MITCHAM INDUSTRIES INC - 10-Q Quarterly Report

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

FORM 10-Q

================================================================================

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002

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

COMMISSION FILE NUMBER 000-25142
====================================================================

MITCHAM INDUSTRIES, INC.
(Name of registrant as specified in its charter)

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

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

(936) 291-2277
(Registrant's telephone number, including area code)
====================================================================

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,742,801 shares of Common
Stock, $0.01 par value, were outstanding as of September 13, 2002.

MITCHAM INDUSTRIES, INC.
INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets........................... 3
Condensed Consolidated Statements of Operations................. 4
Condensed Consolidated Statements of Cash Flows................. 5
Notes to Condensed Consolidated Financial Statements............ 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 7

Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 9

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................... 12

Item 4. Submission of Matters to a Vote of Security Holders................. 13

Item 6. Exhibits and Reports on Form 8-K.................................... 13

Signatures.......................................................... 14

2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)

July 31, January 31,
ASSETS 2002 2002
------ -------- -----------
(Unaudited)

Current Assets:
Cash $ 4,676 $ 8,244
Accounts receivable, net 1,637 3,431
Notes receivable 749 851
Prepaid expenses and other current assets 459 407
-------- --------
Total current assets 7,521 12,933
Seismic equipment lease pool, property and equipment 87,153 90,381
Accumulated depreciation of seismic equipment lease pool,
property and equipment (46,636) (44,814)
Notes receivable 231 275
Other assets 17 20
-------- --------
Total assets $ 48,286 $ 58,795
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current Liabilities:
Accounts payable $ 1,956 $ 8,659
Current maturities -- long-term debt 2,046 2,515
Deferred revenue 224 314
Accrued wages 206 265
Accrued expenses and other current liabilities 681 360
-------- --------
Total current liabilities 5,113 12,113
Long-term debt 5,702 4,079
-------- --------
Total liabilities 10,815 16,192

Shareholders' Equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.01 par value; 20,000,000 shares authorized;
9,657,801 shares issued 97 97
Additional paid-in capital 61,814 61,814
Treasury stock, at cost, 907,200 shares (4,671) (4,671)
Accumulated deficit (17,325) (12,023)
Accumulated other comprehensive loss (2,444) (2,614)
-------- --------
Total shareholders' equity 37,471 42,603
-------- --------
Total liabilities and shareholders' equity $ 48,286 $ 58,795
======== ========

The accompanying notes are an integral part of these condensed
consolidated financial statements.

3

MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

The accompanying notes are an integral part of these condensed
consolidated financial statements.

4

MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes for non-cash investing and financing activities.

The accompanying notes are an integral part of these condensed
consolidated financial statements.

5

MITCHAM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Mitcham Industries,
Inc. ("the Company") have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the
Company's latest Annual Report to Shareholders and the Annual Report on
Form 10-K for the year ended January 31, 2002. In the opinion of the
Company, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position as of July 31, 2002;
the results of operations for the three and six months ended July 31, 2002
and 2001; and cash flows for the six months ended July 31, 2002 and 2001,
have been included. The foregoing interim results are not necessarily
indicative of the results of the operations for the full fiscal year
ending January 31, 2003.

2. COMMITMENTS AND CONTINGENCIES

Legal Proceedings
On or about April 23, 1998, several purported securities fraud class
action lawsuits were filed against the Company, Billy F. Mitcham, Jr. 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.

The Company is also involved in claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations or liquidity.

3. INCOME TAXES

During the quarter ended April 30, 2002, the Company recorded tax expense
in the amount of $288,000. The current expense reflects an excess refund
from the Internal Revenue Service which the Company received in prior
fiscal years, versus an estimated tax liability related to the current
quarter's operations. This estimate of taxes differs from an expected
statutory rate because the Company was in a tax loss position and
increased its valuation allowance on its deferred tax assets.

4. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the six months ended
July 31, 2001 and 2002 are as follows:

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5. RECLASSIFICATIONS

Certain 2001 amounts have been reclassified to conform to 2002
presentation.

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

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. Over the last twelve months, the
seismic industry has begun to recover from the depressed levels of activity in
prior years.

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 July 31, 2002 were for a term of one year or less.
Seismic equipment held for lease is carried at cost, net of accumulated
depreciation. Through its wholly-owned subsidiary, Drilling Services, Inc.
("DSI"), the Company provides front-end services to seismic data acquisition
contractors. Such services typically include seismic survey program design,
quality control, permit acquisition, geographical surveying and shot hole
drilling.

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.

RESULTS OF OPERATIONS

For the three months ended July 31, 2002 and 2001

For the quarter ended July 31, 2002, total revenues decreased
approximately $6.0 million to $2.0 million from $8.1 million in the
corresponding period of the prior year. This decrease in revenues is
attributable to a weakening demand for equipment rentals in South America and
the U.S. during the quarter, partially offset by the inclusion of operations of
the Company's new subsidiary, DSI, which was formed in January 2002. The
Company's core equipment leasing revenues decreased approximately $4.9 million
from the prior year, but was partially offset by $1.0 million in front-end
services revenues generated by DSI during the quarter.

For the quarter ended July 31, 2002, the Company recorded $399,000 in
equipment sales, generating a gross margin of 45%. In the prior year's
comparable quarter, the Company recorded $2.5 million in equipment sales that
generated a gross margin of 46%. Gross margins on equipment sales may vary
significantly between periods due to the mix of new versus older equipment being
sold.

General and administrative expenses increased $323,000 from the
corresponding prior year period primarily due to the inclusion of the results of
DSI in the current quarter. The increase in expenses is primarily due to an
increase in professional fees, insurance, customer relations, rent and
utilities, and compensation expenses.

Depreciation expense for the quarter ended July 31, 2002 decreased by
$473,000, or 11%, to $3.9 million from $4.4 million for the same period last
year. The decrease is primarily the result of some older equipment

7

becoming fully depreciated during the last fiscal year coupled with the
Company's decrease in capital additions to the seismic equipment lease pool
during the past year. The Company's seismic equipment lease pool decreased $3.2
million, on a cost basis, to $87.2 million at July 31, 2002, from $90.4 million
at January 31, 2002.

During the quarter ended July 31, 2002, the Company recorded a non-cash
net benefit for doubtful accounts in the amount of $1.7 million. This amount
represents recoveries of receivables written off in the prior fiscal year in the
form of seismic equipment that the Company accepted as a settlement related to a
former customer which ceased operations last year. The equipment was valued
based on a fair value appraisal of the equipment received. No such recovery was
recorded in the comparable quarter of the prior year.

The Company recorded a net loss for the quarter ended July 31, 2002 in
the amount of $3.2 million compared to net income of $333,000 for the same
period of the previous year.

For the six months ended July 31, 2002 and 2001

For the six months ended July 31, 2002, total revenues decreased by
$5.7 million to $9.4 million from $15.1 million in the corresponding period of
the prior year. The Company's core equipment leasing revenues decreased $7.7
million during the current fiscal year as compared to the comparable period in
the prior year. Fiscal 2003 revenues through July 31, 2002 reflect a significant
decrease in leasing revenues ($7.7 million), partially offset by a slight
increase in equipment sales revenues and the inclusion of operations of the
Company's new subsidiary, DSI, which was formed in late January 2002. Front-end
services revenues recorded during the six months ended July 31, 2002 amounted to
$1.4 million. The decrease in leasing revenues is attributable to a weakening
demand for equipment rentals in South America and the U.S. during the current
period versus the comparable period of the prior year.

During the six months ended July 31, 2002, equipment sales totaled $4.0
million and generated a gross margin of 14% as compared to sales of $3.3 million
and a gross margin of 43% for the same period in 2001. Sales made during the
current period consisted mainly of newer equipment, yielding low gross margins.
Gross margins on equipment sales may vary significantly between periods due to
the mix of new versus older equipment being sold.

General and administrative expenses increased by $635,000 from the
corresponding prior year period mainly due to the inclusion of the results of
DSI in the current period. The increase in expenses is primarily due to an
increase in insurance, compensation expenses, franchise taxes, professional fees
and rent and utilities, partially offset by a decrease in advertising expenses.

Depreciation expense for the six months ended July 31, 2002 decreased
by $.6 million, or 7%, to $7.8 million from $8.4 million for the same period
last year. The decrease is primarily the result of some older equipment becoming
fully depreciated during the last fiscal year coupled with the Company's
decrease in capital additions to the seismic equipment lease pool during the
past year. The Company's seismic equipment lease pool decreased $3.2 million, on
a cost basis, to $87.2 million at July 31, 2002, from $90.4 million at January
31, 2002.

During the six months ended July 31, 2002, the Company recorded a
non-cash net benefit for doubtful accounts in the amount of $1.7 million. This
amount represents recoveries of receivables written off in the prior fiscal year
in the form of seismic equipment that the Company accepted as a settlement
related to a former customer which ceased operations last year. The equipment
was valued based on a fair value appraisal of the equipment received. During the
six months ended July 31, 2001, the Company recorded a $75,000 provision for
doubtful accounts.

The Company recorded a net loss for the six months ended July 31, 2002
in the amount of $5.3 million, compared to net income of $.8 million for the
same period of the previous year.

8

LIQUIDITY AND CAPITAL RESOURCES

As of July 31, 2002, the Company had net working capital of
approximately $2.4 million as compared to net working capital of $.8 million at
January 31, 2002. Historically, the Company's principal liquidity requirements
and uses of cash have been for capital expenditures and working capital and our
principal sources of cash have been cash flows from operations and issuances of
equity securities. Net cash used in operating activities for the six months
ended July 31, 2002 was $4.1 million, as compared to net cash provided by
operating activities of $1.5 million for the six months ended July 31, 2001.

At July 31, 2002, the Company had trade accounts receivable of $1.1
million that were more than 90 days past due. At July 31, 2002, the Company's
allowance for doubtful accounts was approximately $1.3 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 amortized over 48 months at an interest
rate of prime plus 1/2%, 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. In February 2002, the Company
renegotiated its term loan, the remaining outstanding principal balance of which
was then $6.5 million, and borrowed an additional $2.0 million. Beginning in
March 2002, the 48 monthly payments of principal and interest are 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 of DSI.
This term loan is payable in four quarterly installments of principal and
interest totaling approximately $19,000, beginning in March 2002 and ending in
December 2002; the interest rate is prime minus 1%.

Capital expenditures for the six months ended July 31, 2002 totaled
approximately $4.0 million compared to capital expenditures of $9.0 million for
the corresponding period in the prior year. 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.

ITEM 3. 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.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Certain information contained in this Quarterly Report on Form 10-Q
(including statements contained in Part I, Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in Part II, Item
1. "Legal Proceedings"), 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 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

9

results described in the forward-looking statements due to the risks and
uncertainties set forth below and elsewhere within this Quarterly Report on Form
10-Q.

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 WOULD 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 would 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 has approximately $3.9 million of customer accounts and notes
receivable at July 31, 2002, of which $1.1 million is over ninety days past due.
At July 31, 2002, the Company has an allowance of $1.3 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 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

10

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.

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

11

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.

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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or about April 23, 1998, several purported securities fraud class
action lawsuits were filed against the Company, Billy F. Mitcham, Jr. 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.

12

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

(a) The Company held its Annual Meeting of Shareholders on July 18, 2002.
Shareholders of record at the close of business on May 30, 2002 were
entitled to vote.

(b) Shareholders elected each of the six directors nominated for the board
of directors:

NAME OF NOMINEE FOR WITHHELD

Billy F. Mitcham, Jr. 8,213,724 166,306
R. Dean Lewis 8,341,414 38,616
John F. Schwalbe 8,342,264 37,766
William J. Sheppard 8,206,024 174,006
P. Blake Dupuis 8,207,524 172,506
Peter H. Blum 8,346,689 33,341

(c) The Shareholders ratified the appointment of Hein + Associates LLP as
the Company's independent auditors:

FOR AGAINST ABSTAINING

8,345,778 24,177 10,075

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

The following documents are filed as exhibits to this Report:

99.1 - Certification of the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

99.2 - Certification of the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

(b) REPORTS ON FORM 8-K

None.

13

SIGNATURES

Pursuant to the requirements 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.

MITCHAM INDUSTRIES, INC.

Date: September 14, 2002 /s/ CHRISTOPHER C. SIFFERT
-------------------------------
CHRISTOPHER C. SIFFERT,
CORPORATE CONTROLLER
(AUTHORIZED OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)

CERTIFICATIONS

I, Billy F. Mitcham, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mitcham
Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

Date: September 14, 2002

/s/ Billy F. Mitcham, Jr.
- ------------------------------------
Billy F. Mitcham, Jr.
Chief Executive Officer

I, P. Blake Dupuis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mitcham
Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

Date: September 14, 2002

/s/ P. Blake Dupuis
- ------------------------------------
P. Blake Dupuis
Chief Financial Officer

14

EXHIBITS INDEX