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, 2003
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)

8141 SH 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]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes[ ] No[X]

Aggregate market value of the voting stock held by non-affiliates of
the registrant: $12,339,905 as of July 31, 2002.

As of April 29, 2003, there were outstanding 8,742,801 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 its 2003
Annual Meeting of Shareholders.

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

PART I
ITEM 1. BUSINESS

Mitcham Industries, Inc. (the "Company"), a Texas corporation, was
incorporated in 1987. Since our organization, we have primarily been engaged in
the leasing and sales of seismic equipment to the seismic industry worldwide. We
conduct our business in two reportable segments: Seismic Leasing and Sales
("Seismic") and Front-end Services. Our Seismic segment consists of the
operations of Mitcham Industries, Inc. and our two wholly-owned subsidiaries,
Mitcham Canada Ltd. and Seismic Asia Pacific Pty Ltd. Our front-end Services
segment is comprised of the operations of our other wholly-owned subsidiary,
Drilling Services, Inc. Segment data is presented in Note 16 to the Consolidated
Financial Statements.

SEISMIC SEGMENT

The Seismic segment 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). We
conduct our operations on a worldwide basis and are 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.

We own a variety of technologically advanced equipment acquired from
the leading seismic manufacturers. Our lease pool includes many types of
equipment used in seismic data acquisition, including all electronic 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 our equipment lease pool is provided by two manufacturers,
the Sercel subsidiaries of Compagnie Generale de Geophysique (collectively,
"Sercel") and Input/Output, Inc. ("I/O"). We believe that the majority of the
advanced seismic data acquisition systems in use worldwide are either Sercel or
I/O systems. At January 31, 2003, approximately 41% of our equipment lease pool,
on a cost basis, consisted of seismic recording channel boxes, with the
remainder consisting of geophones and other peripheral equipment.

On December 30, 2002, Mitcham Industries, Inc., purchased all of the
issued and outstanding shares of capital stock of Seismic Asia Pacific Pty Ltd.,
(SAP). Headquartered in Brisbane Australia, SAP provides equipment, consumables,
systems integration, engineering hardware and software maintenance support
services to the seismic, hydrographic, oceanographic environment and defense
industries throughout South East Asia and Australia.

We lease our 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, we enable our 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 and (iii)
costs of seismic equipment. We believe these factors allow seismic contractors
to use short-term seismic equipment leasing as a cost-effective alternative to
purchasing additional equipment. Our 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. Our customers may lease a small amount of
equipment to expand an existing crew's capabilities

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or a complete seismic data acquisition system to equip an entire crew.

Certain of our leases contain a purchase option. Additionally, we sell
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.

We have supply and exclusive lease referral agreements with several
leading seismic equipment manufacturers, including Sercel and Pelton Company,
Inc. ("Pelton"), which we believe provide us with certain competitive
advantages. Under these agreements, we are the exclusive worldwide short-term
leasing representative for certain products.

BUSINESS STRATEGY

Our business strategy is to meet the needs of users of seismic
equipment through our leasing and front-end services. To accomplish this, we
have identified the following major objectives:

o Provide a technologically advanced seismic equipment lease pool.
We intend to maintain the size and diversity of our equipment
lease pool, including most recently, the addition of marine
equipment. We believe 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, our
activities outside North and South America have consisted of
equipment sales, with a limited amount of leasing activities. We
believe there are opportunities to expand our international
leasing activities as our customers' operations grow in
international markets.

o Develop and enhance alliances with major seismic equipment
manufacturers. Our relationships with leading seismic equipment
manufacturers allow us to expand our equipment lease pool on
favorable terms. We believe such relationships improve our access
to customers and provide a competitive advantage.

o Pursue additional business development opportunities. We
regularly evaluate opportunities to expand our 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.

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

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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)
geographic 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 generally require a larger amount
of equipment than 2-D surveys. 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. Since 3-D seismic data increase drilling success rates and reduce
costs, we believe that 3-D seismic surveys are now predominant. 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.

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.

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 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

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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. We believe
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. We typically purchase new and used seismic
equipment for short-term (less than one year) lease to our customers, which
primarily include seismic contractors. After the termination of the original
equipment lease, we enter into additional short-term leases with other
customers, leasing such equipment multiple times until the end of its useful
life or its sale. Our 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. Our customers generally lease seismic
equipment to meet shortages of recording channels and related equipment for
specific surveys.

We currently have an equipment lease pool comprising a total of
approximately 42,500 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 geographic survey and other equipment. All of our lease
pool equipment is manufactured by leading seismic equipment manufacturers and is
widely used in the seismic industry.

Our equipment leases generally have terms of three to nine months and
are typically renewable on a month-to-month basis. We offer maintenance of our
leased equipment during the lease term for malfunctions due to failure of
material and parts and will provide replacement equipment as necessary. In
addition, we provide field support services when requested by our customers.

Our 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 we have 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.

Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to our
operations in Canada, where a significant percentage of the seismic survey
activity usually occurs in the winter season, from November 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, we attempt to
manage our 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. Our equipment sales business serves a diverse
base of industry, governmental, university and research customers. We typically
buy used equipment for resale and new

4

equipment in response to specific customer orders. On occasion, we will also
hold equipment of third parties and sell such equipment on consignment.

KEY SUPPLIER AGREEMENTS

THE SERCEL LEASE AGREEMENT

Our Exclusive Equipment Lease Agreement with Sercel, a major
manufacturer of 3-D seismic data acquisition equipment, expired December 31,
2002. Effective April 9, 2003, we renewed our exclusive leasing arrangement with
Sercel by entering into a new Equipment Lease Agreement (the "New Sercel
Agreement").

Under the New Sercel Agreement, we are Sercel's exclusive third-party
worldwide short-term (for leases of a duration of less than one year) leasing
representative for land-based seismic equipment and its non-exclusive leasing
representative with respect to certain marine seismic equipment. While there are
no restrictions on Sercel's ability to undertake short-term or long-term leasing
of either land-based or marine seismic equipment, Sercel will provide us with
information regarding any potential leases or sales opportunities that Sercel
does not undertake.

The agreement expires December 31, 2003, but is subject to termination
by Sercel before that date upon (a) Sercel's reasonable belief that we have
violated or intend to violate the Foreign Corrupt Practices Act of 1977, as
amended, (b) our refusal or inability to certify that we are in compliance with
laws applicable to its activities, or (c) our insolvency, voluntary or
involuntary bankruptcy, assignment for the benefit of creditors or
discontinuance as a going concern.

OTHER AGREEMENTS

We have an exclusive lease referral agreement (the "Pelton Agreement")
with Pelton, a leading manufacturer and supplier of vibrator control
electronics, which was acquired by I/O in January 2001. The terms of the Pelton
Agreement are similar to those of the New Sercel Agreement, except that (a)
Pelton may not engage in short-term leasing (leases for periods of less than a
year) of the equipment covered, and (b) the Pelton Agreement may be terminated
by either party upon three months prior written notice.

We had a Commercial Representative Agreement (the "Sercel Sales
Agreement") with Georex, Inc., a wholly-owned subsidiary of Sercel, under which
we were Sercel's designated sales representative in Canada for seismic data
acquisition and other field equipment. The Sercel Sales Agreement was subject to
termination by either party on 90 days' prior written notice. On October 28,
2002, we were notified that Sercel was terminating the Sercel Sales Agreement
effective January 26, 2003. Total commissions earned under this agreement in the
2003, 2002 and 2001 fiscal years were $1,311,000, with $4,000 of that amount
earned in fiscal 2003.

FRONT-END SERVICES SEGMENT

On January 28, 2002, we formed a wholly-owned subsidiary, Drilling
Services, Inc. (DSI), to own and operate a fleet of seismic shot hole drills and
to provide other services required by seismic data acquisition contractors. As
of January 31, 2003, we own and operate 22 shot hole drilling units and
ancillary transportation and geographic surveying equipment. Many of its
customers are the same customers as that of our Seismic segment. Services
offered by DSI include seismic survey program design, quality control, permit
acquisition, geographical surveying and shot hole drilling. Taken together,

5

these services are commonly referred to as "front-end services" as they are
required prior to the actual process of recording a seismic survey.

CUSTOMERS; SALES AND MARKETING

Our major lease customers are seismic data acquisition contractors and
major and independent oil and gas companies. We typically have 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, 2003, we
had lease customers with 70 active leases of various lengths. Customers of our
used and new seismic equipment sales and service business include lease
customers, foreign governments, universities, engineering firms and research
organizations worldwide.

We participate in both domestic and international trade shows and
expositions to inform the oil and gas industry of our 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. We believe this mailing generates
significant seismic equipment lease and sales revenues. In addition, we
advertise our alliances with Sercel and Pelton in several major geophysical
trade journals. We also maintain a web site on which we list our seismic
equipment for sale and lease.

We work with a network of representatives in several international
markets, including Europe, Russia and other former Soviet Union countries. These
agents generate equipment sales and, to a lesser extent, equipment leasing
business for us and are compensated on a commission basis. We also expend
resources in the areas of customer service, product support and the maintenance
of customer relationships. We also have offices in Calgary, Alberta, Canada and
Brisbane, Australia from which we lease and sell seismic equipment.

COMPETITION

While we are aware of several companies that engage in seismic
equipment leasing, competition has historically been fragmented and our
competitors have not had as extensive a seismic equipment lease pool as we do.

We compete 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. We compete 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 us. We believe 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

We have several suppliers of seismic equipment for our lease pool. We
have historically acquired the majority of our seismic lease pool equipment from
Sercel and I/O, and believe that Sercel and I/O manufacture the majority 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, we purchase new and used peripheral seismic
equipment from various other manufacturers. Management

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believes that its current relationships with its suppliers are satisfactory.

EMPLOYEES

As of January 31, 2003, the Seismic segment had 58 employees and the
Front-end Services segment had 80 employees, none of whom is covered by a
collective bargaining agreement. We consider our 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 us and our 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 our 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 our services and predicted improvement in
energy industry and seismic service industry conditions. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, we 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 our 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 our 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.

LOSS OF SIGNIFICANT CUSTOMERS WILL ADVERSELY AFFECT US

We typically lease and sell 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 our revenues may be
derived from a limited number of customers. In the fiscal years ended January
31, 2001, 2002 and 2003, the single largest customer accounted for approximately
21%, 22% and 13%, respectively, of our total revenues. Because our customer base
is relatively small, the loss of one or more customers for any reason would
adversely affect our results of operations.

SIGNIFICANT DEFAULTS OF PAST-DUE CUSTOMER ACCOUNTS WOULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS

We had approximately $4.3 million of customer accounts and notes
receivable at January 31, 2003, of which $.6 million is over ninety days past
due. At January 31, 2003, we had an allowance of $.8 million

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to cover losses in our receivable balances. Significant payment defaults by our
customers in excess of the allowance would have a material adverse effect on our
financial position and results of operations.

INTERNATIONAL ECONOMIC AND POLITICAL INSTABILITY COULD ADVERSELY OUR RESULTS OF
OPERATIONS

Our results of operations are dependent upon the current political and
economic climate of several international countries in which our customers
either operate or are located. International sources (including Canada)
accounted for approximately 63% of our revenues in the fiscal year ended January
31, 2003. Since the majority of our lease and sales contracts with our customers
are denominated in U.S. and Canadian dollars, there is little risk of loss from
fluctuations in foreign currencies. However, our 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.

WE MUST CONTINUALLY OBTAIN ADDITIONAL LEASE CONTRACTS

Our seismic equipment leases typically have a term of three to nine
months and provide gross revenues that recover only a portion of our capital
investment. Our 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 we have been
successful in obtaining additional lease contracts with other lessees after the
termination of the original leases, there can be no assurance that we will
continue to do so. Our failure to obtain additional leases or extensions beyond
the initial lease term would have a material adverse effect on our operations
and financial condition.

DEPENDENCE ON KEY PERSONNEL

Our success is dependent on, among other things, the services of
certain key personnel, including specifically Billy F. Mitcham, Jr., our
Chairman of the Board, President and Chief Executive Officer. 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 our business and
from diverting any of our 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 us.

OUR SEISMIC LEASE POOL IS SUBJECT TO TECHNOLOGICAL OBSOLESCENCE

We have 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 our ability to profitably lease and sell our existing seismic
equipment. Significant improvements in technology may also require us to
recognize an asset impairment charge to our lease pool investment, and to
correspondingly invest significant sums to upgrade or replace our existing lease
pool with newer-technology equipment demanded by our customers.

WEATHER CONDITIONS CAUSE SEASONAL RESULTS

The first and fourth quarters of our fiscal year have historically
accounted for a greater portion of

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our revenues than do the second and third quarters of our fiscal year. This
seasonality in revenues is primarily due to the increased seismic survey
activity in Canada from November through March, which affects us due to our
significant Canadian operations. This seasonal pattern may cause our 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.

COMPETITION

Competition in the leasing of seismic equipment is fragmented, and we
are aware of several companies that engage in seismic equipment leasing. We
believe that our competitors, in general, have neither as extensive a seismic
equipment lease pool as we do, or 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.

We have 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 us. 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 our business operations.

VOLATILE STOCK PRICES AND NO PAYMENT OF DIVIDENDS

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

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

Certain provisions of our 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 our Board of
Directors but that our 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 our 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 we have
no shares of preferred stock outstanding and no present intention to issue any
shares of our preferred stock, there can be no assurance that we will not do so
in the future.

LIMITATION ON DIRECTORS' LIABILITY

Our 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.

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ITEM 2. PROPERTIES

We own our corporate office and warehouse facilities in Huntsville,
Texas. Our headquarters facility consists of 25,000 square feet of office and
warehouse space on approximately six acres. We also lease approximately 31,000
square feet of office and warehouse space at our facility in Calgary, Alberta,
Canada. Our U.S. subsidiary, DSI, leases approximately 26,550 square feet of
office and warehouse space in Brookshire, Texas. SAP, our Australian subsidiary,
leases approximately 14,400 square feet of office and warehouse space in
Brisbane, Australia.

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 us ($1.1 million) and our insurance carrier ($1.6
million). 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

PART II

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

MARKET INFORMATION FOR COMMON STOCK

Our 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.

High Low
----- -----

Fiscal Year Ended January 31, 2002:
First Quarter $7.25 $4.88
Second Quarter 8.15 4.88
Third Quarter 5.25 3.00
Fourth Quarter 5.19 4.05

Fiscal Year Ended January 31, 2003:
First Quarter $4.40 $3.50
Second Quarter 4.10 1.76
Third Quarter 2.12 1.05
Fourth Quarter 1.75 1.05

As of April 29, 2003, there were approximately 500 stockholders of
record of the common stock.

DIVIDEND POLICY

We have not paid any cash dividends on the common stock since our
inception, and our Board of

10

Directors does not contemplate the payment of cash dividends in the foreseeable
future. It is the present policy of our Board of Directors to retain earnings,
if any, for use in developing and expanding our business. In the future, our
payment of dividends will also depend on our financial condition, results of
operations and such other factors as our Board of Directors may consider.

ITEM 6. SELECTED FINANCIAL DATA

(Amounts in thousands, except per share amounts)

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

OVERVIEW

Our revenues 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.

We lease and sell seismic data acquisition equipment primarily to
seismic data acquisition companies and oil and gas companies conducting land and
transition zone seismic surveys worldwide. We provide short-term leasing of
seismic equipment to meet a customer's requirements and offer maintenance and
support during the lease term. The majority of all leases at January 31, 2003
were for a term of one year or less. Seismic equipment held for lease is carried
at cost, net of accumulated depreciation. Through our wholly-owned subsidiary,
DSI, we provide 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.

For the years ended January 31, 2001, 2002 and 2003, revenues from
foreign customers totaled $19.1 million, $21.7 million and $12.0 million,
respectively. The majority of our transactions with foreign customers are
denominated in United States and Canadian dollars.

SEASONALITY

Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to our
expected lease revenues, especially from customers operating in Canada, where a
significant percentage of seismic survey activity occurs in the winter months,
from November 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

11

leasing activity by our Canadian customers has historically resulted in
increased lease revenues in our first and fourth fiscal quarters.

RESULTS OF OPERATIONS

We created our Front-end Services segment in January 2002 upon the
formation of DSI. As fiscal 2003 is the first year of operations for this
segment, there are no comparable prior year results.

Consolidated revenues for fiscal 2003 were $19.2 million, reflecting an
$8.0 million, or 30%, decline from fiscal 2002 revenues of $27.2 million. During
fiscal 2003, leasing revenues decreased primarily due to the business decline of
three of our customers in fiscal 2002, partially offset by the inclusion of the
results of our Front-end Services segment. Front-end Services revenues for
fiscal 2003 were approximately $5.0 million. Additionally, fiscal 2003 revenues
include the results of our Australian subsidiary, SAP, which was purchased in
December 2002. SAP's revenues for fiscal 2003 were approximately $.6 million.
Foreign currency translation rates had the effect of decreasing fiscal 2003
revenues by approximately $38,000 from fiscal 2002 levels.

Fiscal 2002 revenues were $27.2 million, reflecting a $6.6 million, or
32%, increase over fiscal 2001 revenues of $20.6 million. During fiscal 2002, we
executed several high-dollar lease contracts with a customer in South America
that attributed to our increase in revenues for the year. Foreign currency
translation rates had the effect of decreasing fiscal 2002 revenues by
approximately $449,000 from fiscal 2001 levels. Included in fiscal 2002 revenues
is commission income of $1.3 million, compared to only $42,000 in fiscal 2001.
This commission income was earned by Mitcham Canada pursuant to the Sercel Sales
Agreement, was based on direct sales by Sercel to various customers and was
recognized when Sercel paid the applicable commission to us.

Fiscal 2001 revenues were $20.6 million, which represented a $10.0
million, or 94% increase over fiscal 2000 revenues of $10.6 million. During
fiscal 2001, we experienced a greater demand for equipment leasing from our
customers, primarily in response to the higher level of commodity prices.
Foreign currency translation rates had the effect of decreasing fiscal 2001
revenues by approximately $52,000 from fiscal 2000 levels.

Seismic equipment sales for fiscal 2003 were $5.8 million as compared
to $5.9 million and $6.5 million for fiscal 2002 and 2001, respectively. Cost of
sales for the fiscal years ended January 31, 2003, 2002 and 2001 was $4.6
million, $5.0 million and $5.2 million, respectively. Foreign currency
translation rates had the effect of decreasing cost of goods sold for fiscal
years 2003, 2002 and 2001 by $4,000, $73,000 and $10,000, respectively. Gross
margins on equipment sales were 22%, 16% and 21% for fiscal years 2003, 2002 and
2001, 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.

During fiscal 2003, we recorded depreciation expense in the amount of
$15.2 million. This amount reflects a decrease of $.8 million, or 5%, from the
fiscal 2002 amount. Foreign currency translation rates had the effect of
decreasing depreciation expense for fiscal 2003 by $58,000 from the fiscal 2002
amount. In fiscal 2002, we recorded depreciation expense in the amount of $16.0
million, which reflected a $2.9 million, or 22%, increase above the fiscal 2001
amount. Foreign currency translation rates had the effect of decreasing
depreciation expense for fiscal 2002 by $353,000 from 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.
Foreign currency translation rates had the effect of decreasing depreciation

12

expense for fiscal 2001 by $32,000 from the fiscal 2000 amount.

The decrease in fiscal 2003 depreciation expense is largely due to the
fact that certain equipment reached the end of its depreciable life during the
year, coupled with the sales of assets with remaining depreciable life. The
increase in depreciation expense during fiscal 2002 is primarily a result of our
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
our adding $27.7 million, on a cost basis, to the seismic equipment lease pool
during the fiscal year.

For fiscal 2003, the Seismic segment's direct costs of seismic leasing
totaled $1.4 million, representing a decrease of $.9 million from the fiscal
2002 amount of $2.2 million. This decrease is attributable to the significant
decrease in leasing activity during the fiscal year. Specifically, the decrease
is mainly attributable to decreases in freight, equipment repairs and leased
equipment expenses of $134,000, $474,000 and $276,000, respectively. Front-end
Services direct costs totaled $5.8 million for fiscal 2003. As this segment is
labor-intensive, the primary expenses are wage-related expenses. Additionally,
Front-end Services direct costs also include explosives and related drilling
materials as well as significant equipment repairs and maintenance expenses. For
fiscal 2002, our direct costs of seismic 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. The increase is attributable to increases in freight and equipment repairs
of $72,000 and $478,000, respectively, partially offset by a decrease in leased
equipment expenses of $152,000. 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.

For the fiscal year ended January 31, 2003, our general and
administrative expenses totaled $5.6 million, or $1.3 million above those of
fiscal 2002. Approximately $1.1 million of the increase is due to the inclusion
of DSI and $.1 million is due to the inclusion of SAP in fiscal 2003. The
remaining increase is due to higher payroll related expenses and insurance,
partially offset by a decrease in state franchise tax expense. For the fiscal
year ended January 31, 2002, our 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, we
incurred personnel and related costs associated with international marketing
efforts.

During fiscal 2003, we recorded a non-cash net benefit for doubtful
accounts in the amount of $1.9 million. Of this amount, approximately $1.7
million represents recoveries of receivables written off in the prior fiscal
year in the form of seismic equipment that we accepted as a settlement related
to a former customer which ceased operations last year. The remaining $.2
million benefit resulted from our collecting an outstanding note receivable that
had been fully reserved in prior fiscal years due to the uncertainty of
collection. Once the funds were collected, we reduced our allowance for doubtful
accounts and recorded the net benefit. Our 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, we had reserved or
written off approximately $5.0 million in trade and note receivables related to
three customers who

13

advised us they were ceasing operations and did not have the resources to pay
their outstanding obligations to us. During fiscal 2001, our provision for
doubtful accounts was $225,000, reflecting a decrease of $350,000 from fiscal
2000. The decrease in fiscal 2001 is attributable to our improvement in our
receivables aging and our collecting approximately $400,000 of receivables
previously written off. During fiscal 2001, we wrote off approximately $289,000
of receivables deemed uncollectible. At January 31, 2003 and 2002, we had past
due trade accounts and note receivables in the approximate amount of $.7 million
and $2.0 million, respectively. As of January 31, 2003 and 2002, our allowance
for doubtful accounts and notes receivable amounted to $.8 million and $1.5
million, respectively.

For fiscal 2003, we recorded a net loss in the amount of $10.1 million,
as compared to the fiscal 2002 net loss of $8.5 million. Contributing to the
current year's net loss were the results of DSI, which was in its first year as
a start-up business, partially offset by the approximate $1.6 million income tax
benefit recorded during the year. The primary factors behind the fiscal 2002 net
loss were the bad debt provision and valuation allowance for our deferred tax
assets, as discussed more fully in the notes to the financial statements. The
net loss for fiscal 2001 was $2.9 million, which included an income tax benefit
of approximately $1.5 million.

LIQUIDITY AND CAPITAL RESOURCES

As of January 31, 2003, we had net working capital of approximately
$3.3 million as compared to net working capital of $.8 million at January 31,
2002. Historically, our 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 used in operating activities for the year ended January 31, 2003 was $1.8
million, as compared to net cash provided by operating activities of $12.3
million and $13.3 million for the years ended January 31, 2002 and 2001,
respectively. Net cash provided by financing activities for the year ended
January 31, 2003 was $.1 million, compared to net cash used in financing
activities for the year ended January 31, 2002 of $2.0 million and net cash
provided by financing of $4.2 million for fiscal year 2001. During fiscal 2001
and 2002, we liquidated temporary investments in marketable securities of
approximately $6.7 million and $7.1 million, respectively, to fund a portion of
our capital expenditure program. The temporary investments were originally made
with surplus cash generated in prior fiscal years which was invested in
marketable securities until such time as the funds were needed. During fiscal
2002, we paid $1.1 million to settle a securities class action lawsuit using
funds generated from our operations. The balance of the settlement was paid by
our insurance carrier, as more fully discussed in Note 12.

On October 28, 2002, we were notified that Sercel was terminating the
Sercel Sales Agreement effective January 26, 2003. Total commissions earned
under this agreement in the 2003, 2002 and 2001 fiscal years were $1,311,000,
only $4,000 of which was earned in the 2003 fiscal year. Its cancellation is not
expected to have significant effect on our results of operations and liquidity.

We committed to purchase $1.125 million of land data acquisition
equipment by December 31, 2003 and $2.25 million of land data acquisition
equipment by December 31, 2004. We expect that cash on hand and cash flows from
operations will be sufficient to meet these commitments.

At January 31, 2003, we had trade accounts and notes receivable of $.6
million that were more than 90 days past due, as compared to $2.0 million at
January 31, 2002. During fiscal 2003, we wrote off approximately $.5 million of
accounts and notes receivable that were more than 90 days past due. As of
January 31, 2003, our allowance for doubtful accounts was approximately $.8
million, which management believes is sufficient to cover any losses in our
trade accounts receivable and notes receivable.

14

In certain instances when customers have been unable to repay their
open accounts receivable balances, we have agreed to a structured repayment
program using an interest bearing promissory note. In these cases, we provide a
reserve for doubtful accounts against the balance. Due to the uncertainty of
collection, we do not recognize the interest earned until the entire principal
balance has been collected. In most cases where we have a chronic collection
problem with a particular customer, future business is done on a prepayment
basis or if additional credit is extended, revenues are not recognized until
collected. Although the extension of repayment terms on open accounts
receivables temporarily reduces our cash flow from operations, we believe that
this practice is necessary in light of seismic industry conditions and that it
has not adversely affected our ability to conduct routine business.
Additionally, we occasionally offer extended payment terms on equipment sales
transactions. These terms are generally less than one year in duration. Unless
there is a question as to collectibility, the sales revenue and cost of goods
sold is recognized at the inception of the transaction.

On November 10, 2000, we closed an $8.5 million term loan with First
Victoria National Bank. The loan amortized over 48 months and bore 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. In February 2002,
we renegotiated our term loan 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 certain lease pool
equipment. Additionally, during fiscal 2002 we borrowed $75,000 under a separate
loan agreement in connection with our acquisition of assets related to the
formation of DSI. This term loan matured in December 2002, bore interest at the
rate of prime minus one percent, and required quarterly repayments in the
approximate amount of $19,000.

Capital expenditures for the 2003 fiscal year totaled approximately
$4.9 million as compared to capital expenditures of $18.0 million for fiscal
2002. The decline in our fiscal 2003 capital expenditures from prior years is a
reflection of a continuing decline in seismic data acquisition activity. Unlike
in prior years when the majority of equipment we purchased was based on
anticipated demand for our services, the majority of our capital expenditures
for the 2003 fiscal year was made to fulfill a specific lease contract or was
purchased for ultimate resale to a specific customer.

During fiscal 2003, we repurchased 7,800 shares of our common stock for
an aggregate cost of $15,000, or an average cost of $1.97 per share. At the
present time, we believe that cash on hand and cash provided by future
operations will be sufficient to fund our anticipated capital and liquidity
needs over the next twelve months. However, should demand warrant, we may pursue
additional borrowings to fund capital expenditures.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions in determining the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Significant estimates made by us in the
accompanying consolidated financial statements relate to reserves for accounts
receivable collectibility and useful lives of our lease pool assets and their
valuation.

Critical accounting policies are those that are most important to the
portrayal of a company's financial position and results of operation as well as
require management's subjective judgment. Below is a brief discussion of our
critical accounting policies.

15

Revenue Recognition

We recognize lease revenue ratably over the term of the lease and
recognize sales revenue at the inception of the transaction unless there is a
question as to its collectibility. Commission income is recognized once it has
been paid to us. Interest income related to the financing of delinquent customer
receivables is not recognized until the entire principal balance has been
collected. The Front-end Services segment recognizes income at the time services
are provided.

Allowance for Doubtful Accounts

Provisions to the allowance for doubtful accounts are made periodically
as conditions warrant based on the expected collectibility of all such
receivables. In certain instances when customers have been unable to repay their
open accounts receivable balances, we have agreed to a structured repayment
program using an interest bearing promissory note. In these cases, we provide a
reserve for doubtful accounts against the balance.

Long-Lived Asset Impairment

We review our long-lived lease pool assets for impairment at each
reporting date. If our assessment of the carrying amount of such assets exceeds
the fair market value in accordance with the applicable accounting regulations,
an impairment charge is recorded. No such charge has been recorded for the
periods presented.

Income Taxes

We account for our taxes under the liability method, whereby we
recognize, on a current and long-term basis, deferred tax assets and liabilities
which represent differences between the financial and income tax reporting bases
of our assets and liabilities. A valuation allowance is established when
uncertainty exists as to the ultimate realization of net deferred tax assets. As
of January 31, 2002 and 2003, we have recorded a net deferred tax asset of $6.7
million and $9.4 million, respectively. As we believe it is not assured that
these net deferred tax assets will be realized, we have provided valuation
allowances of $6.7 million and $9.4 million at January 31, 2002 and 2003,
respectively.

We periodically reevaluate these estimates and assumptions as
circumstances change. Such factors may significantly impact our results of
operations from period to period.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We operate 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. We typically denominate the majority of our lease
and sales contracts in U.S. and Canadian 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-25
hereof and incorporated herein by reference.

16

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 our directors and executive officers will be set
forth in the proxy statement for the 2003 Annual Meeting of Shareholders under
the heading "Election of Directors." Information regarding compliance by our
officers, directors and control persons with Section 16(a) of the Securities
Exchange Act of 1934 will be set forth in our proxy statement for the 2003
Annual Meeting of Shareholders under the heading "Other Matters-Compliance with
Section 16(a) of the Exchange Act."

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation will be set forth in our
proxy statement for the 2003 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 our proxy
statement for the 2003 Annual Meeting of Shareholders.

Equity Compensation Plan Information

The following table sets forth certain information as of January 31,
2003, concerning our equity compensation plans, all of which have been
previously approved by our shareholders:

Other Equity Compensation Arrangements

In June 2001, we entered into an agreement with Bear Ridge Capital,
L.L.C. ("BRC"), under which we engaged BRC to assist us in arranging a private
placement of up to $25 million of our debt or equity

17

securities. Mr. Peter H. Blum, one of our directors, is the sole member of BRC.
As consideration for the services BRC was to perform, we paid BRC a
nonrefundable retainer of $57,000, $42,000 of which was creditable against
compensation due to BRC on the consummation of a private placement transaction,
and issued BRC warrants to purchase 20,000 shares of our common stock at an
exercise price of $5.00 per share. Upon the consummation of a private placement
transaction, BRC was entitled to compensation equal to 2.5% of the gross
proceeds of the transaction. As of January 31, 2003, due to the anti-dilution
provisions contained in the warrants, BRC is entitled to purchase up to 22,624
shares of our common stock at an exercise price of $4.42 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions
will be set forth in our proxy statement for the 2003 Annual Meeting of
Shareholders.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Executive Vice President - Finance
(the "Certifying Officers"), of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the Certifying Officers concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information to be included in our periodic SEC filings.

(b) Changes in internal controls.

Since the date of the evaluation, there have been no significant
changes to our internal controls or in other known factors that could
significantly affect internal controls in the future, and there have been no
corrective actions due to significant deficiencies or material weaknesses.

PART IV

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

(a) LIST OF DOCUMENTS FILED

(1) Financial Statements

The financial statements filed as part of this Annual Report are
listed in "Index to Consolidated Financial Statements" on page F-1.

(2) Financial Statement Schedules

This Annual Report includes the following financial statement
schedule: Schedule II -- Valuation and Qualifying Accounts

(3) Exhibits -The exhibits required by Item 601 of Regulation S-K are
listed in subparagraph (c) below.

18

(b) REPORTS ON FORM 8-K

During the quarter end January 31, 2003, we filed a Current Report on Form
8-K related to the purchase of Seismic Asia Pacific Pty Ltd.

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

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

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

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

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

10.13 -- Share Sale Agreement between Mitcham Industries, Inc. and
Nautronix, Inc., dated December 2002 (9)

*10.14 -- Agreement between Mitcham Industries, Inc., with William J.
Sheppard, dated April 4, 2003**

*10.15 -- Consulting Agreement between Mitcham Industries, Inc. and William
J. Sheppard, dated April 1, 2003, but effective February 1, 2003**

*10.16 -- Consulting Agreement between Mitcham Industries, Inc. and William
J. Sheppard, dated April 1, 2003, but effective January 1, 2004**

10.17 -- Equipment Lease Agreement between Mitcham Industries, Inc. and
Sercel, Inc., effective April 9, 2003**

99.1 -- Certification of Billy F. Mitcham, Jr., CEO and President, under
Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350**

99.2 -- Certification of P. Blake Dupuis, Executive Vice President -
Finance, under Section 906 of the Sarbanes-Oxley Act of 2002,
U.S.C. 1350**

21 -- Subsidiaries of the Company

19

23 -- Consent of Hein + Associates LLP

* Management contract or compensatory plan or arrangement

** Filed herewith

(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.

(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.

(9) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on January 13, 2003.

(d) NOT APPLICABLE

20

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,
2003.

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.

Signature Title/Capacity Date
--------- -------------- ----

/s/ BILLY F. MITCHAM, JR.
- ------------------------------ Chairman of the Board, May 1, 2003
Billy F. Mitcham, Jr. President and Chief
Executive Officer

/s/ P. BLAKE DUPUIS
- ------------------------------ Executive Vice President - May 1, 2003
P. Blake Dupuis Finance, COO, Secretary,
(principal financial officer) Treasurer and Director

/s/ CHRISTOPHER C. SIFFERT Vice President and May 1, 2003
- ------------------------------ Corporate Controller
Christopher C. Siffert
(principal accounting officer)

/s/ PETER H. BLUM Director May 1, 2003
- ------------------------------
Peter H. Blum

21

CERTIFICATION
-------------

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

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

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ Billy F. Mitcham, Jr.
- -------------------------
Billy F. Mitcham, Jr.
Chief Executive Officer
May 1, 2003

22

CERTIFICATION
-------------

I, P. Blake Dupuis, certify that:

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

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ P. Blake Dupuis
- ----------------------------------
P. Blake Dupuis
Executive Vice President - Finance
May 1, 2003

23

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditor's Report.................................................................................................. F-2

Consolidated Balance Sheets as of January 31, 2002 and 2003................................................................... F-3

Consolidated Statements of Operations for the Years Ended
January 31, 2001, 2002 and 2003...................................................................................... F-4

Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
for the Years Ended January 31, 2001, 2002 and 2003.................................................................. F-5

Consolidated Statements of Cash Flows for the Years Ended
January 31, 2001, 2002 and 2003...................................................................................... F-6

Notes to Consolidated Financial Statements.................................................................................... F-7

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, 2002 and 2003, 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, 2003. 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, 2002 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP

Houston, Texas
April 4, 2003

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, 2001, 2002 AND 2003

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". The Company, through its
wholly-owned Australian subsidiary, Seismic Asia Pacific Pty Ltd. ("SAP"),
provides seismic, oceanographic and hydrographic leasing and sales worldwide,
primarily in Asia and Australia. 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, 2002 and 2003 are for one year or less. Lease revenue
is recognized ratably over the term of the lease. The Company does not enter
into leases with imbedded maintenance obligations. The standard lease
contract provides that the lessee is responsible for maintenance and repairs
to the equipment, excluding fair wear and tear. The Company provides
technical advice to its customers without additional compensation as part of
its customer service practices. Repairs or maintenance performed by the
Company is charged to the lessee, generally on a time and materials basis.

Front-end Services Revenues - The Company recognizes revenues for its
front-end services at the time services are performed.

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, 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, set forth guidance as to when to
recognize an impairment of long-lived assets and how to measure such
impairment. The standard required 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 replaced 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 Company's assessment
resulted in no recognition of impairment expense for the periods

F-7

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

presented.

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 separate federal returns for its foreign
subsidiaries. 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. As of January 31, 2002 and 2003, the
Company has recorded a net deferred tax asset of $6.7 million and $9.4
million, respectively. The Company believes it is not assured that these net
deferred tax assets will be realized and has recorded valuation allowances of
$6.7 million and $9.4 million at January 31, 2002 and 2003, respectively.

Cash and Cash Equivalents - 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. 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,
these accounting estimates require the exercise of judgment. The accounting
estimates used in the preparation of the 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 and
Australian subsidiaries 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.

F-8

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Earnings Per Share - For the fiscal years ended January 31, 2001, 2002 and
2003, the following common stock equivalents were excluded from the earnings
per share calculations due to their anti-dilutive effect on EPS.

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. The
adoption had no effect on the Company's 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 amortized over 48 months and bore interest
at the rate of prime plus one-half percent, adjusted daily (4.75% at January
31, 2003). 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. During the fiscal year ended January 31,

F-9

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. TERM BANK LOANS (continued)

2002, the Company had drawn the entire $8.5 million under this loan agreement
and as of January 31, 2002, had an outstanding balance of $6.5 million. The
loan is collateralized by certain lease pool equipment. In February 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 and had an outstanding balance of $6.7
million as of January 31, 2003. 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 amortized over 12 months
and bore interest at the rate of prime minus one percent, adjusted daily. The
quarterly payments of principal and interest, beginning March 7, 2002, were
approximately $19,000. During fiscal 2003, the Company repaid all outstanding
principal under this note.

Long-term debt repayments are scheduled to be $2,092,000, $2,193,000,
$2,300,000 and $129,000 in fiscal 2004, 2005, 2006 and 2007, respectively.

4. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION

Supplemental disclosures of cash flow information for the years ended January
31, 2001, 2002 and 2003 are as follows:

5. NOTES RECEIVABLE

In certain instances when customers have been unable to repay their open
accounts receivable balances, the Company has agreed to a structured
repayment program using an

F-10

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. NOTES RECEIVABLE (continued)

interest bearing promissory note. In these cases, the Company provides a
reserve for doubtful accounts against the balance. Due to the uncertainty of
collection, the Company does not recognize the interest earned until the
entire principal balance has been collected. In most cases where the Company
has a chronic collection problem with a particular customer, future business
is done on a prepayment basis or if additional credit is extended, revenues
are not recognized until collected.

The Company occasionally offers extended payment terms on equipment sales
transactions. These terms are generally less than one year in duration.
Unless there is a question as to collectibility, the sales revenue and cost
of goods sold is recognized at the inception of the transaction.

Notes receivable consisted of $1,126,000 due from four customers and $12,000
due from two customers as of January 31, 2002 and 2003, respectively. These
notes bear interest ranging from 5% - 12% with repayment terms ranging from
12 - 48 months. During fiscal 2003, the Company established one new note
receivable in the amount of $30,000 related to the sale of seismic equipment.
Also during fiscal 2003, the Company received final payments on two notes
receivable that had been established in prior fiscal years. Additionally,
during fiscal 2003 the Company wrote off one note receivable in the amount of
$282,000 related to the financing of trade receivables from prior fiscal
years due to the customer's insolvency.

During fiscal 2002, the Company established one new note receivable in the
amount of $500,000 to finance trade receivables which has been repaid by the
customer as of January 31, 2003. 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.

F-11

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. CONCENTRATIONS

Credit Risk - As of January 31, 2002 and 2003, amounts due from customers
which exceeded 10% of accounts receivable amounted to an aggregate of $1.2
million from one customer and $1.1 million from two customers, 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.

Supplier Concentration - The Company purchases the majority of its seismic
equipment for its lease pool from a small number of suppliers, each being an
industry leader for its product. The Company believes that two of its
suppliers manufacture most of the land-based seismic systems and equipment in
use. The Company has satisfactory relationships with its suppliers. However,
should those relationships deteriorate, the Company may have difficulty in
obtaining new technology demanded by its customers and maintaining the
existing equipment in accordance with manufacturers' specifications.

F-12

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 that 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, 2002 and 2003 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 $513,000, $329,000 and $358,000 for the years ended
January 31, 2001, 2002 and 2003, respectively.

F-13

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 assets consisted of the following
as of:

F-14

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
$11,574,000 as of January 31, 2003. The Canadian net operating losses expire
in various years through 2008. The Company has U.S. net operating losses of
approximately $8,869,000, which if unused will begin to expire in 2021.

The Company recorded a valuation allowance of approximately $6,700,000 as of
January 31, 2002 and $9,393,000 as of January 31, 2003 (a change of
$2,693,000).

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 21%, 13% and 10% of fiscal
2001 total revenues. Two customers represented approximately 22% and 11%
of fiscal 2002 total revenues and one customer represented approximately
13% of fiscal 2003 total revenues. No other customer exceeded 10% of
revenues for fiscal 2001, 2002 and 2003.

F-15

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, 2002 and 2003. 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 9,657,801 are issued as of January 31, 2002 and 2003,
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. The remaining
5,000 warrants expired in fiscal 2003.

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, 2003, the exercise price of the warrants
was $4.42 per share, a result of the anti-dilution provisions of those
warrants. Warrants are accounted for pursuant to variable accounting rules at
each interim reporting date.

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 915,000 shares
of its common stock at an average cost of $5.12 per share as of January 31,
2003 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-16

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. COMMITMENTS AND CONTINGENCIES

Sercel Lease Agreement - Effective April 9, 2003, the Company renewed its
exclusive leasing arrangement with Sercel by entering into a new Equipment
Lease Agreement (the "New Sercel Agreement"). The New Sercel Agreement
replaces the parties' Exclusive Equipment Lease Agreement that was entered
into in December 1999 and that expired December 31, 2002. Under the New
Sercel Agreement, the Company is Sercel's exclusive third-party worldwide
short-term (for leases of a duration of less than one year) leasing
representative for land-based seismic equipment and its non-exclusive leasing
representative with respect to certain marine seismic equipment. While there
are no restrictions on Sercel's ability to undertake short-term or long-term
leasing of either land-based or marine seismic equipment, Sercel will provide
the Company with information regarding any potential leases or sales
opportunities that Sercel does not undertake. The agreement expires December
31, 2003, subject to earlier termination by Sercel on the occurrence of
certain events.

Purchase Commitment (unaudited) -The Company is commited to purchase $1.125
million of land data acquisition equipment by December 31, 2003 and $2.25
million of land data acquisition equipment by December 31, 2004.

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 ($1.1 million) and its
insurance carrier ($1.6 million). 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

F-17

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. COMMITMENTS AND CONTINGENCIES (continued)

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.

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, 2003, options to purchase an aggregate of 295,100 shares
have been granted and options to purchase 136,600 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, 20,500 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

F-18

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS (continued)

are exercisable at $5.38 per share. As of January 31, 2003, options to
purchase an aggregate of 276,650 shares have been granted and options to
purchase 268,750 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 208,750 of which are exercisable at $3.56 per share. As of
January 31, 2003, options to purchase an aggregate of 920,520 shares of
common stock are issued and outstanding under the 2000 Stock Option Plan,
238,500 of which are exercisable at a price of $5.13 per share, 750 of which
are exercisable at $5.53 per share, 261,150 of which are exercisable at $5.00
per share, 10,000 of which are exercisable at $4.60 per share, 2,500 of which
are exercisable at $4.00 per share, 277,620 of which are exercisable at $1.99
per share and 130,000 of which are exercisable at $1.25 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, 2003, 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, 2001, 2002 and
2003 was as follows:

F-19

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS (continued)

As of January 31, 2003, options to acquire 743,414 shares of the Company's
common stock were fully vested and exercisable at a weighted average exercise
price of $5.66 per share.

The remaining options, which have a weighted average exercise price of $2.89
per share, will vest over the next three fiscal years. If not previously
exercised, options outstanding at January 31, 2003 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; 20,500 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; 208,750
options expire on February 23, 2009; 10,000 options expire on July 23, 2009;
253,500 options expire on July 27, 2010, 750 options expire on August 15,
2010, 261,150 options expire on July 18, 2011, 10,000 options expire on
October 23, 2011, 2,500 options expire on March 1, 2012, 277,620 options
expire on August 15, 2012 and 130,000 options expire on December 30, 2012.

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

F-20

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLANS (continued)

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 65%, 69% and 63% for 2001, 2002 and
2003, respectively; no assumed dividend yield; and expected lives of 3-8
years.

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. RECENT ACQUISITION

On December 30, 2002, Mitcham Industries, Inc., purchased all of the issued
and outstanding shares of capital stock of Seismic Asia Pacific Pty Ltd.,
(SAP), for approximately $764,000. Headquartered in Brisbane Australia, SAP
provides equipment, consumables, systems integration, engineering hardware
and software maintenance support services to the geophysical, hydrographic,
oceanographic environment and defense industries throughout South East Asia
and Australia.

16. SEGMENT DATA

The Seismic segment is engaged in the leasing and sales of seismic equipment
to the international seismic industry as well as the leasing and sales of
hydrographic and oceanographic seismic equipment. The Front-end Services
segment provides such services as seismic survey program design, quality
control, permit acquisition, geographical

F-21

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. SEGMENT DATA (continued)

surveying and shot hole drilling, commonly referred to as "front-end
services". The Front-end Services segment operates exclusively in the
United States.

Financial information relating to the Company's segments is as follows:

F-22

MITCHAM INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. QUARTERLY FINANCIAL DATA (Unaudited)

(in thousands, except per share amounts)

F-23

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 4, 2003. 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 15(a) 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 4, 2003

F-24

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-25

EXHIBIT LIST

10.14 -- Agreement between Mitcham Industries, Inc., with William J.
Sheppard, dated April 4, 2003

10.15 -- Consulting Agreement between Mitcham Industries, Inc. and
William J. Sheppard, dated April 1, 2003, but effective
February 1, 2003

10.16 -- Consulting Agreement between Mitcham Industries, Inc. and
William J. Sheppard, dated April 1, 2003, but effective
January 1, 2004

10.17 -- Equipment Lease Agreement between Mitcham Industries, Inc.
and Sercel, Inc., effective April 9, 2003

99.1 -- Certification of Billy F. Mitcham, Jr., CEO and President,
under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C.
1350

99.2 -- Certification of P. Blake Dupuis, Executive Vice President -
Finance, under Section 906 of the Sarbanes-Oxley Act of 2002,
U.S.C. 1350

21 -- Subsidiaries of the Company

23 -- Consent of Hein + Associates LLP