MITCHAM INDUSTRIES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-25142

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MITCHAM INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS 76-0210849
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

44000 HIGHWAY 75 SOUTH
HUNTSVILLE, TEXAS 77340
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 936-291-2277

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. X
---

Aggregate market value of the voting stock held by non-affiliates of
the registrant: $25,927,616 as of April 29, 2002.

As of April 29, 2002, there were outstanding 8,750,601 shares of the
registrant's common stock, par value $.01, which is the only class of common or
voting stock of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this Form 10-K is
incorporated by reference from the registrant's Proxy Statement for the 2002
Annual Meeting of Shareholders of the Company to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.

MITCHAM INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I

Item 1. Business.............................................................................. 1

Item 2. Properties............................................................................ 11

Item 3. Legal Proceedings..................................................................... 11

Item 4. Submission of Matters to a Vote of Security Holders................................... 11

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................................... 12

Item 6. Selected Financial Data............................................................... 12

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 13

Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 16

Item 8. Financial Statements and Supplementary Data........................................... 16

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.............................................................. 16

PART III

Item 10. Directors and Executive Officers of the Registrant.................................... 16

Item 11. Executive Compensation................................................................ 16

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters................................................................... 16

Item 13. Certain Relationships and Related Transactions........................................ 16

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 17

Signatures............................................................................ 19

PART I

ITEM 1. BUSINESS

Mitcham Industries, Inc. leases and sells geophysical and other
equipment used primarily by seismic data acquisition contractors to perform
seismic data surveys on land and in transition zones (marsh and shallow water
areas). The Company conducts its operations on a worldwide basis and is a
leading independent seismic equipment lessor in North and South America. Over
the last several years advances in seismic technology have increased drilling
success rates, thereby reducing the overall costs of finding oil and gas.

The Company owns a variety of technologically advanced equipment
acquired from the leading seismic manufacturers. The Company's lease pool
includes many types of equipment used in seismic data acquisition, including all
components of land and transition zone seismic data acquisition systems,
geophones and cables, earth vibrators, peripheral equipment, survey and other
equipment. A substantial amount of the Company's equipment lease pool is
provided by two manufacturers, the Sercel subsidiaries of Compagnie Generale de
Geophysique (collectively, "Sercel") and Input/Output, Inc. ("I/O"). The Company
believes that most of the advanced seismic data acquisition systems in use
worldwide are either Sercel or I/O systems. In the last two years, the Company
has significantly diversified its equipment lease pool to include a wider
variety of seismic equipment. At January 31, 2002, approximately 39% of the
Company's equipment lease pool, on a cost basis, consisted of seismic recording
channel boxes, with the remainder consisting of peripheral and other equipment.

On January 28, 2002, the Company formed a wholly-owned subsidiary,
Drilling Services, Inc. (DSI). DSI was formed to own and operate a fleet of
seismic shot hole drills and to provide other services required by seismic data
acquisition contractors. Such services offered by DSI include seismic survey
program design, quality control, permit acquisition, geographical surveying and
shot hole drilling. Taken together these services are commonly referred to as
"front-end services" as they are required prior to the actual process of
recording a seismic survey.

The Company leases its equipment on a short-term basis, generally for
three to nine months, to seismic contractors who need additional capacity to
complete a seismic survey. In doing so, the Company enables its customers to
achieve operating and capital investment efficiencies. Demand for short-term
seismic equipment leases is affected by many factors including: (i) the highly
variable size and technological demands of individual seismic surveys, (ii)
seasonal weather patterns and sporadic demand for seismic surveys in certain
regions, (iii) rapidly changing technology and (iv) costs of seismic equipment.
The Company believes these factors allow seismic contractors to use short-term
seismic equipment leasing as a cost-effective alternative to purchasing
additional equipment. The Company's equipment lease rates vary according to an
item's expected useful life, utilization and initial cost.

A typical seismic crew uses a wide variety of equipment to perform
seismic data acquisition surveys. The Company's customers may lease a small
amount of equipment to expand an existing crew's capabilities or a complete
seismic data acquisition system to equip an entire crew.

Certain of the Company's leases contain a purchase option, allowing the
customer to apply a portion of the lease payments to the eventual purchase of
the equipment. Additionally, the Company sells a broad range of used seismic
equipment on a worldwide basis and, in certain markets, acts as a sales
representative or distributor of new seismic equipment.

1

The Company has supply and exclusive lease referral agreements with
several leading seismic equipment manufacturers, including Sercel and Pelton
Company, Inc. ("Pelton"). The Company believes that these agreements provide it
with certain competitive advantages. Under these agreements, the Company is the
exclusive worldwide short-term leasing representative for certain products. An
additional agreement exists with Sercel that allows the Company to act as sales
representative or distributor for such manufacturer's products in selected
markets. See "Key Supplier Agreements."

BUSINESS STRATEGY

The Company's business strategy is to meet the needs of users of
seismic equipment through its leasing and front-end services. To accomplish
this, the Company has identified the following major objectives:

o Provide a technologically advanced seismic equipment lease
pool. The Company intends to maintain the size and diversity
of its equipment lease pool. The Company believes that the
availability of a large and diverse seismic equipment lease
pool encourages seismic data acquisition contractors to lease,
rather than purchase, such equipment, due to the capital and
operating efficiencies provided by short-term leases.

o Continue to expand international operations. Historically, the
Company's activities outside North America have consisted of
equipment sales, with a limited amount of leasing activities.
The Company believes that there are opportunities to expand
its international leasing activities as its customers'
operations grow in international markets. The Company receives
referrals from Sercel and other manufacturers on a worldwide
basis. The Company believes that its alliances with
manufacturers provide opportunities to further penetrate
international markets, where such manufacturers are well
recognized and have well-developed business relationships.

o Develop and enhance alliances with major seismic equipment
manufacturers. The Company's relationships with leading
seismic equipment manufacturers allow it to expand its
equipment lease pool on favorable terms. The Company believes
such relationships improve its access to customers and provide
a competitive advantage. The Company has exclusive short-term
lease agreements with certain manufacturers and is seeking to
develop additional arrangements.

o Pursue additional business development opportunities. The
Company regularly evaluates opportunities to expand its
business activities within the oil service industry,
particularly in the seismic sector.

SEISMIC TECHNOLOGY AND THE INDUSTRY

Seismic surveys are a principal source of information used by oil and
gas companies to identify geological conditions that are favorable for the
accumulation of oil and gas and to evaluate the potential for successful
drilling, development and production of oil and gas. Seismic technology has been
used by the oil and gas industry since the 1920's and has advanced significantly
with improvements in computing and electronic technologies. In recent years, the
oil and gas industry has significantly expanded its use of 3-D seismic data
which provides a more comprehensive subsurface image and is believed to have
contributed to improved drilling success rates, particularly in mature oil and
gas basins such as those in North America. Additionally, 2-D seismic data
continues to be used in many areas where 3-D data acquisition is cost
prohibitive or logistical access is limited.

2

Oil and gas exploration companies utilize seismic data generated from
the use of digital seismic systems and peripheral equipment in determining
optimal locations for drilling oil and gas wells, in the development of oil and
gas reserves and in reservoir management for the production of oil and gas. A
complete digital seismic data acquisition system generally consists of (i) a
central electronics unit that records and stores digital data ("CEU"), (ii)
seismic recording channel boxes that contain from one to eight seismic channels
("channel boxes"), (iii) geophones, or seismic sensors, (iv) energy sources
including dynamite, compressed air guns or earth vibrators that create the
necessary acoustic wave to be recorded, (v) cables that transmit digital seismic
data from the channel boxes to the CEU, (vi) survey equipment, drilling
equipment for shot holes and (vii) other peripheral, or accessory, equipment.

In seismic data acquisition, an acoustic wave is generated at or below
the earth's surface through the discharge of compressed air, the detonation of
small explosive charges or the use of vibrators. As the acoustic wave travels
through the earth, it is reflected by the underlying rock layers and the
reflected energy is captured by the geophones, which are sited at intervals
along paths from the point of acoustical impulse. The resulting signals are then
transmitted to the channel boxes, which convert the signals from analog to
digital data and transmit this data via cable to the CEU. The CEU stores the
seismic data on magnetic tape or disk for processing. The digital data is then
input into a specialized seismic processing system that uses sophisticated
computer software programs to enhance the recorded signal and produce an image
of the subsurface strata. By interpreting seismic data, oil and gas exploration
companies create detailed maps of exploration prospects and oil and gas
reservoirs.

In the past, the 2-D seismic survey was the standard data acquisition
technique used to map geologic formations over a broad area. 2-D seismic data
can be visualized as a single vertical plane of subsurface information. Data
gathered from a 3-D seismic survey is best visualized as a cube of information
that can be sliced into numerous planes, providing different views of a geologic
structure with much higher resolution than is available with traditional 2-D
seismic survey techniques. 3-D seismic surveys require much larger data
acquisition systems. By using a greater number of channels and flexible
configuration, 3-D seismic data provides more extensive and detailed information
regarding the subsurface geology than does 2-D data. As a result, 3-D data
allows the geophysicists interpreting the data to more closely select the
optimal location of a prospective drillsite or oil and gas reservoir.

In the exploration and development process, oil and gas companies
establish requirements for seismic data acquisition programs based on their
technical objectives. Because of the expense associated with drilling oil and
gas wells, decisions whether or where to drill are critical to the overall
process. Because 3-D seismic data increase drilling success rates and reduce
costs, the Company believes that oil and gas companies are increasingly
requiring 3-D seismic surveys in their activities. As a result of the increasing
requirements for this higher resolution data, which in turn requires additional
channels to collect and transmit the data, seismic data acquisition systems have
been expanding in size during the past several years.

Recent industry advances include the use of high resolution 3-D,
three-component geophones ("3D-3C"), which enhance the 3-D image, and time lapse
("4-D") seismic, where surveys are periodically reacquired to allow the
monitoring of producing oil and gas field for optimal production and reserve
recovery. These and other technical advances have contributed to increased
drilling success rates and reduced oil and gas finding costs and consequently,
have increased demand for seismic data acquisition equipment and services.

With the expanded use of seismic technology, particularly 3-D seismic,
the size of data acquisition surveys has increased substantially in the past
several years. Demand for higher resolution data, larger surveys and more rapid
completion of such surveys is requiring seismic contractors to use data
acquisition

3

systems with a greater number of seismic recording channels. Additionally, in
many areas, such as North America, the size of seismic surveys varies
significantly, requiring frequent changes in the configuration of equipment and
crews used for seismic surveys. As a result of these advances, seismic survey
channel count has increased from smaller 2-D surveys, which typically averaged
120 channels, to larger 3-D surveys which today average approximately 2,000
channels and often use 5,000 or more channels. The Company believes that many
seismic contractors will continue to meet changes in equipment needs by leasing
incremental equipment to expand crew size as necessary, thereby reducing the
substantial capital expenditures required to purchase such equipment.

BUSINESS AND OPERATIONS

SEISMIC EQUIPMENT LEASING. The Company typically purchases new and used
seismic equipment for short-term (less than one year) lease to its customers,
which primarily include seismic contractors. After the termination of the
original equipment lease, the Company enters into additional short-term leases
with other customers, leasing such equipment multiple times until the end of its
useful life or its sale. The Company's equipment leasing services generally
include the lease of the various components of seismic data acquisition systems
and related equipment to meet a customer's job specifications. Such
specifications frequently vary as to the number of required recording channels,
geophones, energy sources (e.g., earth vibrators) and other equipment. The
Company's customers generally lease seismic equipment to meet shortages of
recording channels and related equipment for specific surveys.

The Company currently has an equipment lease pool comprising a total of
approximately 48,300 seismic recording channels (each channel being capable of
electronically converting seismic data from analog to digital format and
transmitting the digital data), geophones and cables, earth vibrators,
peripheral equipment and survey and other equipment. All of the Company's lease
pool equipment is manufactured by leading seismic equipment manufacturers and is
widely used in the seismic industry.

The Company's equipment leases generally have terms of three to nine
months and are typically renewable on a month-to-month basis. The Company offers
maintenance of its leased equipment during the lease term for malfunctions due
to failure of material and parts and will provide replacement equipment as
necessary. In addition, the Company provides telephone support services to
answer its lease customers' questions.

The Company's equipment lease rates vary according to an item's
expected useful life, utilization and initial cost. The lessee must also obtain
and keep in force insurance for the replacement value of the equipment and a
specified minimum amount of general liability and casualty insurance on the
leased equipment during the term of the lease. Before equipment is delivered,
the lessee must provide certification that the Company has been named an
additional insured and loss payee on its policies. The lessee is responsible for
all maintenance and repairs of leased equipment other than those arising from
normal wear and tear. All taxes (other than U.S. federal income taxes) and
assessments are the contractual obligation of the lessee. To the extent foreign
taxes are not paid by the lessee, the relevant foreign taxing authority might
seek to collect such taxes from the Company. To date, no such collection action
has been taken against the Company.

A majority of the Company's revenues has historically come from North
American operations, though in recent years, an increasing percentage of the
Company's revenues has been generated from South American and European
operations. Within North America, a significant portion of the Company's total
revenues is attributable to Canadian operations. Management believes that the
United States and Canada will continue to be the focal points of the Company's
seismic equipment leasing operations for the

4

foreseeable future, although the Company is pursuing an expanded presence in the
United Kingdom, South and Central America and the Far East.

Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to the
Company's operations in Canada, where a significant percentage of the seismic
survey activity usually occurs in the winter season, from October through March.
During the months in which the weather is warmer, certain areas are not
accessible to trucks, earth vibrators and other heavy equipment because of the
unstable terrain. In the United States, most of the seismic survey work is not
usually affected by weather. As a result of weather conditions, the Company
attempts to manage its equipment lease pool to meet seasonal demands. Equipment
leased in Canada during the winter months may be moved to the United States in
the warmer months.

SEISMIC EQUIPMENT SALES. The Company's equipment sales business serves
a diverse base of industry, governmental, university and research customers. The
Company typically buys used equipment for resale and new equipment in response
to specific customer orders. On occasion, the Company will also hold equipment
of third parties and sell such equipment on consignment.

SEISMIC EQUIPMENT LEASE/PURCHASES. The Company's lease/purchase
activities reflect the two components involved in lease/purchase option
contracts. The lease revenue component represents the lease amounts paid under
the lease/purchase contracts and the sales component represents the sales
revenue and related cost associated with the customers' exercise of the purchase
option.

SEISMIC EQUIPMENT COMMISSIONED SALES. Under the Sercel Sales Agreement
discussed below, the Company receives sales commissions on all Sercel equipment
and spare parts sold in Canada.

FRONT-END SERVICES. The Company through its wholly-owned subsidiary,
DSI, provides front-end services to seismic data acquisition contractors. These
services typically include seismic survey program design, quality control,
permit acquisition, geographical surveying and shot hole drilling.

KEY SUPPLIER AGREEMENTS

THE SERCEL LEASE AGREEMENT

Effective December 16, 1999, the Company renewed its exclusive leasing
arrangement with Sercel, a major manufacturer of 3-D seismic data acquisition
equipment, by entering into a new Exclusive Equipment Lease Agreement (the
"Sercel Lease Agreement").

Under the Agreement, the Company acts as Sercel's exclusive third-party
worldwide short-term (for leases of a duration of less than one year) leasing
representative and Sercel will refer to the Company all requests it receives to
lease Sercel 3-D data acquisition equipment and other field equipment, through
December 31, 2002. Except for the fact that Sercel may engage in short-term
leasing directly to its customers and affiliates, Sercel may not recommend or
suggest any competitor of the Company as a potential lessor of such data
acquisition equipment.

The agreement is subject to termination by Sercel before December 31,
2002: (i) at any time upon (a) Sercel's reasonable belief that the Company has
violated or intends to violate the Foreign Corrupt Practices Act of 1977, as
amended, (b) the Company's refusal or inability to certify that it is in
compliance with laws applicable to its activities, or (c) the Company's
insolvency, voluntary or involuntary bankruptcy, assignment for the benefit of
creditors or discontinuance as a going concern, and (ii) upon 90

5

days' prior written notice if the Company no longer employs Billy F. Mitcham,
Jr. in a senior management capacity.

THE SERCEL SALES AGREEMENT

Through Mitcham Canada Ltd., the Company's wholly-owned subsidiary, the
Company entered into the Commercial Representation Agreement (the "Sercel Sales
Agreement") with Georex, Inc. ("Georex"), a wholly-owned subsidiary of Sercel,
under which the Company is Sercel's designated sales representative in Canada
for its seismic data acquisition and other field equipment, subject to
termination by either party on 90 days' prior written notice. The agreement has
been extended for an additional one-year period. Under the agreement, the
Company is entitled to receive a commission on all Sercel equipment and spare
parts sold in Canada.

The Company is prohibited from selling certain seismic equipment that
competes with Sercel equipment during the term of the agreement and for six
months thereafter, except that the Company may sell individual components that
compete with components of Sercel equipment, such as I/O channel boxes and
Pelton vibrator control electronics, as well as any seismic equipment previously
used in its lease fleet.

The Sercel Sales Agreement is subject to termination by Georex upon (i)
Georex's reasonable belief that the Company has violated or intends to violate
the Foreign Corrupt Practices Act of 1977, as amended, (ii) the Company's
refusal or inability to certify that it is in compliance with laws applicable to
its activities or (iii) the Company's insolvency, voluntary or involuntary
bankruptcy, assignment for the benefit of creditors or discontinuance as a going
concern.

OTHER AGREEMENTS

In May 1996, the Company entered into an exclusive lease referral
agreement (the "Pelton Agreement") with Pelton. The Company believes Pelton is
the leading manufacturer and supplier of vibrator control electronics. The terms
of the Pelton Agreement regarding exclusive lease referrals and favorable prices
are substantially similar to those of the Sercel Lease Agreement. The Pelton
Agreement is valid until terminated by either party upon three months prior
written notice.

CUSTOMERS; SALES AND MARKETING

The Company's major lease customers are seismic data acquisition
contractors and major and independent oil and gas companies. The Company
typically has a small number of lease customers, the composition of which
changes yearly as leases are negotiated and concluded and equipment needs vary.
As of January 31, 2002, the Company had lease customers with 50 active leases of
various lengths. Customers of the Company's used and new seismic equipment sales
and service business include its lease customers, foreign governments,
universities, engineering firms and research organizations worldwide.

The Company participates in both domestic and international trade shows
and expositions to inform the oil and gas industry of its products and services.
In addition to advertising in major geophysical trade journals, direct
advertising in the form of a semi-annual listing of equipment offerings is
mailed to over 1,000 oil and gas industry participants. The Company believes
this mailing generates significant seismic equipment lease and sales revenues.
In addition, the Company advertises its alliances with Sercel and Pelton in
several major geophysical trade journals. The Company also maintains a web site
on which it lists its seismic equipment for sale and lease.

6

The Company works with a network of representatives in several
international markets, including Europe, the Far East, Russia and other former
Soviet Union countries. These agents generate equipment sales and, to a lesser
extent, equipment leasing business for the Company and are compensated on a
commission basis. The Company also expends resources in the areas of customer
service, product support and the maintenance of customer relationships. The
Company also has an office in Calgary, Alberta, Canada from which it leases and
sells seismic equipment.

COMPETITION

While the Company is aware of several companies that engage in seismic
equipment leasing, competition has historically been fragmented and the
Company's competitors have not had as extensive a seismic equipment lease pool
as does the Company.

The Company competes for seismic equipment leases on the basis of (i)
price and delivery, (ii) availability of both peripheral seismic equipment and
complete data acquisition systems and (iii) length of lease term. The Company
competes in the used equipment sales market with a broad base of seismic
equipment owners, including major oil and gas exploration companies and seismic
data acquisition contractors which use and eventually dispose of seismic
equipment, many of which have substantially greater financial resources than the
Company. The Company believes there is one competitor in the used seismic
equipment sales business that generates comparable revenues from such sales, as
well as numerous, smaller competitors who, in the aggregate, generate
significant revenue from such sales.

SUPPLIERS

The Company has several suppliers of seismic equipment for its lease
pool. The Company has historically acquired the majority of its seismic lease
pool equipment from Sercel and I/O and acquires the majority of its vibrator
control electronics from Pelton. The Company believes that Sercel and I/O
manufacture most of the land-based seismic systems and equipment in use. Other
suppliers of peripheral seismic equipment include OYO Geospace Corporation
(geophones, cables and seismic cameras), Steward Cable (cables) and Mark
Products (geophones and cables). From time to time, the Company purchases new
and used peripheral seismic equipment from various other manufacturers.
Management believes that its current relationships with its suppliers are
satisfactory.

EMPLOYEES

As of January 31, 2002, the Company employed 77 people, none of whom is
covered by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Certain information contained in this Annual Report on Form 10-K
(including statements contained in Part I, Item 1. "Business", Part I, Item 3.
"Legal Proceedings" and in Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), as well as other
written and oral statements made or incorporated by reference from time to time
by the Company and its representatives in other reports, filings with the
Securities and Exchange Commission, press releases, conferences, or otherwise,
may be deemed to be forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. This information includes, without
limitation, statements concerning the Company's future financial position and
results of operations; planned capital expenditures; business strategy and other
plans for future operations; the future mix of revenues and

7

business; commitments and contingent liabilities; and future demand for the
Company's services and predicted improvement in energy industry and seismic
service industry conditions. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. When used in
this report, the words "anticipate," "believe," "estimate," "expect," "may," and
similar expressions, as they relate to the Company and its management, identify
forward-looking statements. The actual results of future events described in
such forward-looking statements could differ materially from the results
described in the forward-looking statements due to the risks and uncertainties
set forth below and elsewhere within this Annual Report on Form 10-K.

RECOVERY OF DEMAND FOR LAND BASED SEISMIC DATA NOT ASSURED

Demand for the Company's services depends on the level of spending by
oil and gas companies for exploration, production and development activities, as
well as on the number of crews conducting land and transition zone seismic data
acquisition worldwide, and especially in North America. Due to the significant
decrease in world oil prices in 1998, demand for the Company's services both in
Canada and worldwide declined dramatically in the fourth quarter of fiscal 1999
and remained at historically low levels since that time. Any future fluctuations
in the price of oil and gas in response to relatively minor changes in the
supply and demand for oil and gas will continue to have a major effect on
exploration, production and development activities and thus, on the demand for
the Company's services.

LOSS OF SIGNIFICANT CUSTOMERS WILL ADVERSELY AFFECT THE COMPANY

The Company typically leases and sells significant amounts of seismic
equipment to a relatively small number of customers, the composition of which
changes from year to year as leases are initiated and concluded and as
customers' equipment needs vary. Therefore, at any one time, a large portion of
the Company's revenues may be derived from a limited number of customers. In the
fiscal years ended January 31, 2000, 2001 and 2002, the single largest customer
accounted for approximately 17%, 21% and 22%, respectively, of the Company's
total revenues. Because the Company's customer base is relatively small, the
loss of one or more customers for any reason could adversely affect the
Company's results of operations.

SIGNIFICANT DEFAULTS OF PAST-DUE CUSTOMER ACCOUNTS WOULD ADVERSELY AFFECT THE
COMPANY'S RESULTS OF OPERATIONS

The Company had approximately $6.0 million of customer accounts and
notes receivable at January 31, 2002, of which $2.0 million is over ninety days
past due. At January 31, 2002, the Company has an allowance of $1.5 million to
cover losses in its receivable balances. Significant payment defaults by its
customers in excess of the allowance would have a material adverse effect on the
Company's financial position and results of operations.

INTERNATIONAL ECONOMIC AND POLITICAL INSTABILITY COULD ADVERSELY AFFECT THE
COMPANY'S RESULTS OF OPERATIONS

The Company's results of operations are dependent upon the current
political and economic climate of several international countries in which its
customers either operate or are located. International sources (including
Canada) accounted for approximately 80% of the Company's revenues in the fiscal
year ended January 31, 2002, and 32% of internationally-sourced revenues were
attributable to lease and sales activities in South America. Since the majority
of the Company's lease and sales contracts with its

8

customers are denominated in U.S. dollars, there is little risk of loss from
fluctuations in foreign currencies. However, the Company's
internationally-sourced revenues are still subject to the risk of currency
exchange controls (in which payment could not be made in U.S. dollars), taxation
policies, and appropriation, as well as to political turmoil, civil
disturbances, armed hostilities, and other hazards.

THE COMPANY MUST CONTINUALLY OBTAIN ADDITIONAL LEASE CONTRACTS

The Company's seismic equipment leases typically have a term of three
to nine months and provide gross revenues that recover only a portion of the
Company's capital investment. The Company's ability to generate lease revenues
and profits is dependent on obtaining additional lease contracts after the
termination of an original lease. However, lessees are under no obligation to,
and frequently do not, continue to lease seismic equipment after the expiration
of a lease. Although the Company has been successful in obtaining additional
lease contracts with other lessees after the termination of the original leases,
there can be no assurance that it will continue to do so. The Company's failure
to obtain additional leases or extensions beyond the initial lease term would
have a material adverse effect on its operations and financial condition.

DEPENDENCE ON KEY PERSONNEL

The Company's success is dependent on, among other things, the services
of certain key personnel, including specifically Billy F. Mitcham, Jr., Chairman
of the Board, President and Chief Executive Officer of the Company. Mr.
Mitcham's employment agreement had an initial term through January 15, 2002, and
is automatically extended on a year-to-year basis until terminated by either
party giving 30 days notice prior to the end of the current term (subject to
earlier termination on certain stated events). The agreement prohibits Mr.
Mitcham from engaging in any business activities that are competitive with the
Company's business and from diverting any of the Company's customers to a
competitor for two years after the termination of his employment. The loss of
the services of Mr. Mitcham could have a material adverse effect on the Company.
In particular, the Exclusive Equipment Lease Agreement with Sercel is terminable
at such time as he is no longer employed by the Company in a senior management
capacity.

THE COMPANY'S SEISMIC LEASE POOL IS SUBJECT TO TECHNOLOGICAL OBSOLESCENCE

The Company has a substantial capital investment in seismic data
acquisition equipment. The development by manufacturers of seismic equipment of
newer technology systems or component parts that have significant competitive
advantages over seismic systems and component parts now in use could have an
adverse effect on the Company's ability to profitably lease and sell its
existing seismic equipment. Significant improvements in technology may also
require the Company to recognize an asset impairment charge to its lease pool
investment, and to correspondingly invest significant sums to upgrade or replace
its existing lease pool with newer-technology equipment demanded by its
customers.

WEATHER CONDITIONS CAUSE SEASONAL RESULTS

The first and fourth quarters of the Company's fiscal year have
historically accounted for a greater portion of the Company's revenues than do
the second and third quarters of its fiscal year. This seasonality in revenues
is primarily due to the increased seismic survey activity in Canada from October
through March, which affects the Company due to its significant Canadian
operations. This seasonal pattern may cause the Company's results of operations
to vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons are not necessarily meaningful and should not be relied on as
indicative of future results.

9

DISRUPTION IN SUPPLIER RELATIONSHIPS COULD ADVERSELY AFFECT THE COMPANY

The Company has and continues to rely on purchase agreements with
Sercel. To a lesser extent, the Company also relies on its suppliers for lease
referrals. The termination of these agreements for any reason could materially
adversely affect the Company's business. Any difficulty in obtaining seismic
equipment from suppliers could have a material adverse effect on the Company's
business, financial condition and results of operations.

COMPETITION

Competition in the leasing of seismic equipment is fragmented, and the
Company is aware of several companies that engage in seismic equipment leasing.
The Company believes that its competitors, in general, do not have as extensive
a seismic equipment lease pool as does the Company. The Company also believes
that its competitors do not have similar exclusive lease referral agreements
with suppliers. Competition exists to a lesser extent from seismic data
acquisition contractors that may lease equipment that is temporarily idle.

The Company has several competitors engaged in seismic equipment
leasing and sales, including seismic equipment manufacturers, companies
providing seismic surveys and oil and gas exploration companies that use seismic
equipment, many of which have substantially greater financial resources than the
Company. There are also several smaller competitors who, in the aggregate,
generate significant revenue from the sale of seismic survey equipment.
Pressures from existing or new competitors could adversely affect the Company's
business operations.

VOLATILE STOCK PRICES AND NO PAYMENT OF DIVIDENDS

Due to current energy industry conditions, energy and energy service
company stock prices, including the Company's stock price, have been extremely
volatile. Such stock price volatility could adversely affect the Company's
business operations by, among other things, impeding its ability to attract and
retain qualified personnel and to obtain additional financing if such financing
is ever needed. The Company has historically not paid dividends on its common
stock and does not anticipate paying dividends in the foreseeable future.

POSSIBLE ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS; POTENTIAL ISSUANCE OF
PREFERRED STOCK

Certain provisions of the Company's Articles of Incorporation and the
Texas Business Corporation Act may tend to delay, defer or prevent a potential
unsolicited offer or takeover attempt that is not approved by the Board of
Directors but that the Company's shareholders might consider to be in their best
interest, including an attempt that might result in shareholders receiving a
premium over the market price for their shares. Because the Board of Directors
is authorized to issue preferred stock with such preferences and rights as it
determines, it may afford the holders of any series of preferred stock
preferences, rights or voting powers superior to those of the holders of common
stock. Although the Company has no shares of preferred stock outstanding and no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future.

10

LIMITATION ON DIRECTORS' LIABILITY

The Company's Articles of Incorporation provide, as permitted by
governing Texas law, that a director of the Company shall not be personally
liable to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage shareholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
shareholders on behalf of the Company against a director.

ITEM 2. PROPERTIES

The Company owns its corporate office and warehouse facilities in
Huntsville, Texas. Its headquarters facility consists of 25,000 square feet of
office and warehouse space on approximately six acres. The Company also leases
approximately 31,000 square feet of office and warehouse space at its facility
in Calgary, Alberta, Canada. The Company's U.S. subsidiary, DSI, leases
approximately 21,000 square feet of office and warehouse space in Brookshire,
Texas.

ITEM 3. LEGAL PROCEEDINGS

On or about April 23, 1998, several purported securities fraud class
action lawsuits were filed against the Company, Billy F. Mitcham and Roberto
Rios ("Defendants") in the U.S. District Court for the Southern District of
Texas, Houston Division. On August 10, 2001, facing protracted and expensive
litigation, Defendants executed a final settlement agreement with Plaintiffs for
$2.7 million, paid by the Company and its insurance carrier. On December 10,
2001, the Court approved the settlement agreement, certified the class for
settlement purposes only, and entered a Final Judgment and Order dismissing all
the class action lawsuits with prejudice.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

11

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION FOR COMMON STOCK

The common stock is traded on the Nasdaq National Market under the
symbol "MIND." The following table sets forth, for the periods indicated, the
high and low sales prices as reported on the Nasdaq National Market.

As of April 26, 2002, there were approximately 500 stockholders of
record of the common stock.

DIVIDEND POLICY

The Company has not paid any cash dividends on the common stock since
its inception, and the Board of Directors does not contemplate the payment of
cash dividends in the foreseeable future. It is the present policy of the Board
of Directors to retain earnings, if any, for use in developing and expanding the
Company's business. In the future, payment of dividends by the Company will also
depend on the Company's financial condition, results of operations and such
other factors as the Board of Directors may consider.

ITEM 6. SELECTED FINANCIAL DATA

(Amounts in thousands, except per share amounts)

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

OVERVIEW

The Company's sales are directly related to the level of worldwide oil
and gas exploration activities and the profitability and cash flows of oil and
gas companies and seismic contractors, which in turn are affected by
expectations regarding the supply and demand for oil and natural gas, energy
prices and finding and development costs. The Company believes that during the
latter half of 1998, the exploration and production companies anticipated an
extended period of low oil and gas prices and began to reduce their intended
levels of expenditures for seismic data. Consolidation within the oil industry
has also delayed seismic data acquisition projects. Declines in oil and natural
gas prices, or expectations that the recent improvement in oil and natural gas
prices will not hold, could cause the Company's customers to alter their
spending plans and adversely affect the Company's results of operation and
financial condition.

The Company leases and sells seismic data acquisition equipment
primarily to seismic data acquisition companies and oil and gas companies
conducting land and transition zone seismic surveys worldwide. The Company
provides short-term leasing of seismic equipment to meet a customer's
requirements and offers maintenance and support during the lease term. The
majority of all leases at January 31, 2002 were for a term of one year or less.
Seismic equipment held for lease is carried at cost, net of accumulated
depreciation.

For the years ended January 31, 2000, 2001 and 2002, revenues from
foreign customers totaled $7.5 million, $19.1 million and $21.7 million,
respectively. The majority of the Company's transactions with foreign customers
are denominated in United States dollars.

SEASONALITY

Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to the
Company's expected lease revenues, especially from customers operating in
Canada, where a significant percentage of seismic survey activity occurs in the
winter months, from October through March. During the months in which the
weather is warmer, certain areas are not accessible to trucks, earth vibrators
and other equipment because of the unstable terrain. This seasonal leasing
activity by the Company's Canadian customers has historically resulted in
increased lease revenues in the Company's first and fourth fiscal quarters.
However, due to the significant decrease in world oil prices in 1998, demand for
the Company's services both in Canada and worldwide declined dramatically in the
fourth quarter of fiscal 1999 and remained at historically low levels since that
time.

RESULTS OF OPERATIONS

Revenues for fiscal 2002 were $27.2 million, reflecting a $6.6 million
increase over fiscal 2001 revenues of $20.6 million. During fiscal 2002, the
Company experienced a greater demand for equipment leasing, primarily in South
America and the U.S. Fiscal 2001 revenues were $20.6 million, a $10.0 million
increase over fiscal 2000 revenues of $10.6 million. During fiscal 2001, the
Company experienced a greater demand for equipment leasing from its customers,
primarily in response to the higher level of commodity prices. Fiscal 2000
revenues were approximately $10.6 million, a reflection of the significant
downturn in the seismic sector that began during fiscal 1999. Seismic equipment
sales for fiscal 2002 were $7.2 million as compared to $6.6 million and $3.9
million for fiscal 2001 and 2000, respectively. The fiscal 2001 increase in
equipment sales of $2.6 million over the fiscal 2000 amount is largely
attributable to increased demand for seismic equipment as a result of the higher
commodity prices during

13

the year. The low level of equipment sales activity during fiscal 2000 is a
result of decreased capital expenditure budgets throughout the oil and gas
industry coupled with a three-year trend of fewer customers exercising the
purchase option of lease/purchase contracts.

During fiscal 2002, the Company recorded depreciation expense in the
amount of $16.0 million. This amount reflects an increase of $2.9 million, or
22%, above the fiscal 2001 amount. Depreciation expense for fiscal 2001 was
approximately $13.1 million, representing an increase of $3.3 million, or 33%,
above the fiscal 2000 amount. The increase in depreciation expense during fiscal
2002 is primarily a result of the Company's replacement of older, fully
depreciated seismic equipment with new, state of the art technology. The fiscal
2001 increase in depreciation expense is a result of the Company adding $27.7
million, on a cost basis, to the seismic equipment lease pool. Depreciation
expense for fiscal 2000 was $9.8 million. The fiscal 2000 reduction in
depreciation expense from the prior year is largely attributable to the $15.1
million asset impairment charge recorded in fiscal 1999, partially offset by the
$12.3 million increase, on a cost basis, in the Company's seismic equipment
lease pool during fiscal 2000.

For fiscal 2002, the Company's direct costs of leasing totaled
approximately $2.2 million, for an increase of $450,000 over the fiscal 2001
amount. This increase is a result of the significant increase in equipment
leasing activity during the year. Fiscal 2001 direct costs were $1.8 million, an
increase of approximately $400,000 from fiscal 2000 amounts, reflecting the
significant increase in leasing activities during fiscal 2001. Direct costs
typically increase with leasing revenues, as the two main components of direct
costs are freight and equipment repairs. Direct costs for fiscal 2000 were $1.4
million, reflecting the lower level of equipment leasing during that period.

Gross margins on equipment sales were 31%, 21% and 41% for fiscal years
2002, 2001 and 2000, respectively. Gross margins on equipment sales may vary
significantly between periods due to the mix of newly added seismic equipment to
the lease pool versus older, more depreciated seismic equipment being sold.
Additionally, gross margins on equipment sales will vary based on the level of
lease/purchase contracts being exercised during the year.

For the fiscal year ended January 31, 2002, the Company's general and
administrative expenses totaled approximately $4.4 million, or $.2 million above
those of fiscal 2001. This increase is primarily due to an increase in
insurance, professional fees and debt acquisition costs, partially offset by a
decrease in travel, rent and customer relation expenses. General and
administrative expenses increased approximately $0.3 million in fiscal 2001 as
compared to fiscal 2000 expense of $3.9 million. The fiscal 2001 increase in
general and administrative expenses is due to an increase in rent and storage
fees associated with the new facility in Calgary, as well as an increase in
insurance, customer relations, travel and compensation expenses partially offset
by a decrease in professional fees and convention and advertising expenses.
Additionally, during fiscal 2001, the Company incurred personnel and related
costs associated with international marketing efforts. General and
administrative expenses totaled $3.9 million for fiscal 2000.

The Company's provision for doubtful accounts in fiscal 2002 was
approximately $5.1 million, for a substantial increase over the fiscal 2001
amount of $225,000. As of January 31, 2002, the Company has reserved or written
off approximately $5.0 million in trade and note receivables related to three
customers who advised the Company they were ceasing operations and did not have
the resources to pay their outstanding obligations to the Company. The Company
is pursuing collection efforts from these customers, but the magnitude and
likelihood of any possible recovery is not quantifiable at this time. During
fiscal 2001, the Company's provision for doubtful accounts was $225,000,
reflecting a decrease of $350,000 from fiscal 2000. The decrease in fiscal 2001
is attributable to the Company's improvement

14

in its receivables aging and the Company's collecting approximately $400,000 of
receivables previously written off. During fiscal 2001, the Company wrote off
approximately $289,000 of receivables deemed uncollectible. For fiscal 2000, the
Company's provision for doubtful accounts was $575,000. At January 31, 2002 and
2001, the Company had past due trade accounts and note receivables in the
approximate amount of $2.0 million and $.9 million, respectively. As of January
31, 2001 and 2000, the Company's allowance for doubtful accounts and notes
receivable amounted to $1,454,000 and $1,230,000, respectively.

For fiscal 2002, the Company recorded a net loss in the amount of $8.5
million, as compared to the fiscal 2001 net loss of $2.9 million. The primary
factors behind the fiscal 2002 net loss were the bad debt provision and
valuation allowance for the Company's deferred tax assets, as discussed more
fully in the notes to the financial statements. The net loss for fiscal 2000 was
$4.9 million.

LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 2002, the Company had net working capital of
approximately $.8 million as compared to net working capital of $8.8 million at
January 31, 2001. Historically, the Company's principal liquidity requirements
and uses of cash have been for capital expenditures and working capital and
principal sources of cash have been cash flows from operations and issuances of
equity securities. Net cash provided by operating activities for the year ended
January 31, 2002 was $12.3 million, as compared to $13.3 million and $8.0
million for the years ended January 31, 2001 and 2000, respectively. Net cash
used in financing activities for the year ended January 31, 2002 was $2.0
million, compared to net cash provided by financing activities for the years
ended January 31, 2001 and 2000 of $4.2 million and $0, respectively.

At January 31, 2002, the Company had trade accounts and notes
receivable of $2.0 million that were more than 90 days past due, as compared to
$.9 million at January 31, 2001. During fiscal 2002, the Company wrote off
approximately $4.7 million of accounts and notes receivable that were more than
90 days past due. As of January 31, 2002, the Company's allowance for doubtful
accounts was approximately $1.5 million, which management believes is sufficient
to cover any losses in its trade accounts receivable and notes receivable.

On November 10, 2000, the Company closed an $8.5 million term loan with
First Victoria National Bank. The loan amortizes over 48 months and bears
interest at the rate of prime plus one-half percent, adjusted daily. The first
three monthly payments were interest only, with the remaining 45 monthly
payments being interest and principal in the approximate amount of $229,000.
Subsequent to year-end, the Company renegotiated its term loan and borrowed an
additional $2.0 million. Beginning in March 2002, the 48 monthly payments of
principal and interest will be approximately $197,000. The loan is
collateralized by the lease pool equipment purchased for the Company's fiscal
2001 winter capital expenditure program. Additionally, during fiscal 2002 the
Company borrowed $75,000 under a separate loan agreement in connection with its
acquisition of assets related to the formation DSI. This term loan matures in
December 2002, bears interest at the rate of prime minus one percent, and
requires quarterly repayments in the approximate amount of $19,000.

Capital expenditures for the 2002 fiscal year totaled approximately
$18.0 million as compared to capital expenditures of $27.7 million for fiscal
2001. During fiscal 2002, the Company repurchased 290,900 shares of its common
stock for an aggregate cost of $1.5 million, or an average cost of $5.07 per
share. At the present time, management believes that cash on hand and cash
provided by future operations will be sufficient to fund its anticipated capital
and liquidity needs over the next twelve months. However, should demand warrant,
the Company may pursue additional borrowings to fund capital expenditures.

15

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in U.S. dollars. The Company typically denominates the majority
of its lease and sales contracts in U.S. dollars to mitigate the exposure to
fluctuations in foreign currencies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears at pages F-1 through F-23
hereof and incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors and executive officers of the Company
will be set forth in the proxy statement for the 2002 Annual Meeting of
Shareholders under the heading "Election of Directors," and is incorporated
herein by reference. Information regarding compliance by the officers, directors
and control persons of the Company with Section 16(a) of the Securities Exchange
Act of 1934 will be set forth in the Company's proxy statement for the 2002
Annual Meeting of Shareholders under the heading "Other Matters-Compliance with
Section 16(a) of the Exchange Act," and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation will be set forth in the
Company's proxy statement for the 2002 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners
and management and related stockholder matters will be set forth in the
Company's proxy statement for the 2002 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions
will be set forth in the Company's proxy statement for the 2002 Annual Meeting
of Shareholders.

16

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) EXHIBITS

Exhibit Number

3.1 -- Amended and Restated Articles of Incorporation of
Mitcham Industries, Inc. (1) (Exhibit 3.1)

3.2 -- Amended and Restated Bylaws of Mitcham Industries,
Inc. (1) (Exhibit 3.2)

9 -- Voting Agreement, dated September 20, 1993, between
the Company, Billy F. Mitcham, Jr. and certain
shareholders (2) (Exhibit 9)

* 10.1 -- Employment Agreement, dated January 15, 1997, between
the Company and Billy F. Mitcham, Jr. (3) (Exhibit
10.4)

10.2 -- Exclusive Lease Referral Agreement, dated May 14,
1996, between the Company and Pelton Company, Inc.
(4) (Exhibit 10.1)

10.3 -- First Amendment to the Exclusive Lease Referral
Agreement, dated January 1997, between the Company
and Pelton (5) (Exhibit 10.17)

10.4 -- Second Amendment to the Exclusive Lease Referral
Agreement between Mitcham Industries, Inc. and Pelton
Company, Inc., dated November 24, 1997 (5) (Exhibit
10.3)

10.5 -- Exclusive Equipment Lease Agreement, effective
December 16, 1999, between the Company and SERCEL,
S.A. (7) (Exhibit 10.2)

10.6 -- Commercial Representation Agreement, effective
September 20, 1996, between Mitcham Canada Ltd., an
Alberta corporation, and Georex, Inc. (4) (Exhibit
10.3)

10.7 -- Amendment No. 1 to the Commercial Representation
Agreement between Mitcham Canada, Ltd. and Georex,
Inc., dated November 11, 1997 (5) (Exhibit 10.1)

10.8 -- Exclusive Lease Representative and Distributor
Agreement between Mitcham Industries, Inc. and
StrucTec Systems, Inc., dated October 30, 1997 (5)
(Exhibit 10.2)

* 10.9 -- Mitcham Industries, Inc. 1994 Stock Option Plan (2)
(Exhibit 10.9)

10.10 -- Mitcham Industries, Inc. 1994 Non-Employee Director
Stock Option Plan (2) (Exhibit 10.12)

* 10.12 -- Mitcham Industries, Inc. 1998 Stock Awards Plan (6)
(Exhibit A)

* 10.13 -- Mitcham Industries, Inc. 2000 Stock Option Plan (8)
(Exhibit A)

10.14 -- Warrant, dated July 18, 2001, issued to Bear Ridge
Capital, L.L.C.

21 -- Subsidiaries of the Company

23 -- Consent of Hein + Associates LLP

* Management contract or compensatory plan or arrangement

(1) Incorporated by reference to the indicated exhibit number of the
Company's Registration Statement on Form S-8 (File No. 333-67208),
filed with the SEC on September 9, 2001.

(2) Incorporated by reference to the indicated exhibit number of the
Company's Registration Statement on Form SB-2, filed with the SEC on
July 5, 1994.

(3) Incorporated by reference to the indicated exhibit number of the
Company's Registration Statement on Form S-1 (File No. 333-19997),
filed with the SEC on January 17, 1997.

(4) Incorporated by reference to the indicated exhibit number of the
Company's Registration Statement on Form S-3 (File No. 333-10555),
filed with the SEC on October 30, 1996.

17

(5) Incorporated by reference to the indicated exhibit number of the
Company's Registration Statement on Form S-3 (File No. 333-40507),
filed with the SEC on November 18, 1997.

(6) Incorporated by reference to Exhibit A of the Company's proxy statement
for the fiscal year ended January 31, 1998.

(7) Incorporated by reference to Exhibit 10 of the Company's Current Report
on Form 8-K filed with the SEC on January 4, 2000.

(8) Incorporated by reference to Exhibit A of the Company's proxy statement
for the fiscal year ended January 31, 2000.

(b) REPORTS ON FORM 8-K

None.

18

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 1ST DAY OF MAY,
2002.

MITCHAM INDUSTRIES, INC.

By: /s/ BILLY F. MITCHAM, JR.
--------------------------------------------
Billy F. Mitcham, Jr., Chairman of the
Board, President and Chief Executive Officer
(principal executive officer)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.

19

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders
Mitcham Industries, Inc.
Huntsville, Texas

We have audited the accompanying consolidated balance sheets of Mitcham
Industries, Inc. and Subsidiaries as of January 31, 2001 and 2002, and the
related consolidated statements of operations, changes in shareholders' equity
and comprehensive income and cash flows for each of the years in the three-year
period ended January 31, 2002. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mitcham Industries, Inc. and
Subsidiaries as of January 31, 2001 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP

Houston, Texas
April 18, 2002

F-2

MITCHAM INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

F-3

MITCHAM INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

F-4

MITCHAM INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED JANUARY 31, 2000, 2001 AND 2002

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

F-5

MITCHAM INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

F-6

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Mitcham Industries, Inc. (the "Company") is a Texas
corporation formed on January 29, 1987. The Company and its
wholly-owned Canadian subsidiary provide full-service equipment
leasing, sales and services to the seismic industry worldwide,
primarily in North and South America. Through its wholly-owned U.S.
subsidiary, Drilling Services, Inc. ("DSI"), the Company provides
seismic survey program design, quality control, permit acquisition,
geographical surveying and shot hole drilling, all commonly referred to
as "front-end services". All intercompany transactions and balances
have been eliminated in consolidation.

Description of Leasing Arrangements - The Company leases various types
of seismic equipment to seismic data acquisition companies. The
majority of leases at January 31, 2001 and 2002 are for one year or
less. Lease revenue is recognized ratably over the term of the lease.

Lease/Purchase Activities - The Company periodically leases equipment
to customers, allowing them the option to purchase the equipment at a
pre-determined price any time during the lease term. The Company allows
its customers to credit a portion of the monthly lease payments to the
purchase price. Monthly lease revenue is recognized over the term of
the lease until the election to purchase is exercised, at which time
the Company records the sale. Lease revenue is deferred to the extent
that the estimated net book value, at the end of the lease term,
exceeds the adjusted purchase price.

Marketable Securities - Marketable securities to be held to maturity
are stated at amortized cost. Marketable securities classified as
available-for-sale are stated at market value, with unrealized gains
and losses reported as a separate component of shareholders' equity,
net of deferred income taxes. If a decline in market value is
determined to be other than temporary, any such loss is charged to
earnings. Trading securities are stated at fair value, with unrealized
gains and losses recognized in earnings. The Company records the
purchases and sales of marketable securities and records realized gains
and losses on the trade date. Realized gains or losses on the sale of
securities are recognized on the specific identification method.

As of January 31, 2001, all investments consisted of certificates of
deposit or government securities. Also, as of January 31, 2001, the
securities were classified as available-for-sale, and market value was
approximately equal to the original cost.

Seismic Equipment Lease Pool - Seismic equipment held for lease
consists primarily of remote signal conditioners (channel boxes) and
peripheral equipment and is carried at cost,

F-7

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

net of accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the equipment,
which is five years for channel boxes and 2 - 10 years for other
peripheral equipment.

SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of, sets forth guidance as to when to
recognize an impairment of long-lived assets and how to measure such
impairment. The standard requires certain assets to be reviewed for
impairment whenever events or circumstances indicate the carrying
amount may not be recoverable. In October 2001, the FASB approved SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS 144 replaces SFAS 121. SFAS 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001
and, generally, are to be applied prospectively. Upon adoption, the
Company does not believe this statement will have any effect on the
financial position or results of operations.

Property and Equipment - Property and equipment is carried at cost, net
of accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the property
and equipment. The estimated useful lives of equipment range from three
to seven years. Buildings are depreciated over 40 years and property
improvements over 10 years.

Income Taxes - The Company files a separate federal return for its
subsidiary in Canada. The Company accounts for its taxes under the
liability method, whereby the Company recognizes, on a current and
long-term basis, deferred tax assets and liabilities which represent
differences between the financial and income tax reporting bases of its
assets and liabilities. A valuation allowance is established when
uncertainty exists as to the ultimate realization of net deferred tax
assets.

Cash Equivalents - For purposes of presenting cash flows, the Company
considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents.

Use of Estimates - The preparation of the Company's consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these consolidated financial statements and accompanying
notes.

F-8

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Estimates are used for, but not limited to: allowance for doubtful
accounts, lease pool valuations, valuation allowance on deferred tax
assets and depreciable lives of assets. Future events and their effects
cannot be perceived with certainty. Accordingly, our accounting
estimates require the exercise of judgment. The accounting estimates
used in the preparation of our consolidated financial statements will
change as new events occur, as more experience is acquired, as
additional information is obtained and as the Company's operating
environment changes. Actual results could differ from these estimates.

Foreign Currency Translation - All balance sheet accounts of the
Canadian subsidiary have been translated at the current exchange rate
as of the end of the accounting period. Income statement items have
been translated at average currency exchange rates. The resulting
translation adjustment is recorded as a separate component of
comprehensive income within shareholders' equity.

Reclassifications - Certain prior year amounts have been reclassified
to conform with the current year presentation. Such reclassifications
had no effect on the results of operations or comprehensive income.

2. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business
Combinations ("SFAS 141") and No. 142, Goodwill and Other Intangible
Assets ("SFAS 142"). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase
method. For all business combinations for which the date of acquisition
is after June 30, 2001, SFAS 141 also establishes specific criteria for
the recognition of intangible assets separately from goodwill and
requires unallocated negative goodwill to be written off immediately as
an extraordinary gain, rather than deferred and amortized. SFAS 142
changes the accounting for goodwill and other intangible assets after
an acquisition. The most significant changes made by SFAS 142 are: 1)
goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with indefinite lives must
be tested for impairment at least annually; and 3) the amortization
period for intangible assets with finite lives will no longer be
limited to 40 years. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. Upon adoption, the Company does not believe
this statement will have any effect on the financial position or
results of operations.

F-9

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. TERM BANK LOANS

On November 10, 2000, the Company closed an $8.5 million term loan with
First Victoria National Bank. The loan amortizes over 48 months and
bears interest at the rate of prime plus one-half percent, adjusted
daily (5.25% at January 31, 2002). The first three monthly payments
were interest only, with the remaining 45 monthly payments being
interest and principal in the approximate amount of $229,000. As of
January 31, 2002, the Company has drawn the entire $8.5 million under
this loan agreement. The loan is collateralized by the lease pool
equipment purchased for the Company's fiscal 2001 winter capital
expenditure program. Subsequent to January 31, 2002, the Company
renegotiated its term loan with First Victoria National Bank with
substantially identical terms of the original loan. The Company
borrowed an additional $2.0 million, representing the approximate
amount of principal payments made under the original loan. The revised
loan amortizes over 48 months, bears interest at the rate of prime plus
one-half percent and requires 48 monthly payments of principal and
interest in the approximate amount of $197,000.

In connection with the formation of DSI, the Company closed a $75,000
term loan in December 2001 with Regions Bank. This loan amortizes over
12 months and bears interest at the rate of prime minus one percent,
adjusted daily (3.75% at January 31, 2002). The quarterly payments of
principal and interest, beginning March 7, 2002, are approximately
$19,000.

Long-term debt repayments are scheduled to be $2,515,000, $2,584,000
and $1,495,000 in fiscal 2003, 2004 and 2005, respectively.

4. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION

Supplemental disclosures of cash flow information for the years ended
January 31, 2000, 2001 and 2002 are as follows:

F-10

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. NOTES RECEIVABLE

Notes receivable consisted of $2,080,000 due from seven customers and
$1,126,000 due from four customers as of January 31, 2001 and 2002,
respectively. These notes bear interest ranging from 9.5% - 12%. During
fiscal 2002, the Company established one new note receivable in the
amount of $500,000 to finance trade receivables. Also during fiscal
2002, the Company received final payments on three notes receivable
that had been established in prior fiscal years. Additionally, during
fiscal 2002 the Company wrote off two notes receivable in the aggregate
amount of $638,000, one of which related to sales of equipment and one
of which related to the financing of trade receivables from prior
fiscal years.

During fiscal 2001, the Company established four notes receivable
totaling $901,000 related to sales of seismic equipment and one note
receivable to finance trade receivables in the amount of $527,000.
Additionally, one of the new notes established during fiscal 2001 has
been repaid by the customer as of January 31, 2002. The Company does
not recognize interest income related to notes that were established to
finance trade receivables. Interest will be recognized once all
principal balances have been repaid.

6. CONCENTRATIONS

Credit Risk - As of January 31, 2001 and 2002, amounts due from
customers which exceeded 10% of accounts receivable amounted to an
aggregate of $3.5 million from three customers and $1.2 million from
one customer, respectively.

The Company maintains deposits with banks which exceed the Federal
Deposit Insurance Corporation ("FDIC") insured limit and has a money
market account included in its cash balances which is not FDIC insured.
Management believes the risk of loss in connection with these accounts
is minimal.

Industry Concentration - The Company's revenues are derived from
seismic equipment leased and sold to companies providing seismic
acquisition services. The seismic industry has rapidly expanded its 3-D
seismic acquisition capabilities over the past few years as this
technology has gained broad market acceptance from oil and gas
exploration companies. With this expansion, many of the seismic
acquisition companies in North America, while experiencing rapid growth
in 3-D seismic acquisition revenues, have not experienced corresponding
increases in profitability and have become increasingly leveraged.
Should the financial performance of the companies in this industry not
improve, the Company could be exposed to additional credit risk and be
subjected to declining demand for its leasing services.

F-11

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. SEISMIC EQUIPMENT LEASE POOL, PROPERTY AND EQUIPMENT

Seismic equipment lease pool, property and equipment consisted of the
following as of:

8. LEASES

The Company leases and subleases seismic equipment to customers under
operating leases with non-cancelable terms of one year or less. These
leases are generally renewable on a month-to-month basis. All taxes
(other than U.S. federal income taxes) and assessments are the
contractual responsibility of the lessee. To the extent the foreign
taxes are not paid by the lessee, the relevant foreign taxing
authorities might seek to collect such taxes from the Company. Under
the terms of its lease agreements, any amounts paid by the Company to
such foreign taxing authorities may be billed and collected from the
lessee. If the Company is unable to collect the foreign taxes it paid
on behalf of its lessees, the Company may have foreign tax credits in
the amounts paid which could be applied against its U.S. income tax
liability subject to certain limitations. The Company is not aware of
any foreign tax obligations as of January 31, 2001 and 2002 that have
not already been reflected on the accompanying consolidated financial
statements.

The Company leases seismic equipment from others under month-to-month
operating leases. Lease expense incurred by the Company in connection
with such leases amounted to $155,000, $513,000 and $329,000 for the
years ended January 31, 2000, 2001 and 2002, respectively.

F-12

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES

The components of income tax expense (benefit) were as follows:

The components of the Company's deferred tax asset consisted of the
following as of:

F-13

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES (continued)

The following is a reconciliation of expected to actual income tax
expense (benefit):

The Company had Canadian net operating loss carryforwards of
approximately $6,000,000 as of January 31, 2002. The Canadian net
operating losses expire in various years through 2007. The Company has
U.S. net operating losses of approximately $8,000,000, which if unused
will expire in 2021.

The Company recorded a valuation allowance of approximately $2,000,000
as of January 31, 2001 and $6,700,000 as of January 31, 2002.

10. SALES AND MAJOR CUSTOMERS

A summary of the Company's revenues from foreign customers by
geographic region is as follows:

Three customers represented approximately 17%, 12% and 10% of fiscal
2000 total revenues. Three customers represented approximately 21%, 13%
and 10% of fiscal 2001 total revenues and two customers represented
approximately 22% and 11% of fiscal 2002 total revenues. No other
customer exceeded 10% of revenues for fiscal 2000, 2001 and 2002.

F-14

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. SHAREHOLDERS' EQUITY

The Company has 1,000,000 shares of preferred stock authorized, none of
which are outstanding as of January 31, 2001 and 2002. The preferred
stock may be issued in multiple series with various terms, as
authorized by the Company's Board of Directors. The Company has
20,000,000 shares of common stock authorized, of which 9,591,112 and
9,657,801 are issued as of January 31, 2001 and 2002, respectively.

In August 1996, in exchange for services, the Company issued warrants
to its legal counsel to purchase 50,000 shares of its common stock for
$6.43 per share (the "August 1996 Warrants"), exercisable beginning
August 1997 for a period of four years thereafter. During fiscal 2001,
all of these warrants were exercised. In December 1996, in exchange for
services, the Company issued warrants to its legal counsel to purchase
50,000 shares of its common stock at $9.28 per share (the "December
1996 Warrants"), exercisable beginning December 14, 1997 for a period
of five years. During fiscal 2002, all of these warrants were
exercised. In October 1997, in exchange for services rendered in
connection with the Company's secondary offering, the Company issued
warrants to its legal counsel to purchase 25,000 shares of its common
stock for $28.12 per share (the "1997 Warrants"), exercisable beginning
October 28, 1998 for a period of five years thereafter. During fiscal
2002, 20,000 of these warrants were exercised. As of January 31, 2002,
the exercise price of the remaining 5,000 1997 Warrants was $3.56 per
share, a result of the anti-dilution provisions of those warrants.

In July 2001, in exchange for services, the Company issued warrants to
an investment banking firm to purchase 20,000 shares of its common
stock for $5.00 per share, exercisable beginning July 18, 2002 for a
period of five years thereafter. As of January 31, 2002, the exercise
price of the warrants was $4.42 per share, a result of the
anti-dilution provisions of those warrants.

In February 2000, the Board of Directors authorized the repurchase of
up to 1,000,000 shares of the Company's common stock. On July 18, 2001,
the Board of Directors increased the number of shares authorized to be
repurchased to a total of up to 1,250,000 shares. The Company has
repurchased 907,200 shares of its common stock at an average cost of
$5.15 per share as of January 31, 2002 and has classified these shares
as treasury stock in the accompanying financial statements. The Company
expects it will continue to purchase its shares from time to time in
the open market or in privately negotiated purchase transactions as
market and financial conditions warrant.

F-15

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. COMMITMENTS AND CONTINGENCIES

Sercel Lease Agreement - Effective December 16, 1999, the Company
renewed its exclusive leasing arrangement with Sercel by entering into
a new Exclusive Equipment Lease Agreement (the "Sercel Lease
Agreement"). The Sercel Lease Agreement replaces the parties' former
Exclusive Equipment Lease Agreement (the "Former Agreement") that was
entered into in September 1996, under which the Company had completely
fulfilled its purchase obligations. The Sercel Lease Agreement is
substantially similar to the Former Agreement. Under the agreement, the
Company acts as Sercel's exclusive third-party worldwide short-term
leasing representative and Sercel will refer to the Company all
requests it receives to lease Sercel 3-D data acquisition equipment and
other field equipment, through December 31, 2002. As of January 31,
2002, the Company has fulfilled its purchase obligations.

Legal Proceedings - On or about April 23, 1998, several purported
securities fraud class action lawsuits were filed against the Company,
Billy F. Mitcham and Roberto Rios ("Defendants") in the U.S. District
Court for the Southern District of Texas, Houston Division. On August
10, 2001, facing protracted and expensive litigation, Defendants
executed a final settlement agreement with Plaintiffs for $2.7 million,
paid by the Company and its insurance carrier. On December 10, 2001,
the Court approved the settlement agreement, certified the class for
settlement purposes only, and entered a Final Judgment and Order
dismissing all the class action lawsuits with prejudice.

Employment Agreement - Effective January 15, 1997, the Company entered
into an employment agreement with the Company's president for a term of
five years, beginning January 15, 1997, which term is automatically
extended for successive one-year periods unless either party gives
written notice of termination at least 30 days prior to the end of the
current term. The agreement provides for an annual salary of $150,000,
subject to increase by the Board of Directors. It may be terminated
prior to the end of the initial term or any extension thereof if the
president dies; if it is determined that the president has become
disabled; if the Board of Directors determines that the president has
breached the employment agreement in any material respect, has
appropriated a material business opportunity of the Company or has
engaged in fraud or dishonesty with respect to the Company's business
that is punishable by imprisonment. If the president's employment is
terminated by the Company prior to the end of the initial five-year
term other than for a reason enumerated above, the president will be
entitled to payments equal to $450,000, payable ratably over the 24
months following such termination. For a period of two years after the
termination of the agreement, the president is prohibited from engaging
in any business activities that are competitive with the Company's
business and from diverting any of the Company's customers to a
competitor.

F-16

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS

The Company's stock option plans consist of the 1994 Stock Option Plan,
the 1998 Stock Awards Plan, the 2000 Stock Option Plan and the 1994
Non-Employee Director Plan (the "Director Plan"). Under the 1994 Stock
Option Plan, incentive stock options and unqualified stock options to
purchase a maximum of 350,000 shares of common stock may be issued to
officers, employee directors, key employees and consultants of the
Company.

Under the 1998 Stock Awards Plan, up to 350,000 shares of common stock
may be issued in the form of stock options, stock appreciation rights,
restricted stock awards, performance awards and phantom stock awards to
the Company's employees.

Under the 2000 Stock Option Plan, up to 1,000,000 shares of common
stock may be issued in the form of incentive stock options and
unqualified stock options to the Company's employees, consultants and
non-employee directors.

With respect to incentive stock options issued under the 1994 Stock
Option Plan, the 1998 Stock Awards Plan and the 2000 Stock Option Plan,
no option may be granted more than 10 years after the effective date of
the stock option plan or exercised more than 10 years after the date of
grant (five years if the optionee owns more than 10% of the common
stock of the Company at the date of grant). The vesting period for
options will be determined by the Compensation Committee, except that
no option may be exercised sooner than six months from the date of
grant. Additionally, with regard to incentive stock options, the
exercise price of the option may not be less than 100% of the fair
market value of the common stock at the date of grant (110% if the
optionee owns more than 10% of the common stock of the Company).
Subject to certain limited exceptions, options may not be exercised
unless, at the time of exercise, the optionee is in the service of the
Company.

As of January 31, 2002, options to purchase an aggregate of 295,100
shares have been granted and options to purchase 137,100 shares of
common stock are issued and outstanding under the 1994 Stock Option
Plan, 45,750 of which are exercisable at a price of $5.00 per share,
21,000 of which are exercisable at $3.29 per share, 21,000 of which are
exercisable at $5.75 per share, 34,350 of which are exercisable at
$22.00 per share and 15,000 of which are exercisable at $5.38 per
share. As of January 31, 2002, options to purchase an aggregate of
276,650 shares have been granted and options to purchase 270,550 shares
of common stock are issued and outstanding under the 1998 Stock Awards
Plan, 60,000 of which are exercisable at a price of $7.38 per share and
210,550 of which are exercisable at $3.56 per share. As of January 31,
2002, options to purchase an aggregate of 513,550 shares of common
stock are issued and outstanding under the 2000 Stock Option Plan,
240,300 of which are exercisable at a price of $5.13 per share, 750 of
which are exercisable at $5.53 per

F-17

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS (continued)

share, 262,500 of which are exercisable at $5.00 per share and 10,000
of which are exercisable at $4.60 per share.

The Director Plan provides for the grant of up to 50,000 nonqualified
stock options. Options granted under the Director Plan must have an
exercise price at least equal to the fair market value of the Company's
common stock on the date of grant. Pursuant to the Director Plan,
options to purchase 5,000 shares of common stock are granted to each
non-employee director upon his election to the Board and every year
thereafter so long as he is re-elected to the Board of Directors.
Options granted under the Director Plan are fully vested one year after
their grant and expire 10 years after the date of the grant. As of
January 31, 2002, options to purchase an aggregate of 41,000 shares of
common stock were issued and outstanding under the Director Plan, 1,000
of which are exercisable at $2.88 per share, 1,000 of which are
exercisable at $3.13 per share, 10,000 of which are exercisable at
$4.06 per share, 15,000 of which are exercisable at $5.13 per share,
2,000 of which are exercisable at $7.38 per share, 10,000 of which are
exercisable at $11.00 per share and 2,000 of which are exercisable at
$11.13 per share.

Activity in the 1994 Stock Option Plan, 1998 Stock Awards Plan, 2000
Stock Option Plan and Director Plan for the years ended January 31,
2000, 2001 and 2002 was as follows:

F-18

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS (continued)

As of January 31, 2002, options to acquire 479,318 shares of the
Company's common stock were fully vested and exercisable at a weighted
average exercise price of $6.23 per share.

The remaining options, which have a weighted average exercise price of
$4.82 per share, will vest over the next three fiscal years. If not
previously exercised, options outstanding at January 31, 2002 will
expire as follows: 45,750 options expire on May 9, 2004; 1,000 options
expire on March 16, 2005; 1,000 options expire on June 8, 2005; 21,000
options expire on December 4, 2005; 2,000 options expire on June 12,
2006; 21,000 options expire on August 14, 2006; 2,000 options expire on
June 11, 2007; 34,350 options expire on October 3, 2007; 10,000 options
expire on July 9, 2008; 15,000 options expire on August 31, 2008;
60,000 options expire on September 29, 2008; 210,550 options expire on
February 23, 2009; 10,000 options expire on July 23, 2009; 255,300
options expire on July 27, 2010, 750 options expire on August 15, 2010,
262,500 options expire on July 18, 2011 and 10,000 options expire on
October 23, 2011.

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock
option plans since options have been granted at fair value. Had
compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards
under those plans, consistent with the method of SFAS No. 123, the
Company's net loss and loss per common share would have been decreased
to the pro forma amounts indicated below:

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: risk free rates of 4.5% to 7%; volatility of 62%, 65% and
69% for 2000, 2001 and 2002, respectively; no assumed dividend yield;
and expected lives of 3-5 years.

F-19

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of trade receivables,
marketable securities, notes receivable and accounts and notes
payables. The Company believes the carrying value of these financial
instruments approximates their estimated fair value due to the short
maturity of these instruments and the market rates associated with the
notes payable.

15. FORMATION OF SUBSIDIARY

On January 28, 2002, the Company formed a wholly-owned subsidiary, DSI,
to own and operate a fleet of seismic shot hole drills and to provide
other services required by seismic data acquisition contractors. Such
services offered by DSI include seismic survey program design, quality
control, permit acquisition, geographical surveying and shot hole
drilling, or commonly referred to as "front-end services". The Company
paid approximately $1.5 million in cash and bank debt for the purchase
of the assets that were placed in the newly-formed subsidiary. The
majority of assets purchased consists of drilling equipment and
automobiles. As of January 31, 2002, the Company has not finalized its
purchase price allocation of these assets. However, the Company does
not expect any material change in the balances described elsewhere in
this report (see Notes 1, 3 and 7 for additional information).

F-20

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. QUARTERLY FINANCIAL DATA (Unaudited)

(in thousands, except per share amounts)

(1) During the fourth quarter of fiscal 2001, the Company triggered alternative
minimum tax credits and experienced better than expected operating results
allowing the Company to recover previously paid taxes. During the fourth
quarter of fiscal 2002, the Company recorded a valuation allowance against
its deferred tax assets in the amount of $4.7 million.

(2) During the fourth quarter of fiscal 2002, the Company wrote off or reserved
approximately $4.9 million of customer accounts and notes receivable.

F-21

INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders
Mitcham Industries, Inc.
Huntsville, Texas

We have audited, in accordance with auditing standards generally accepted in the
United States of America, the consolidated financial statements of Mitcham
Industries, Inc. and Subsidiaries included in this Form 10-K and have issued our
report thereon dated April 18, 2002. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
financial statement schedule listed in Item 16(b) herein (Schedule II -
Valuation and Qualifying Accounts) is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects with the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.

/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP

Houston, Texas
April 18, 2002

F-22

SCHEDULE II

MITCHAM INDUSTRIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

- ----------

(A) Represents recoveries and uncollectible accounts written off.

Note: Column C(2) has been omitted, as all answers would be "none."

F-23

INDEX TO EXHIBITS