UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 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 ______

DAWSON GEOPHYSICAL COMPANY

Texas		75-0970548
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

Title of Each Class		Outstanding at June 30, 2005
Common Stock, $.33 1/3 par value		7,461,794 shares

 

 

DAWSON GEOPHYSICAL COMPANY

INDEX

		Page
		Number
Part I. FINANCIAL INFORMATION			1
Item 1. Financial Statements
Statements of Operations for the Three Months and Nine Months Ended June 30, 2005 and 2004 (unaudited)
Balance Sheets at June 30, 2005 (unaudited) and September 30, 2004
Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004 (unaudited)
Notes to Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			8
Item 3. Quantitative and Qualitative Disclosures about Market Risk			13
Item 4. Controls and Procedures			13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings			13
Item 6. Exhibits			13
Signatures			14
Index to Exhibits
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

STATEMENT OF OPERATIONS

(UNAUDITED)

		Three Months Ended June 30,								Nine Months Ended June 30,
		2005				2004				2005				2004
Operating revenues		$	31,500,000			$	17,112,000			$	79,574,000			$	47,790,000
Operating costs:
Operating expenses			22,878,000				13,504,000				61,100,000				38,457,000
General and administrative			1,409,000				648,000				3,192,000				1,867,000
Depreciation			2,387,000				1,156,000				5,519,000				3,381,000
			26,674,000				15,308,000				69,811,000				43,705,000
Income from operations			4,826,000				1,804,000				9,763,000				4,085,000
Other income:
Interest income			212,000				58,000				335,000				175,000
Interest expense			—				—				(65,000	)			—
Gain (loss) on disposal of assets			149,000				(1,000	)			149,000				(4,000	)
Gain (loss) on sale of short-term investments			(4,000	)			(15,000	)			(4,000	)			(15,000	)
Other			—				143,000				239,000				253,000
Income before income tax			5,183,000				1,989,000				10,417,000				4,494,000
Income tax (expense) benefit:
Current			(783,000	)			—				(1,516,000	)			—
Deferred			(1,043,000	)			—				(1,617,000	)
			(1,826,000	)			—				(3,133,000	)			—
Net income		$	3,357,000			$	1,989,000			$	7,284,000			$	4,494,000
Net income per common share		$	0.45			$	0.36			$	1.13			$	0.81
Net income per common share-assuming dilution		$	0.45			$	0.35			$	1.11			$	0.80
Weighted average equivalent common shares outstanding			7,445,525				5,584,442				6,446,607				5,535,741
Weighted average equivalent common shares outstanding-assuming dilution			7,540,963				5,681,372				6,542,479				5,601,703

See accompanying notes to the financial statements.

Dawson Geophysical Company

Balance Sheets

		June 30,				September 30,
		2005				2004
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	5,527,000			$	3,587,000
Short-term investments			20,374,000				4,130,000
Accounts receivable, net of allowance for doubtful accounts of $335,000 in 2005 and $199,000 in 2004			28,186,000				16,979,000
Prepaid expenses and other assets			765,000				440,000
Current deferred tax asset			1,968,000				—
Total current assets			56,820,000				25,136,000
Deferred tax asset			—				1,648,000
Property, plant and equipment			126,517,000				94,050,000
Less accumulated depreciation			(67,655,000	)			(64,075,000	)
Net property, plant and equipment			58,862,000				29,975,000
		$	115,682,000			$	56,759,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	8,712,000			$	3,357,000
Accrued liabilities:
Payroll costs and other taxes			1,603,000				742,000
Other			2,032,000				971,000
Deferred revenue			2,685,000				1,407,000
Total current liabilities			15,032,000				6,477,000
Deferred tax liability			1,937,000				—
Stockholders’ equity:
Preferred stock-par value $1.00 per share; 5,000,000 shares authorized, none outstanding			—				—
Common stock-par value $.33 1/3 per share; 10,000,000 shares authorized, 7,461,794 and 5,633,794 shares issued and outstanding in each period			2,487,000				1,878,000
Additional paid-in capital			80,569,000				39,949,000
Other comprehensive income, net of tax			(110,000	)			(28,000	)
Retained earnings			15,767,000				8,483,000
Total stockholders’ equity			98,713,000				50,282,000
		$	115,682,000			$	56,759,000

See accompanying notes to the financial statements.

DAWSON GEOPHYSICAL COMPANY

STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Nine Months Ended June 30,
		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	7,284,000			$	4,494,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			5,519,000				3,381,000
Loss (gain) on disposal of assets			(149,000	)			4,000
Loss on sale of short-term investments			4,000				15,000
Deferred income tax expense			1,617,000				—
Non-cash compensation			45,000				92,000
Other			(1,000	)			(64,000	)
Change in current assets and liabilities:
Increase in accounts receivable			(11,207,000	)			(7,056,000	)
Increase in prepaid expenses			(325,000	)			(216,000	)
Increase in accounts payable			5,355,000				1,840,000
Increase in deferred revenue			1,278,000				—
Increase (decrease) in accrued liabilities			1,922,000				669,000
Net cash provided by operating activities			11,342,000				3,159,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(34,433,000	)			(8,475,000	)
Proceeds from sale of short-term investments			4,965,000				2,973,000
Proceeds from maturity of short-term investments			—				7,550,000
Acquisition of short-term investments			(21,309,000	)			(6,245,000	)
Proceeds from sale disposal of assets			183,000				35,000
Net cash used in investing activities			(50,594,000	)			(4,162,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options			188,000				767,000
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			41,192,000				767,000
Net increase (decrease) in cash and cash equivalents			1,940,000				(236,000	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			3,587,000				3,389,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	5,527,000			$	3,153,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes		$	476,000			$	14,000
NON CASH INVESTING ACTIVITIES:
Unrealized gain (loss) on investments		$	(82,000	)		$	(148,000	)

See accompanying notes to the financial statements.

 3

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS

     Dawson Geophysical Company (the “Company”) is the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews. Founded in 1952, the Company acquires and processes 2-D, 3-D and multi-component seismic data for its clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries.

2. OPINION OF MANAGEMENT

     Although the information furnished is unaudited, in the opinion of management of the Company, the accompanying financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the financial condition and results of operations necessary for the periods presented. The results of operations for the three months and nine months ended June 30, 2005, are not necessarily indicative of the results to be expected for the fiscal year.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q report pursuant to certain rules and regulations of the Securities and Exchange Commission. These financial statements should be read with the financial statements and notes included in the Company’s 2004

Form 10-K.

Critical Accounting Policies

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

     Revenue Recognition. Contracts for services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. The Company recognizes revenues when services are performed under both types of agreements. Services are defined as the commencement of data acquisition or processing operations. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate, as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate, as services are performed. In the case of a cancelled service contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation. The Company receives reimbursements for certain out-of-pocket expenses under the terms of our service contracts. Amounts billed to clients are recorded in revenue at the gross amount including out-of-pocket expenses that are reimbursed by the client.

     In some instances, clients are billed in advance of the services performed. In those cases, the Company recognizes the liability as deferred revenue.

     Allowance for Doubtful Accounts. Management prepares its allowance for doubtful accounts receivable based on its past experience of historical write-offs, its current customer base and review of past due accounts. The inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s customers.

     Impairment of Long-lived Assets. Long-lived assets are reviewed for impairment when triggering events occur suggesting deterioration in the assets recoverability or fair value. Recognition of an impairment charge is required if future expected net cash flows are insufficient to recover the carrying value of the asset. Management’s forecast of future cash flow used to perform impairment analysis includes estimates of future revenues and future gross margins. If the Company is unable to achieve these cash

flows, management’s estimates would be revised potentially resulting in an impairment charge in the period of revision.

     Depreciable Lives of Property, Plant and Equipment. Property, plant and equipment is capitalized at historical cost and depreciated over the useful life of the asset. Management’s estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. The technology of the equipment used to gather data in the seismic industry has historically evolved such that obsolescence does not occur quickly. As circumstances change and new information becomes available, these estimates could change. Depreciation is computed using the straight-line method.

     Tax Accounting. The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate and reducing the deferred tax asset by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management’s methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining the annual effective tax rate and the valuation of deferred tax assets, which can create variance between actual results and estimates. The process involves making forecasts of current and future years’ taxable income and unforeseen events may significantly affect these estimates. Those factors, among others, could have a material impact on the Company’s provision or benefit for income taxes.

     Stock Based Compensation. In accordance with the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” no compensation is recorded for stock options or other stock-based awards that are granted to employees or non-employee directors with an exercise price equal to or above the common stock market price on the grant date.

     The Company accounts for stock-based compensation utilizing the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. The following pro forma information, as required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148 (“SFAS 148”), presents net income and earnings per share information as if the stock options issued since February 2, 1999 were accounted for using the fair value method. The fair value of stock options issued for each year was estimated at the date of grant using the Black-Scholes option pricing model.

The SFAS 123 pro forma information for the three months and the nine months ended June 30, 2005 and 2004 is as follows:

		Three Months Ended								Nine Months Ended
		June 30								June 30
		2005				2004				2005				2004
Net income, as reported		$	3,357,000			$	1,989,000			$	7,284,000			$	4,494,000
Add: Stock-based employee compensation expense included in net income, net of tax			—				—				45,000				73,000
Deduct: Stock-based employee compensation expense determined under fair value based method (SFAS 123), net of tax			(107,000	)			(79,000	)			(359,000	)			(310,000	)
Net income, pro forma		$	3,250,000			$	1,910,000			$	6,970,000			$	4,257,000
Basic:
Net income per common share, as reported		$	0.45			$	0.36			$	1.13			$	0.81
Net income per common share, pro forma		$	0.44			$	0.34			$	1.08			$	0.77
Diluted:
Net income per common share, as reported		$	0.45			$	0.35			$	1.11			$	0.80
Net income per common share, pro forma		$	0.43			$	0.34			$	1.07			$	0.76

Recently Issued Accounting Pronouncements

     The Financial Accounting Standards Board (FASB) has announced it will require all public companies to expense the fair value of employee stock awards. The final requirements will be effective for periods beginning after June 15, 2005. The impact to the Company’s financial statements will be in the form of additional compensation expense upon the award of any stock options. The amount of the compensation expense recognized will be dependent on the value of the Company’s common stock and the number of options awarded.

3. NET INCOME PER COMMON SHARE

     The Company accounts for earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (Statement 128”). Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and when appropriate, restated to conform to the Statement 128 requirements.

     The following table sets forth the computation of basic and diluted net income per common share:

		Three Months Ended								Nine Months Ended
		June 30								June 30
		2005				2004				2005				2004
NUMERATOR:
Net income and numerator for basic and diluted net income per common share-income available to common shareholders		$	3,357,000			$	1,989,000			$	7,284,000			$	4,494,000
DENOMINATOR:
Denominator for basic net income per common share-weighted average common shares			7,445,525				5,584,442				6,446,607				5,535,741
Effect of dilutive securities-employee stock options			95,438				96,930				95,872				65,962
Denominator for diluted net income per common share-adjusted weighted average common shares and assumed conversions			7,540,963				5,681,372				6,542,479				5,601,703
Net income per common share		$	0.45			$	0.36			$	1.13			$	0.81
Net income per common share-assuming dilution		$	0.45			$	0.35			$	1.11			$	0.80

4. DEBT

     On December 22, 2004, the Company entered into a revolving line of credit loan agreement with Western National Bank under which it may borrow, repay and reborrow, from time to time until December 22, 2005, up to $10.0 million. This agreement is secured by a security interest in the Company’s accounts receivable and related collateral. Interest on the outstanding amount under the line of credit loan agreement is payable monthly (beginning on January 22, 2005) at a rate equal to the greater of (i) the Prime Rate and (ii) 5.0%. In connection with equipping and deploying its eighth and ninth data acquisition crews, the Company borrowed $5.0 million on January 12, 2005 and the remaining $5.0 million available under the loan agreement on February 1, 2005. As of March 31, 2005, the Company had repaid the $10.0 million balance outstanding under the credit loan agreement and the associated interest as a partial use of proceeds from the Company’s public offering of 1,800,000 shares of its common stock. The Company did not utilize the revolving line of credit during the quarter ended June 30, 2005. The loan agreement contains customary covenants for credit facilities of this type, including limitations on distributions and dividends, disposition of assets and mergers and acquisitions. There are certain financial covenants under the loan agreement, including maintaining a minimum tangible net worth (as defined in the loan agreement) of $40.0 million and maintaining specified ratios with respect to cash flow coverage, current assets and liabilities, and debt to tangible net worth.

5. CONTINGENCY

     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.

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

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

Forward Looking Statements

All statements other than statements of historical fact included in this report, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and plans and objectives for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on our beliefs as well as assumptions made by and information currently available to us. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to dependence upon energy industry spending, the volatility of oil and gas prices, weather interruptions, ability to obtain land access rights of way and the availability of capital resources. Such statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. A discussion of these factors, including risks and uncertainties, is set forth in our Form 10-K and in our other reports filed from time to time with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We assume no obligation to update any such forward-looking statements.

Overview

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

     Accordingly, our return to profitability in fiscal 2004 after several years of losses is directly related to an increase in the level of exploration for domestic oil and natural gas reserves by the petroleum industry since 2003. The increased level of exploration is a function of higher prices for oil and natural gas. As a result of the increase in domestic exploration spending, we have experienced an increased demand for our seismic data acquisition and processing services. While the markets for oil and natural gas have historically been volatile and are likely to continue to be so in the future and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to expand our market position, including by responding to our client’s desire for higher resolution subsurface images.

     While no increase in the Company’s crew count is currently anticipated, we continue to focus on increasing the revenues from and profitability of our existing crews by upgrading our recording capacity, expanding the channel count on existing crews and adding to our energy source fleet. While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity of our data acquisition crews, including crew downtime related to inclement weather or delays in acquiring land access permits. Consequently, our successful efforts to negotiate more favorable weather protection provisions in our supplemental service agreements, to mitigate access permit delays and to improve overall crew productivity may contribute to growth in our revenues. Although our clients may cancel their supplemental service

agreement with us on short notice, we believe we currently have a sufficient order book to sustain operations at full capacity well into the first quarter of calendar 2006.

Highlights of the Quarter Ended June 30, 2005

     Our financial performance from operations for the third quarter of fiscal 2005 significantly improved when compared to our financial performance for the third quarter of fiscal 2004 as a result of increased demand for our services due to increased exploration and development activity by domestic oil and gas companies and increases in oil and gas prices during 2004 and into 2005. This increased demand had the following principal effects:

	•		During the third fiscal quarter of 2005, we operated ten data acquisition crews as compared to seven crews that operated in the third quarter of fiscal 2004. In May 2005 we deployed our eleventh data acquisition crew.
	•		We continued to experience price improvements and more favorable contract terms in our agreements with clients. These factors helped improve our revenues during the third quarter of 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.

Results of Operations

     Operating Revenues. Our operating revenues for the first nine months of fiscal 2005 increased 66.5% from $47,790,000 to $79,574,000. For the three months ended June 30, 2005, operating revenues totaled $31,500,000 versus $17,112,000 for the same period of fiscal 2004, a 84.1% increase as a result of increased demand for our services. As a result of this increased demand, we were able to field three additional data acquisition crews, obtain price improvements in the markets for our services and negotiate favorable contract provisions. We began fiscal 2005 with nine data acquisition crews. The eighth and ninth crews were fielded in the fourth quarter of fiscal 2004. Due to continued demand for our services, we put our tenth crew into operation in January 2005 and our eleventh crew was deployed in May of 2005.

     Operating Costs. Operating expenses for the nine months ended June 30, 2005 totaled $61,100,000 versus $38,457,000 for the same period of fiscal 2004. For the quarter ended June 30, 2005, operating expenses totaled $22,878,000 versus $13,504,000 for the quarter ended June 30, 2004. Increases in operating expenses are due to the ongoing expenses of the two crews added in the fourth quarter of fiscal 2004 and the two crews added in fiscal 2005.

     General and administrative expenses were approximately 4.0% and 3.9% of revenues in the first nine months of fiscal 2005 and 2004, respectively. For the quarter ended June 30, 2005 general and administrative expenses totaled $1,409,000 as compared to $648,000 for the same period in fiscal 2004. General and administrative expenses have increased to support expanded field operations and to assimilate Sarbanes-Oxley reporting requirements.

     Depreciation for the nine months ended June 30, 2005 totaled $5,519,000 as compared to $3,381,000 for the nine months ended June 30, 2004. We recognized $2,387,000 of depreciation expense in the third quarter of fiscal 2005 as compared to $1,156,000 in the comparable quarter of fiscal 2004 as a result of the significant capital expenditures we made from April to September of 2004. Our depreciation expense is also expected to increase during the remainder of fiscal 2005 reflecting our significant capital expenditures in fiscal 2004 and the nine months of fiscal 2005 and our expected capital budget for the remainder of fiscal 2005.

     Our total operating costs for the first nine months of fiscal 2005 were $69,811,000, an increase of 59.7% from the first nine months of fiscal 2004, and for the quarter ended June 30, 2005 operating

expenses of $26,674,000 represent a 74.2% increase from the comparable quarter of fiscal 2004 primarily due to the factors described above.

     Taxes. The provision for income taxes for the three and nine months ended June 30, 2005 increased to $1,826,000 ($0.24 per share) and $3,133,000 ($0.48 per share), respectively, from zero for the comparable periods in 2004. This increase resulted primarily from the increase in our income before taxes and the fact that we had fully utilized our alternative minimum tax net operating loss carryforwards during the quarter ending March 31, 2005. We anticipate we will continue to recognize current income tax expense in subsequent quarters.

Liquidity and Capital Resources

     Introduction. Our principal source of cash is amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and short term borrowings from commercial banks has been sufficient to fund our working capital requirements, and to some extent, our capital expenditures. In March 2005 we successfully completed a public offering of 1,800,000 shares of our common stock. The offering raised net proceeds of approximately $41 million that were used to fund our continued expansion and to repay borrowings under our revolving line of credit agreement.

     Cash Flows. Net cash provided by operating activities was $11,342,000 for the first nine months of fiscal 2005 and $3,159,000 for the first nine months of fiscal 2004. These amounts primarily reflect results of operations offset by changes in working capital components, depreciation and other non-cash items, including deferred income tax expense. The increase in cash provided by operating activities in the first nine months of fiscal 2005 resulted primarily from the increases in accounts receivable and net income due to the continued expansion of our business.

     Net cash used in investing activities was $50,594,000 through June 30, 2005 and $4,162,000 through the nine months ended June 30, 2004. These results represent capital expenditures and activity in the short-term investment portfolio. Capital expenditures were made with cash generated from operations and short-term investments and during fiscal 2005 with cash from our revolving line of credit agreement discussed below and proceeds from the public stock offering discussed above.

     Net cash provided by financing activities June 30, 2005 was $41,192,000 and primarily reflects proceeds from the public stock offering.

     Capital Expenditures. During the first nine months of fiscal 2005, capital expenditures of $34,433,000, were used to complete the outfitting of our eighth and ninth data acquisition crews, to deploy our tenth and eleventh crews, to acquire additional recording channels and energy source units and for maintenance capital requirements.

     We have budgeted capital expenditures of approximately $3 million for the remainder of fiscal year 2005, which will be used for maintenance capital requirements.

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

     Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and short term borrowings from commercial banks to fund our working capital requirements and, to some extent, capital expenditures. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings. As a result of our recent increased capital needs resulting from continued expansion of our business, we obtained a $10 million revolving line of credit loan agreement in December 2004 and completed a public offering of our common stock in March 2005.

     On March 5, 2005, we filed a shelf registration statement with the Securities and Exchange Commission covering the offer and sale from time to time of up to $75 million in debt securities, preferred and common stock, and warrants. The registration statement allows us to sell securities, after the registration statement has been declared effective by the SEC, 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 separately filed with the SEC at the time of the offering. We do not expect to make an offering at this time. However, the filing will enable us to act quickly as opportunities arise.

     In March 2005 we successfully completed a public offering of 1,800,000 shares of our common stock. Net proceeds from the offering were approximately $41.1 million and were used to fund our continued expansion and to repay borrowings under our revolving line of credit agreement.

     On December 22, 2004, we entered into a revolving line of credit loan agreement with Western National Bank under which we may borrow, repay and reborrow, from time to time until December 22, 2005, up to $10.0 million. Our obligations under this agreement are secured by a security interest in our accounts receivable and related collateral. Interest on the outstanding amount under the line of credit loan agreement is payable monthly (beginning on January 22, 2005) at a rate equal to the greater of (i) the Prime Rate and (ii) 5.0%. In connection with equipping and deploying our eighth and ninth data acquisition crews we borrowed $5.0 million under the loan agreement on January 12, 2005, and the remaining $5.0 million available under the loan agreement on February 1, 2005. As of March 31, 2005 we repaid the $10,000,000 balance outstanding under the loan agreement and the associated interest as a partial use of proceeds from our public offering of 1,800,000 shares of our common stock. We did not borrow under the loan agreement during the third fiscal quarter of 2005. The loan agreement contains customary covenants for credit facilities of this type, including limitations on distributions and dividends, disposition of assets and mergers and acquisitions. We are also obligated to meet certain financial covenants under the loan agreement, including maintaining a minimum tangible net worth (as defined in the loan agreement) of $40.0 million and maintaining specified ratios with respect to cash flow coverage, current assets and liabilities, and debt to tangible net worth.

     The following table summarizes payments due in specific periods related to our contractual obligations as of June 30, 2005:

		Payments Due by Period
						Within												After
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		(In thousands)
Operating lease obligations		$	428			$	143			$	285			$	0			$	0

     We believe that our capital resources, including our short-term investments and cash flow from operations are adequate to meet our current operational needs. We believe we will be able to finance our remaining fiscal 2005 capital requirements through our short-term investments and cash flow from operations, through borrowings under our revolving line of credit and from the proceeds of the common stock offering discussed above. However, our ability to satisfy our working capital requirements and to fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business.

Off-Balance Sheet Arrangements

     As of June 30, 2005, we had no off-balance sheet arrangements.

Critical Accounting Policies

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

     Revenue Recognition. Our services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. The Company recognizes revenues when services are performed under both types of agreements. Services are defined as the commencement of data acquisition or processing operations. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate,

as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate, as services are performed. In the case of a cancelled service contract, we recognize revenue and bill our client for services performed up to the date of cancellation. We also receive reimbursements for certain out-of-pocket expenses under the terms of our service contracts. We record amounts billed to clients in revenue at the gross amount including out-of-pocket expenses that are reimbursed by the client.

     In some instances, we bill clients in advance of the services performed. In those cases, we recognize the liability as deferred revenue.

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

     Impairment of Long-lived Assets. We review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets recoverability or fair value. Recognition of an impairment charge is required if future expected net cash flows are insufficient to recover the carrying value of the asset. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and future gross margins based on our historical results and analysis of future oil and gas prices which is fundamental in assessing demand for our services. If we are unable to achieve these cash flows, our estimates would be revised potentially resulting in an impairment charge in the period of revision.

     Depreciable Lives of Property, Plant and Equipment. Our property, plant and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Our estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. The technology of the equipment used to gather data in the seismic industry has historically evolved such that obsolescence does not occur quickly. As circumstances change and new information becomes available, these estimates could change. We amortize these capitalized items using the straight-line method.

     Tax Accounting. We account for our income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate and reducing the deferred tax asset by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create variance between actual results and estimates. The process involves making forecasts of current and future years’ taxable income and unforeseen events may significantly effect these estimates. Those factors, among others, could have a material impact on our provision or benefit for income taxes.

     Stock Based Compensation. In accordance with the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” we have not recorded compensation for stock options or other stock-based awards that are granted to employees or non-employee directors with an exercise price equal to or above the common stock market price on the grant date.

Recently Issued Accounting Pronouncements

     The Financial Accounting Standards Board (FASB) has announced it will require all public companies to expense the fair value of employee stock awards. The final requirements will be effective for periods beginning after June 15, 2005. The impact to our financial statements will be in the form of additional compensation expense upon the award of any stock options. The amount of the compensation expense we will recognize is dependent on the value of our common stock and the number of options we award.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The primary sources of market risk include fluctuations in commodity prices which affect demand for and pricing of our services and interest rate fluctuations. At June 30, 2005, we had no indebtedness. Our short-term investments were fixed-rate and we do not necessarily intend to hold them to maturity, and therefore, the short-term investments expose us to the risk of earnings or cash flow loss due to changes in market interest rates. As of June 30, 2005, the carrying value of our investments approximates fair value. We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We do not currently conduct business internationally, so we are generally not subject to foreign currency exchange rate risk.

ITEM 4. CONTROLS AND PROCEDURES

     Under the supervision, and with the participation, of our management, including our principal executive officer and principal financial officer, we have performed an evaluation of the design, operation and effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) as of June 30, 2005. Based on that evaluation, our principal executive officer and principal financial officer concluded that such disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our reports filed or submitted under the Exchange Act within the required time period. There have not been any changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended June 30, 2005 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     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 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.

		DAWSON GEOPHYSICAL COMPANY
DATE: August 9, 2005		By:		/s/ L. Decker Dawson
		L. Decker Dawson
		Chairman of the Board of Directors and Chief Executive Officer
DATE: August 9, 2005		By:		/s/ Christina W. Hagan
		Christina W. Hagan
		Executive Vice President, Treasurer,
		Secretary and Chief Financial Officer

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 Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (File No. 000-10144) and incorporated herein by reference).
31.1*		Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*		Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*		Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*		Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”

Exhibit 31.1

CERTIFICATION

I, L. Decker Dawson, 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)) 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)		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
	(c)		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 9, 2005

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)) 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)		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
	(c)		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 9, 2005

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 March 31, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, L. Decker Dawson, Chairman of the Board 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.

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 March 31, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, Christina W. Hagan, Executive Vice President, Secretary, Treasurer 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.