangement			—				4,000
Net cash provided by financing activities			—				411,000
Net (decrease) increase in cash and cash equivalents			(9,585,000	)			21,609,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			36,792,000				8,311,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	27,207,000			$	29,920,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes		$	797,000			$	13,137,000
Cash received during the period for income taxes		$	6,000,000			$	—
NONCASH INVESTING ACTIVITIES:
Accrued purchases of property and equipment		$	305,000			$	—
Equipment purchase through reduction of insurance proceeds		$	—			$	638,000
Equipment purchase through asset trade in		$	2,170,000			$	—
Unrealized gain on investments		$	48,000			$	—

See accompanying notes to the financial statements (unaudited).

DAWSON GEOPHYSICAL COMPANY

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

     Founded in 1952, the Company acquires and processes 2-D, 3-D and multi-component seismic data for its clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries.

2. OPINION OF MANAGEMENT

     Although the information furnished is unaudited, in the opinion of management of the Company, the accompanying financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair statement of the results for the periods presented. The results of operations for the three months and the nine months ended June 30, 2010 are not necessarily indicative of the results to be expected for the fiscal year.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q report pursuant to certain rules and regulations of the Securities and Exchange Commission (the “SEC”). These financial statements should be read with the financial statements and notes included in the Company’s Form 10-K for the fiscal year ended September 30, 2009.

Critical Accounting Policies

     The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires that certain assumptions and estimates be made that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.

     Concentrations of Credit Risk. Financial instruments that potentially expose the Company to concentrations of credit risk at any given time may consist of cash and cash equivalents, money market funds and overnight investment accounts, short-term investments, trade and other receivables and other current assets. At June 30, 2010 and September 30, 2009, the Company had deposits with domestic banks in excess of federally insured limits. Management believes the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money investing in these funds. The Company invests funds overnight under a repurchase agreement with its bank which is collateralized by securities of the United States Federal agencies. The Company generally invests in short-term U.S. Treasury Securities; however, the Company currently also has funds invested in FDIC guaranteed bonds. The Company believes all of its investments are low risk investments. The Company’s sales are to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk.

     Revenue Recognition. Services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, the Company recognizes revenues when revenue is realizable and services have been performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate as services are performed. In the case of a cancelled service contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation.

     The Company receives reimbursements for certain out-of-pocket expenses under the terms of the service contracts. Amounts billed to clients are recorded in revenue at the gross amount including out-of-pocket expenses that are reimbursed by the client.

     In some instances, customers are billed in advance of the services performed. In those cases, the Company recognizes the liability as deferred revenue. As services are performed, those amounts are reversed and recognized as revenue.

     Allowance for Doubtful Accounts. Management prepares its allowance for doubtful accounts receivable based on its review of past-due accounts, its past experience of historical write-offs and its current client base. While the collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s clients.

     Impairment of Long-lived Assets. Long-lived assets are reviewed for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets. Management’s forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on the Company’s anticipated future results while considering anticipated future oil and natural gas prices which is fundamental in assessing demand for the Company’s services. If the carrying amount of the assets exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of possible impairment by comparing the carrying amount of the assets to their fair value.

     Depreciable Lives of Property, Plant and Equipment. Property, plant and equipment are capitalized at historical cost and depreciated over the useful lives of the assets. Management’s estimation of useful lives is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the assets. As circumstances change and new information becomes available, these estimates could change.

     Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.

     Tax Accounting. The Company accounts for income taxes by recognizing amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate and reducing the deferred tax asset by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management’s methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining the annual effective tax rate and the valuation of deferred tax assets, which can create variances between actual results and estimates and could have a material impact on the Company’s provision or benefit for income taxes.

     Stock-Based Compensation. The Company accounts for stock-based compensation awards, including stock options and restricted stock, using the fair value method and recognizes compensation cost, net of forfeitures, in its financial statements. The Company records compensation expense as operating or general and administrative expense as appropriate in the Statements of Operations on a straight-line basis over the vesting period of the related stock options or restricted stock awards.

     Reclassifications. Certain prior year amounts have been reclassified in the current year in order to be consistent with the current year presentation.

Recently Issued Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (FASB) issued ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. Further, the standard establishes a framework for measuring fair value in generally accepted accounting principles and expands certain disclosures about fair value measurements. ASC 820-10 became effective for all financial assets and financial liabilities as of October 1, 2008, and upon adoption, ASC 820-10 did not have a material impact on our financial statements. In February 2008, the FASB issued ASC 820-10-15-1A, “Fair Value Measurements and Disclosures — Transition and Open Effective Date Information,” which delayed the effective date of ASC 820-10 for all non-financial assets and non-financial liabilities such as asset impairments, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Effective at the beginning of fiscal 2010, the Company adopted the FASB authoritative guidance for non-financial assets and non-financial liabilities. The adoption for non-financial assets and non-financial liabilities did not have a material impact on the Company’s financial statements.

     In January 2010, the FASB issued Accounting Standards Update 2010-06 “Fair Value Measurements and Disclosures (Topic 820)” as new guidance and clarification for improving disclosures about fair value measurements. ASU 2010-06 requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. The new disclosures and clarifications of existing disclosures were effective for the Company as of January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s financial statements.

     In February 2010, the FASB issued Accounting Standards Update 2010-09 “Subsequent Events (Topic 855)” allowing SEC filers to remove the date through which subsequent events have been reviewed. ASU 2010-09 became effective upon issuance, and the adoption of this guidance did not have a material impact on the Company’s financial statements.

3. SHORT-TERM INVESTMENTS

     The components of the Company’s short-term investments for June 30, 2010 and September 30, 2009 are as follows:

		As of June 30, 2010 (in 000’s)
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gains				Losses				Value
Short-term investments:
U.S. Treasury bills		$	9,988			$	3			$	—			$	9,991
U.S. Treasury notes			4,967				55				—				5,022
FDIC guaranteed bonds			5,021				22				—				5,043
Total		$	19,976			$	80	(a)		$	—			$	20,056

		As of September 30, 2009 (in 000’s)
		Amortized				Unrealized				Unrealized				Estimated Fair
		Cost				Gains				Losses				Value
Short-term investments:
U.S. Treasury bills		$	9,987			$	7			$	—			$	9,994
U.S. Treasury notes			10,153				20				—				10,173
FDIC guaranteed bonds			5,096				4				—				5,100
Total		$	25,236			$	31	(a)		$	—			$	25,267

     The Company’s existing short-term investments have contractual maturities ranging from September 2010 to January 2011. These investments have been classified as available-for-sale.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

     At June 30, 2010 and September 30, 2009, the Company’s financial instruments included cash and cash equivalents, short-term investments, trade and other receivables, other current assets, accounts payable and other current liabilities. Due to the short-term maturities of cash and cash equivalents, trade and other receivables, other current assets, accounts payable and other current liabilities, the carrying amounts approximate fair value at the respective balance sheet dates.

     The Company measures certain financial assets and liabilities at fair value on a recurring basis, including short-term investments.

     The fair value measurements of these short-term investments were determined using the following inputs:

		As of June 30, 2010 (in 000’s)
		Fair Value Measurements at Reporting Date Using:
						Quoted Prices in				Significant Other				Significant
						Active Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Short-term investments:
U.S. Treasury bills		$	9,991			$	9,991			$	—			$	—
U.S. Treasury notes			5,022				5,022				—				—
FDIC guaranteed bonds			5,043				5,043				—				—
Total		$	20,056			$	20,056			$	—			$	—

		As of September 30, 2009 (in 000’s)
		Fair Value Measurements at Reporting Date Using:
						Quoted Prices in				Significant Other				Significant
						Active Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Short-term investments:
U.S. Treasury bills		$	9,994			$	9,994			$	—			$	—
U.S. Treasury notes			10,173				10,173				—				—
FDIC guaranteed bonds			5,100				5,100				—				—
Total		$	25,267			$	25,267			$	—			$	—

     Investments in U.S. Treasury bills and notes and FDIC guaranteed bonds classified as available-for-sale are measured using unadjusted quoted market prices (Level 1) at the reporting date.

5. DEBT

     The Company’s revolving line of credit loan agreement is with Western National Bank. The agreement permits the Company to borrow, repay and reborrow, from time to time until June 2, 2011, up to $20.0 million based on the borrowing base calculation as defined in the agreement. The Company’s obligations under this agreement are secured by a security interest in its accounts receivable, equipment and related collateral. Interest on the facility accrues at an annual rate equal to either the 30-day London Interbank Offered Rate (“LIBOR”), plus two and one-quarter percent or the Prime Rate, minus three-quarters percent as the Company directs monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the loan agreement, including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. The Company was in compliance with all covenants as of June 30, 2010. The Company has not utilized the line of credit loan agreement since it paid off the entire outstanding balance as of September 30, 2008.

6. STOCK-BASED COMPENSATION

     The Company’s stock-based compensation activity for the nine months ended June 30, 2010 and 2009 is summarized below.

Incentive Stock Options:

     The Company estimates the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The expected volatility is based on historical volatility. The expected term represents the average period that the Company expects stock options to be outstanding and is determined based on the Company’s historical experience. The risk free interest rate used by the Company as the discounting interest rate is based on the U.S. Treasury rates on the grant date for securities with maturity dates of approximately the expected term. As the Company has not historically declared dividends and does not expect to declare dividends over the near term, the dividend yield used in the calculation is zero. Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model. Options granted by the Company vest in equal installments annually over four years from the date of grant and expire ten years from the date of the grant. Compensation cost is recognized on a straight-line basis as the options vest.

     No options were granted during the nine months ended June 30, 2010. The Company granted 152,000 stock option awards to officers and employees during the nine months ended June 30, 2009. There were no options exercised during the nine months ended June 30, 2010. The intrinsic value of options exercised during the nine months ended June 30, 2009 was $199,000 representing the exercise of 22,750 shares.

     Stock options issued under the Company’s stock-based compensation plans are incentive stock options. No tax deduction is recorded when options are awarded. If an exercise and sale of vested options results in a disqualifying disposition, a tax deduction for the Company occurs. For the nine months ended June 30, 2010 there was no excess tax benefits from disqualifying dispositions of options. For the nine months ended June 30, 2009, there was $4,000 in excess tax benefits from disqualifying dispositions of options.

     The Company recognized compensation expense associated with stock option awards of $273,000 and $222,000 during the nine months ended June 30, 2010 and 2009, respectively. This amount is included in operating expenses and general and administrative costs in the Statements of Operations.

Stock Awards:

     There were no restricted stock awards granted to employees during the nine months ended June 30, 2010 or 2009.

     The Company’s tax benefit with regards to restricted stock awards is consistent with the tax election of the recipient of the award. No elections under IRC Section 83(b) have been made for the restricted stock awards granted by the Company. As a result, the compensation expense recorded for restricted stock resulted in a deferred tax asset for the Company equal to the tax effect of the amount of compensation expense recorded.

     The Company recognized compensation expense associated with restricted stock of $700,000 and $1,002,000 during the nine months June 30, 2010 and 2009, respectively. This amount is included in operating expenses and general and administrative costs in the Statements of Operations.

     The Company granted 8,140 shares with immediate vesting to outside directors during fiscal 2010 and 5,000 shares with immediate vesting to outside directors during fiscal 2009. The grant date fair value equaled $22.11 and $18.19 in each period, respectively. The Company recognized compensation expense of $180,000 and $91,000 during the quarters ended June 30, 2010 and 2009, respectively. These amounts are included in general and administrative costs in the Statements of Operations.

     On July 26, 2010 the Company granted 84,100 shares of restricted stock to employees under the 2006 Stock and Performance Incentive Plan. The fair value of the restricted stock granted was $23.33 per share. The restricted stock awards vest after three years.

7. COMMITMENTS AND CONTINGENCIES

     From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. Although the Company cannot predict the outcomes of any such legal proceedings, management believes that the resolution of pending legal actions will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity as the Company believes it is adequately indemnified and insured.

     The Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has in the past, and may in the future, experience disputes that could affect its revenues and results of operations in any period.

     On March 14, 2008, a wildfire in West Texas burned a remote area in which one of the Company’s data acquisition crews was operating. The fire destroyed approximately $2,900,000 net book value of the Company’s equipment, all of which was covered by the Company’s liability insurance, net of the deductible. In addition to the loss of equipment, a number of landowners in the fire area suffered damage to their grazing lands, livestock, fences and other improvements. The total cost to repair landowner damages was approximately $1,800,000. In November 2008 and February 2009, the Company received insurance proceeds for equipment losses sustained by the Company during the fire and for the Company’s debris pick-up costs. In December 2009, the Company received insurance proceeds for all costs incurred to repair landowner damages.

     During the quarter ended March 31, 2009, one of the Company’s clients filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The Company increased its allowance for doubtful accounts during the second quarter of fiscal 2009 to cover estimated exposures related to this bankruptcy. As of June 30, 2010 this client had an accounts receivable balance with the Company of approximately $1.0 million, and the estimated exposure remains unchanged.

     The Company has non-cancelable operating leases for office space in Midland, Houston, Denver, Oklahoma City and Lyon Township, Michigan.

     As of June 30, 2010, the Company had unused letters of credit totaling $4,080,000. The Company’s letters of credit principally back obligations associated with the Company’s self-insured retention on workers’ compensation claims.

8. SUBSEQUENT EVENTS

     The Company has evaluated events subsequent to the balance sheet date (June 30, 2010) through the issue date of this Form 10-Q and concluded that no subsequent events have occurred that require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.

9. NET INCOME (LOSS) PER COMMON SHARE

     Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares and common share equivalents outstanding during the period.

     The following table sets forth the computation of basic and diluted net income (loss) per common share.

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
NUMERATOR:
Net (loss) income and numerator for basic and diluted net (loss) income per common share-income available to common shareholders		$	(1,019,000	)		$	(1,626,000	)		$	(7,941,000	)		$	12,278,000
DENOMINATOR:
Denominator for basic net (loss) income per common share-weighted average common shares			7,779,256				7,810,592				7,776,740				7,802,186
Effect of dilutive securities-employee stock options and restricted stock grants			—				—				—				37,138
Denominator for diluted net (loss) income per common share-adjusted weighted average common shares and assumed conversions			7,779,256				7,810,592				7,776,740				7,839,324
Net (loss) income per common share		$	(0.13	)		$	(0.21	)		$	(1.02	)		$	1.57
Net (loss) income per common share-assuming dilution		$	(0.13	)		$	(0.21	)		$	(1.02	)		$	1.57

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the Company’s financial statements and notes thereto included elsewhere in this Form 10-Q.

Forward Looking Statements

     Statements other than statements of historical fact included in this Form 10-Q that relate to forecasts, estimates or other expectations regarding future events, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding technological advancements and our financial position, business strategy and plans and objectives of our management for future operations, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to the volatility of oil and natural gas prices, disruptions in the global economy, dependence upon energy industry spending, delays, reductions or cancellations of service contracts, high fixed costs of operations, weather interruptions, inability to obtain land access rights of way, industry competition, limited number of customers, credit risk related to our customers, asset impairments, the availability of capital resources and operational disruptions. A discussion of these factors, including risks and uncertainties, is set forth under “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2009 and in our other reports filed from time to time with the Securities and Exchange Commission. These forward-looking statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategies and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We assume no obligation to update any such forward-looking statements.

Overview

     We are the leading provider of onshore seismic data acquisition services in the lower 48 states of the United States as measured by the number of active data acquisition crews. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients, mainly domestic oil and natural gas companies. Demand for our services depends upon the level of spending by these companies for exploration, production, development and field management activities, which depends, in part, on oil and natural gas prices. Significant fluctuations in domestic oil and natural gas exploration activities and commodity prices have affected the demand for our services and our results of operations in years past, and such fluctuations continue today to be the single most important factor affecting our business and results of operations.

     Our strong results from 2004 through 2008 were directly related to increases in exploration activities for domestic oil and natural gas reserves by the petroleum industry during this period. The increased level of exploration was a function of higher prices for oil and natural gas. As a result of the increase in domestic exploration spending, we experienced an increased demand for our seismic data acquisition and processing services during this period, particularly from entities seeking natural gas reserves. Beginning in August 2008, the prices of oil and especially natural gas declined significantly from historic highs due to reduced demand from the global economic slowdown, and during 2009 many domestic oil and natural gas companies reduced their capital expenditures due to the decrease in market prices and disruptions in the credit markets. These factors led to a severe reduction in demand for our services and in our industry in general during 2009 as well as downward pressure on the prices we charge our customers for our services. In order to better align our crew capacity with reduced demand and to reduce short term-utilization issues, we reduced the number of data acquisition crews we operated from sixteen at the end of fiscal 2008 to nine in October 2009. During the end of calendar 2009, we began to experience an increase in demand for our services across a number of oil and natural gas basins. While the Company remains in a competitive pricing environment and the pace of future economic activity remains uncertain, the recent increase in demand has somewhat mitigated our short-term utilization issues and allowed us to redeploy two previously out of service data acquisition crews during January 2010 and an additional one in June 2010, bringing the number of currently operating crews to twelve.

     Due to the reductions in the number of our active data acquisition crews and lower utilization rates for our remaining operating crews, we experienced a reduction in operating revenues and operating costs during calendar 2009. We anticipate that, despite the recent increase in demand from the low levels of 2009, such reductions may continue through calendar 2010, and possibly beyond, depending on future market prices for oil and natural gas and the level of domestic exploration spending. In light of continuing market

challenges, we are maintaining our focus and efforts on reducing costs and maintaining our financial strength. Equipment and key personnel from crews taken out of service continue to be redeployed on remaining crews as needed or otherwise remain available for rapid expansion of crew count as demand and market conditions dictate in the future. Although our clients may cancel their service contracts on short notice, our current order book reflects commitment levels sufficient to maintain operation of twelve data acquisition crews into calendar 2011.

     While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients, the productivity of our data acquisition crews, including factors such as crew downtime related to inclement weather, delays in acquiring land access permits or equipment failure, and whether we enter into turnkey or day rate contracts with our clients. Consequently, our efforts to negotiate favorable contract terms in our supplemental service agreements, to mitigate access permit delays and to improve overall crew productivity may partially offset the impact of reduced demand and anticipated contract price weaknesses. During the third quarter, a majority of our client contracts were turnkey contracts. While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risks related to weather and other crew downtime.

     During the years prior to the 2009 economic slowdown, we made significant investments in seismic data acquisition equipment, with much of that equipment incorporating new and improved technologies. As we continue to integrate the new equipment into our operations we will continue to closely monitor our entire equipment base for the purpose of evaluating the remaining useful lives of our older equipment and to assess possible impairment. There are numerous uncertainties factored into the estimates of the life cycle of a seismic recording system including the future cash flows estimated to be generated by a particular system. Estimated cash flows can be affected by changes in oil and natural gas prices, reduced demand for our services, a competitive pricing environment as we have experienced since the beginning of 2009, technological advances in seismic data acquisition equipment and reductions in future utilization resulting from the expected size and geographical location of future prospects.

     While the markets for oil and natural gas have been very volatile and are likely to continue to be volatile in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients’ continuing desire for higher resolution subsurface images. If economic conditions do not improve or were to worsen, our customers do not increase their capital expenditures or there is a significant sustained drop in oil and natural gas prices, it could result in continued diminished demand for our seismic services, may cause continued downward pressure on the prices we charge and could continue to affect our results of operations. Because a majority of our current clients are focused on the exploration for and production of natural gas, a continued pressure on the price of natural gas in particular could have a negative effect on the demand for our services. In recent quarters, this risk has been mitigated somewhat as we have experienced increased demand for our services in several oil producing basins based on oil prices that began to rebound in the second and third quarters of fiscal 2009.

Results of Operations

     Operating Revenues. Our operating revenues for the first nine months of fiscal 2010 decreased 26% to $146,093,000 from $197,160,000 for the first nine months of fiscal 2009. For the three months ended June 30, 2010, operating revenues totaled $61,178,000 as compared to $52,319,000 for the same period of fiscal 2009, a 17% increase. The revenue decrease in the first nine months of fiscal 2010 compared to the same period of fiscal 2009 was primarily the result of reductions in active crew count from 16 crews in the beginning of fiscal 2009 to nine in the first fiscal quarter of 2010, a more competitive pricing environment, substantially lower utilization rates of remaining crews and increased downtime for weather during the winter months of 2010. The revenue increase in the third quarter of fiscal 2010 compared to the same quarter of fiscal 2009 was primarily the result of increased demand for our services which led to the redeployment of two seismic data acquisition crews during the second quarter of this fiscal year and higher utilization of existing crews despite wet conditions during May and June. As a result of the improving demand for our services during the third quarter of fiscal 2010, we redeployed an additional data acquisition crew in June 2010 bringing the number of currently active crews to twelve. Revenues in the quarter continued to include relatively high third-party charges related to the use of helicopter support services, specialized survey technologies and dynamite energy sources. The high level of these charges during the third quarter was driven by increased demand levels for our services in areas with limited access. We are reimbursed for these charges by our clients.

     Operating Costs. Operating expenses for the nine months ended June 30, 2010 totaled $133,245,000 as compared to $151,126,000 for the same period of fiscal 2009, a decrease of 12%. Operating expenses for the three months ended June 30, 2010 increased 17% to $54,098,000 as compared to $46,374,000 for the same period of fiscal 2009. The decrease for the nine months ended June 30, 2010 compared to the nine months ended June 30, 2009 was primarily due to reductions in field personnel and other expenses associated with operating data acquisition crews taken out of service during 2009 and 2010. The increase for the three months ended June 30, 2010 compared to the three months ended June 30, 2009, reflects the operations of the two data acquisition crews that were placed into service during the second quarter of fiscal 2010. As discussed above, reimbursed expenses have a similar impact on operating costs.

     General and administrative expenses were 3.6% of revenues in the first nine months of fiscal 2010, as compared to 3.2% of revenues in the same period of 2009. For the quarter ended June 30, 2010 general and administrative expenses were 2.7% as compared to 3.4% for the quarter ended June 30, 2009. The ratio of general and administrative expenses to revenue increased in the first nine months of fiscal 2010 compared to the same period of fiscal 2009 due to the decrease in revenues between the two periods which outpaced the decline in general and administrative expenses over the same period. The ratio decreased for the quarters ended June 30, 2009 to June 30, 2010 as a result of increased revenues during the comparable quarters and our lower level of bad debt costs during the current year.

     Depreciation for the nine months ended June 30, 2010 totaled $20,188,000 compared to $19,651,000 for the nine months ended June 30, 2009. We recognized $7,016,000 of depreciation expense in the third quarter of fiscal 2010 as compared to $6,521,000 in the comparable quarter of fiscal 2009. The increases in depreciation expense in both the nine month and three month periods were the result of the relatively modest capital expenditures we made during fiscal 2009 and the somewhat larger expenditures we made during the second quarter of fiscal 2010 as discussed below in “Liquidity and Capital Resources — Capital Expenditures.” We expect our depreciation expense to increase only slightly during fiscal 2010 reflecting these capital expenditures in fiscal 2009 and fiscal 2010.

     Our total operating costs for the first nine months of fiscal 2010 were $158,714,000, a decrease of 10% from the first nine months of fiscal 2009. For the quarter ended June 30, 2010, our operating expenses were $62,749,000 representing a 15% increase from the comparable quarter of fiscal 2009. These decreases in the first nine months and the increase in the third quarter were primarily due to the factors described above.

     Taxes. We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period in which they occur. We recognize interest and penalties related to uncertain tax positions as part of income tax expense.

     Income tax benefit was $4,379,000 for the nine months ended June 30, 2010 compared to income tax expense of $8,292,000 for the nine months ended June 30, 2009. The effective tax rates for the income tax provision for the nine months ended June 30, 2010 and 2009 were approximately 35.5% and 40.3%, respectively. Our effective tax rates differ from the statutory federal rate of 35.0% for certain items, such as state and local taxes, non-deductible expenses, expenses related to share-based compensation that were not expected to result in a tax deduction and changes in reserves for uncertain tax positions.

Liquidity and Capital Resources

     Introduction. Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and short-term borrowings from commercial banks have been sufficient to fund our working capital requirements, and to some extent, our capital expenditures.

     Cash Flows. Net cash provided by operating activities was $1,472,000 for the first nine months of fiscal 2010 and $42,508,000 for the first nine months of fiscal 2009. These amounts primarily reflect our decline in revenues during 2009 and the effects of depreciation resulting from our significant capital expenditures over the last few years, while the working capital components in fiscal 2009 include a decrease in accounts receivable and in fiscal 2010 include an increase in accounts receivable. Although our cash flows from accounts receivable fluctuated during this period, this did not reflect any change in our collection experience during the period as the average number of days in accounts receivable has remained at approximately fifty-five over the last twelve months. Amounts in our trade accounts receivable that are over sixty days as of June 30, 2010 represent approximately 19.73% of our total trade accounts receivables, which is relatively high compared to historical levels. The remaining outstanding trade account balances after taking into consideration payments received subsequent to June 30, 2010 and additional payments anticipated by management, is more representative of historical levels. We believe our allowance for doubtful accounts of $639,000 at June 30, 2010 is adequate to cover exposures related to

the remaining trade account balances. As discussed above, the decrease in revenues during the first nine months of fiscal 2010 was not matched by a decrease in operating expenses, and as a result, our margins and net results from operating activities were negatively affected.

     Net cash used in investing activities was $11,057,000 in the nine months ended June 30, 2010 and $21,310,000 in the nine months ended June 30, 2009. In fiscal 2010, we reinvested proceeds of matured treasury investments. At June 30, 2010 a treasury note for $5,000,000 had matured and was reflected as cash on cash equivalents on our balance sheet. These funds were subsequently reinvested in a treasury bill on July 2, 2010. Capital expenditures in fiscal 2010 are discussed below. Due to market conditions, our capital expenditures in fiscal 2009 were limited to necessary maintenance capital requirements rather than investing in additional equipment as in the past few years. In fiscal 2009, cash generated from operations in excess of capital expenditures was used in the acquisition of short-term investments during the quarter ended June 30, 2009. Our short-term investments consisted of four U.S. Treasury instruments of approximately $5,000,000 each, with maturity dates ranging from December 2009 to September 2010. In fiscal 2009, we collected proceeds from an insurance claim on our equipment burned in a March 2008 wildfire.

     We had no cash flows from financing activities in the first nine months of fiscal 2010. For the nine months ended June 30, 2009, net cash provided by financing activities reflects proceeds from the exercise of stock options and the excess tax benefits from disqualifying dispositions.

     Capital Expenditures. The Company’s Board of Directors approved a $20,000,000 capital budget for fiscal 2010. Total capital expenditures for the fiscal year to date are $16,890,000, including the purchase of the 2,000 stations of OYO GSR four channel three-component recording equipment reported in the first fiscal quarter and the purchase of additional ARAM and I/O RSR channels at the end of the second fiscal quarter. The purchase of additional channels reflects our clients’ continuing desire for increased channel count to provide higher resolution images and improved operational efficiencies. The balance of the fiscal 2010 capital budget will be used for maintenance capital requirements and the purchase of additional geophones.

     We continually strive to supply our clients with technologically advanced 3-D seismic data acquisition recording systems and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.

     Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and short-term borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. We have also funded our capital expenditures and other financing needs from time to time through public equity offerings.

     Our revolving line of credit loan agreement is with Western National Bank. The agreement permits us to borrow, repay and reborrow, from time to time until June 2, 2011, up to $20.0 million based on the borrowing base calculation as defined in the agreement. Our obligations under this agreement are secured by a security interest in our accounts receivable, equipment and related collateral. Interest on the facility accrues at an annual rate equal to either the 30-day London Interbank Offered Rate (“LIBOR”), plus two and one-quarter percent or the Prime Rate, minus three-quarters percent as we direct monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and reorganizations. We are also obligated to meet certain financial covenants under the loan agreement, including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. We were in compliance with all covenants as of June 30, 2010 and August 6, 2010. We have not utilized the line of credit loan agreement since we paid off the entire outstanding balance as of September 30, 2008.

     On March 31, 2009, we filed a shelf registration statement with the SEC covering the periodic offer and sale of up to $100.0 million in debt securities, preferred and common stock and warrants. The registration statement allows us to sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale. The terms of any securities offered would be described in a related prospectus to be filed separately with the SEC at the time of the offering. The filing of the shelf registration statement will enable us to act quickly as opportunities arise.

     The following table summarizes payments due in specific periods related to our contractual obligations with initial terms exceeding one year as of June 30, 2010.

		Payments Due by Period (in 000’s)
						Within												After
		Total				1 Year				1-3 Years				3-5 Years				5 Years
Operating lease obligations		$	1,562			$	586			$	597			$	324			$	55

     We believe that our capital resources and cash flow from operations are adequate to meet our current operational needs. We believe we will be able to finance our capital requirements through cash flow from operations, cash on hand and through borrowings under our revolving line of credit. However, our ability to satisfy our working capital requirements and to fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business including the demand for our seismic services from clients.

Off-Balance Sheet Arrangements

     As of June 30, 2010, we had no off-balance sheet arrangements.

Critical Accounting Policies

     The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.

     Concentrations of Credit Risk. Financial instruments that potentially expose us to concentrations of credit risk at any given time may consist of cash and cash equivalents, money market funds and overnight investment accounts, short-term investments, trade and other receivables and other current assets. At June 30, 2010 and September 30, 2009, we had deposits with domestic banks in excess of federally insured limits. We believe the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money investing in these funds. We invest funds overnight under a repurchase agreement with our bank which is collateralized by securities of the United States Federal agencies. We generally invest in short-term U.S. Treasury Securities; however, currently we also have funds invested in FDIC guaranteed bonds. We believe all of our investments are low risk investments. Our sales are to clients whose activities relate to oil and natural gas exploration and production. We generally extend unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry. We closely monitor extensions of credit and may negotiate payment terms that mitigate risk.

     Revenue Recognition. Our services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, we recognize revenues when revenue is realizable and services are performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate, as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate, as services are performed. In the case of a cancelled service contract, we recognize revenue and bill our client for services performed up to the date of cancellation.

     We also receive reimbursements for certain out-of-pocket expenses under the terms of our service contracts. We record amounts billed to clients in revenue at the gross amount, including out-of-pocket expenses that are reimbursed by the client.

     In some instances, we bill clients in advance of the services performed. In those cases, we recognize the liability as deferred revenue. As services are performed, those amounts are reversed and recognized as revenue.

     Allowance for Doubtful Accounts. We prepare our allowance for doubtful accounts receivable based on our review of past-due accounts, our past experience of historical write-offs and our current customer base. While the collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of our customers.

     Impairment of Long-Lived Assets. We review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on our anticipated future results while considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services. If the carrying amount of the assets exceeds the estimated expected undiscounted future cash flows, we measure the amount of possible impairment by comparing the carrying amount of the assets to their fair value.

     Depreciable Lives of Property, Plant and Equipment. Our property, plant and equipment are capitalized at historical cost and depreciated over the useful lives of the assets. Our estimation of useful lives is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the assets. As circumstances change and new information becomes available, these estimates could change. Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.

     Tax Accounting. We account for our income taxes by recognizing amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate and reducing the deferred tax asset by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes.

     Stock-Based Compensation. We measure all employee stock-based compensation awards, including stock options and restricted stock, using the fair value method and recognize compensation cost, net of forfeitures, in our financial statements. We record compensation expense as operating or general and administrative expense as appropriate in the Statements of Operations on a straight-line basis over the vesting period of the related stock options or restricted stock awards.

Recently Issued Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (FASB) issued ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. Further, the standard establishes a framework for measuring fair value in generally accepted accounting principles and expands certain disclosures about fair value measurements. ASC 820-10 became effective for all financial assets and financial liabilities as of October 1, 2008, and upon adoption, ASC 820-10 did not have a material impact on our financial statements. In February 2008, the FASB issued ASC 820-10-15-1A, “Fair Value Measurements and Disclosures — Transition and Open Effective Date Information,” which delayed the effective date of ASC 820-10 for all non-financial assets and non-financial liabilities such as asset impairments, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Effective at the beginning of fiscal 2010, we adopted the FASB authoritative guidance for non-financial assets and non-financial liabilities. The adoption for non-financial assets and non-financial liabilities did not have a material impact on our financial statements.

     In January 2010, the FASB issued Accounting Standards Update 2010-06 “Fair Value Measurements and Disclosures (Topic 820)” as new guidance and clarification for improving disclosures about fair value measurements. ASU 2010-06 requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. The new disclosures and clarifications of existing disclosures were effective for us as of January 1, 2010. The adoption of this guidance did not have a material impact on our financial statements.

     In February 2010, the FASB issued Accounting Standards Update 2010-09 “Subsequent Events (Topic 855)” allowing SEC filers to remove the date through which subsequent events have been reviewed. ASU 2010-09 became effective upon issuance, and the adoption of this guidance did not have a material impact on our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our primary sources of market risk include fluctuations in commodity prices which affect demand for and pricing of our services as well as interest rate fluctuations. Our revolving line of credit carries a variable interest rate that is tied to market indices and, therefore, our results of operations and our cash flows could be impacted by changes in interest rates. Outstanding balances under our revolving line of credit bear interest at our monthly direction of the lower of the Prime rate minus three-quarters percent or the 30-day LIBOR plus two and one-quarter percent, subject to an interest rate floor of 4%. At June 30, 2010, we had no balances outstanding on our revolving line of credit. The contractual maturities of our short-term investments range from September 2010 to January 2011. Our short-term investments are classified for accounting purposes as available-for-sale. If these short-term investments are not held to maturity, the proceeds obtained when the instruments are sold will be impacted by the current interest rates at the time they are sold.

We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We do not currently conduct business internationally, so we are not generally subject to foreign currency exchange rate risk.

ITEM 4. CONTROLS AND PROCEDURES

     Management’s Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Secretary and Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures were effective, in all material respects, with regard to the recording, processing, summarizing and reporting, within the time periods specified in the SEC’s rules and forms, for information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Executive Vice President, Secretary and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     Changes in Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ending June 30, 2010 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time, we are a party to various legal proceedings arising in the ordinary course of business. Although we cannot predict the outcomes of any such legal proceedings, our management believes that the resolution of pending legal actions will not have a material adverse effect on our financial condition, results of operations or liquidity.

ITEM 1A. RISK FACTORS

     In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009, which could materially affect our financial condition or results of operations. There have been no material changes in our risk factors from those disclosed in our 2009 Annual Report on Form 10-K.

ITEM 6. EXHIBITS

     The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Form 10-Q and is hereby incorporated by reference.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report be signed on its behalf by the undersigned thereunto duly authorized.

INDEX TO EXHIBITS

Number		Exhibit
3.1		Second Restated Articles of Incorporation of the Company, as amended (filed on February 9, 2007 as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 (File No. 000-10144) and incorporated herein by reference and filed on November 28, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference).
3.1	A	Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock of the Company (filed on July 9, 2009 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference).
3.2		Second Amended and Restated Bylaws of the Company (filed on July 28, 2010 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-34404) and incorporated herein by reference)
4.1		Rights Agreement effective as of July 23, 2009 between the Company and Mellon Investor Services LLC , as Rights Agent, which includes as Exhibit A the form of Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock setting forth the terms of the Preferred Stock, as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed on July 9, 2009 as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). Pursuant to the Rights Agreement, Rights Certificates will not be mailed until after the Distribution Date (as defined in the Rights Agreement).
10.3	†*	Form of Restricted Stock Agreement for the Dawson Geophysical Company 2006 Stock and Performance Incentive Plan.
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.
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.

Exhibit 10.3

DAWSON GEOPHYSICAL COMPANY
2006 STOCK AND PERFORMANCE INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

          This Restricted Stock Agreement (“Agreement”) between DAWSON GEOPHYSICAL COMPANY (the “Company”) and                                          (the “Participant”), an employee of the Company or one of its Subsidiaries, regarding an award (“Award”) of                                          shares of Common Stock (as defined in the Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “Plan”), such Common Stock comprising this Award referred to herein as “Restricted Stock”) awarded to the Participant on July 26, 2010 (the “Award Date”), such number of shares subject to adjustment as provided in the Plan, and further subject to the terms and conditions set forth herein.

     1. Relationship to Plan.

          This Award is subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Company’s Compensation Committee (the “Committee”) and are in effect on the date hereof. Except as defined herein, capitalized terms shall have the same meanings ascribed to them under the Plan. For purposes of this Agreement:

          (a) “Cause” means:

     (i) unacceptable or inadequate performance as determined by the Company, including but not limited to failure to perform the Participant’s job at a level or in a manner acceptable to the Company;

     (ii) misconduct, dishonesty, acts detrimental or destructive to the Company or any Subsidiary or to any employees or property of the Company or any Subsidiary; or

     (iii) violation of any policies of the Company.

          (b) “Change of Control” means

     (i) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power of the Company’s then outstanding securities;

     (ii) the individuals who were members of the Board of Directors of the Company (the “Board”) immediately prior to a meeting of the shareholders

of the Company involving a contest for the election of directors shall not constitute a majority of the Board following such election unless a majority of the new members of the Board were recommended or approved by majority vote of the members of the Board immediately prior to such shareholder meeting;

     (iii) the Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than fifty percent (50%) of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation; or

     (iv) the Company shall have sold, transferred or exchanged all, or substantially all, of its assets to another corporation or other entity or person.

     (c) “Disability” means illness or other incapacity which prevents the Participant from continuing to perform the duties of his job for a period of more than three months.

     (d) “Employment” means employment with the Company or any of its Subsidiaries.

     (e) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     2. Vesting Schedule.

     (a) This Award shall vest in accordance with the following schedule:

     100% of the Award to be vested on the third anniversary of the Award Date.

     (b) All shares of Restricted Stock subject to this Award shall vest, irrespective of the limitations set forth in subparagraph (a) above, provided that the Participant has been in continuous Employment since the Award Date, upon the occurrence of:

(i) a Change of Control;

(ii) the Participant’s termination of Employment due to death or Disability; or

(iii) the Participant’s termination of Employment by the Company or a Subsidiary for reasons other than Cause.

3. Forfeiture of Award.

          Except as provided in any other agreement between the Participant and the Company, if the Participant’s Employment terminates other than by reason of the matters stated above in Section 2(b) of this Agreement, all unvested Restricted Stock as of the termination date shall be forfeited.

     4. Escrow of Shares.

          During the period of time between the Award Date and the earlier of the date the Restricted Stock vests or is forfeited (the “Restriction Period”), the Restricted Stock shall be registered in the name of the Participant and held in escrow by the Company, and the Participant agrees, upon the Company’s written request, to provide a stock power endorsed by the Participant in blank. Any certificate shall bear a legend as provided by the Company, conspicuously referring to the terms, conditions and restrictions described in this Agreement. Upon termination of the Restriction Period, a certificate representing such shares shall be delivered upon written request to the Participant as promptly as is reasonably practicable following such termination.

     5. Dividends and Voting Rights.

          The Participant is entitled to receive all dividends and other distributions made with respect to Restricted Stock registered in his name and is entitled to vote or execute proxies with respect to such registered Restricted Stock, unless and until the Restricted Stock is forfeited.

     6. Delivery of Shares.

          The Company shall not be obligated to deliver any shares of Common Stock if counsel to the Company determines that such sale or delivery would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. The Company shall in no event be obligated to take any affirmative action in order to cause the delivery of shares of Common Stock to comply with any such law, rule, regulation or agreement.

     7. Notices.

          Unless the Company notifies the Participant in writing of a different procedure, any notice or other communication to the Company with respect to this Award shall be in writing and shall be:

     (a) by registered or certified United States mail, postage prepaid, to Dawson Geophysical Company, Attn: Corporate Secretary, 508 West Wall, Suite 800, Midland, Texas 79701; or

          (b) by hand delivery or otherwise to Dawson Geophysical Company, Attn: Corporate Secretary, 508 West Wall, Suite 800, Midland, Texas 79701.

          Any notices provided for in this Agreement or in the Plan shall be given in writing and shall be deemed effectively delivered or given upon receipt or, in the case of notices delivered by the Company to the Participant, five days after deposit in the United States mail, postage prepaid, addressed to the Participant at the address specified at the end of this Agreement or at such other address as the Participant hereafter designates by written notice to the Company.

     8. Assignment of Award.

          Except as otherwise permitted by the Committee, the Participant’s rights under the Plan and this Agreement are personal; no assignment or transfer of the Participant’s rights under and interest in this Award may be made by the Participant other than by will, by beneficiary designation or by the laws of descent and distribution.

     9. Withholding.

          At the time of delivery or vesting of Restricted Stock, the amount of all federal, state and other governmental withholding tax requirements imposed upon the Company with respect to the delivery or vesting of such shares of Restricted Stock shall be remitted to the Company or provisions to pay such withholding requirements shall have been made to the satisfaction of the Committee. The Committee may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with this Award. The Participant may pay all or any portion of the taxes required to be withheld by the Company or paid by the Participant in connection with the all or any portion of this Award by delivering cash, or by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid.

     10. Stock Certificates.

          Certificates representing the Common Stock issued pursuant to the Award will bear all legends required by law and necessary or advisable to effectuate the provisions of the Plan and this Award. The Company may place a “stop transfer” order against shares of the Common Stock issued pursuant to this Award until all restrictions and conditions set forth in the Plan or this Agreement and in the legends referred to in this Section 10 have been complied with.

     11. Successors and Assigns.

          This Agreement shall bind and inure to the benefit of and be enforceable by the Participant, the Company and their respective permitted successors and assigns (including personal representatives, heirs and legatees), except that the Participant may not assign any rights or obligations under this Agreement except to the extent and in the manner expressly permitted herein.

     12. No Employment Guaranteed.

          No provision of this Agreement shall confer any right upon the Participant to continued Employment with the Company or any Subsidiary.

     13. Governing Law.

          This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Texas.

     14. Amendment.

          This Agreement cannot be modified, altered or amended except by an agreement, in writing, signed by both the Company and the Participant.

          The Participant hereby accepts the foregoing Restricted Stock Agreement, subject to the terms and provisions of the Plan and administrative interpretations thereof referred to above.

Exhibit 31.1

CERTIFICATION

I, Stephen C. Jumper, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Dawson Geophysical Company;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2010

Exhibit 31.2

CERTIFICATION

I, Christina W. Hagan, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Dawson Geophysical Company;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2010

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the quarterly report of Dawson Geophysical Company (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Stephen C. Jumper, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2010

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the quarterly report of Dawson Geophysical Company (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Christina W. Hagan, Executive Vice President, Secretary and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2010