UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended July 31, 2004

Commission file number 000-25142

MITCHAM INDUSTRIES, INC.

8141 SH 75 South
P.O. Box 1175
Huntsville, Texas 77342
(Address of principal executive offices)

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

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

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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 8,857,994 shares of Common Stock, $0.01 par value, were outstanding as of September 10, 2004.

MITCHAM INDUSTRIES, INC.

2

PART I. FINANCIAL INFORMATION

MITCHAM INDUSTRIES, INC.

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

3

MITCHAM INDUSTRIES, INC.

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

4

MITCHAM INDUSTRIES, INC.

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

5

MITCHAM INDUSTRIES, INC.

1. Basis of Presentation

The condensed consolidated financial statements of Mitcham Industries, Inc. (the “Company”) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended January 31, 2004. In the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of July 31, 2004; the results of operations for the three and six months ended July 31, 2004 and 2003; and the cash flows for the six months ended July 31, 2004 and 2003, have been included. The foregoing interim results are not necessarily indicative of the results of the operations to be expected for the full fiscal year ending January 31, 2005.

2. Organization

Mitcham Industries, Inc., a Texas corporation, was incorporated in 1987. The Company and its wholly-owned Canadian subsidiary provide full-service equipment leasing, sales and service to the seismic industry worldwide, primarily in North and South America. 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. Through its wholly-owned U.S. subsidiary, Drilling Services, Inc. (“DSI”), the Company provided seismic survey program design, quality control, permit acquisition, geographical surveying and shot hole drilling, all commonly referred to as “front-end services”. In August 2003, the Company sold the operating assets of DSI. The operating results and assets and liabilities of DSI are discontinued operations and all prior period statements have been restated accordingly. See Note 8. All intercompany transactions and balances have been eliminated in consolidation.

3. Earnings Per Share

For the three and six months ended July 31, 2003 and 2004, the following table sets forth the number of shares that may be issued pursuant to options currently outstanding, which number was used in the per share calculations.

6

4. Comprehensive Income

SFAS 130 “Reporting Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income generally represents all changes in shareholders’ equity (deficit) during the period except those resulting from investments by, or distributions to, shareholders. The Company has comprehensive income related to the change in its foreign currency translations account as follows:

5. Supplemental Statements of Cash Flows Information

Supplemental disclosures of cash flow information for the six months ended July 31, 2003 and 2004 are as follows:

6. Reclassifications

Certain 2003 amounts have been reclassified to conform to the 2004 presentation. Such reclassifications had no effect on net income or loss.

7

7. Stock Options

The Company accounts for its stock-based compensation plans under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. The pro forma information below is based on provisions of Statement of Financial Accounting Standard (“FAS”) No. 123, Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure, issued in December 2002.

8. Discontinued Operations

On August 1, 2003, the Company sold the operating assets of DSI, which comprised all of the operating assets of the Company’s front-end services segment. The Company’s decision to sell DSI resulted from the over-capacity in that market segment. Proceeds from the sale were $250,000 cash and an $800,000 note receivable due over three years. Additionally, the buyer assumed $143,000 of capitalized lease obligations. Effective with the October 31, 2003 financial statements, the operating results of DSI are presented as discontinued operations and all prior period statements have been restated accordingly. A summary of DSI’s revenues and pretax income (loss) is reflected as follows.

8

8. Discontinued Operations (continued)

A summary of DSI’s assets and liabilities is reflected as follows:

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

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. Seismic data acquisition activity levels are measured in terms of the number of active recording crews, known as the “crew count’’, and the number of recording channels deployed by those crews. Because an accurate and reliable census of active crews does not exist, it is not possible to make definitive statements regarding the absolute levels of seismic data acquisition activity. Furthermore, a significant number of seismic data acquisition contractors are either private or state-owned enterprises and information about their activities is not available in the public domain. Due to our unique position as the largest independent lessor of seismic equipment, we are privy to information about future projects from many data acquisition contractors. Based on our analysis of various indicators, including recent bid activity, equipment movement and public announcement of companies adding crew capacity, it appears that the worst of the downturn may be behind us and that the seismic exploration market is in an uptrend. We believe that this increase is being driven by historically high world oil and North American natural gas prices, combined with the maturation of the world’s hydrocarbon producing basins. The future direction and magnitude of changes in seismic data acquisition activity levels will continue to be dependent upon oil and natural gas prices.

We lease and sell seismic data acquisition equipment primarily to seismic data acquisition 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 technical support during the lease term. The majority of all active leases at July 31, 2004 were for a term of less than one year. Seismic equipment held for lease is carried at cost, net of accumulated depreciation. SAP sells equipment, consumables, systems integration, engineering hardware and software maintenance support services to the seismic, hydrographic, oceanographic, environmental and defense industries throughout South East Asia and Australia.

Seismic equipment leasing is susceptible to weather patterns in certain geographic regions. Our lease revenue is seasonal, especially 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 leasing activity by our Canadian customers has historically resulted in increased lease revenues in our first and fourth fiscal quarters.

Results of Operations

For the three months ended July 31, 2004 and 2003

During the quarter ended July 31, 2004, our results of operations were affected by several significant factors. Our revenues increased approximately $2.5 million, reflecting significant increases in both leasing and sales from the corresponding quarter in the prior fiscal year. Revenues from short-term leasing increased $0.7 million over the prior year primarily due to a settlement reached with one of our marine customers related to rentals of marine equipment during the prior two fiscal quarters that had not been recorded due to collectibility issues. Sales of

9

equipment increased by $1.7 million, compared to the prior year, primarily due to several large sales transactions recorded in the quarter.

Our fixed and variable costs are important factors affecting our results of operations. Due to the size and age of our seismic equipment lease pool, depreciation expense, which amounted to $2.7 million for the quarter ended July 31, 2004, is our single largest expense item. This expense will vary between periods based on acquisitions of new equipment and sales of equipment with remaining depreciable life. Direct costs of seismic leasing are variable expenses that fluctuate with our equipment leasing revenues. The main components of this cost are freight, sublease expenses and repairs and maintenance, to the extent that repairs performed are normal wear and tear and not billable to the lease customer. Our general and administrative expenses increased significantly from the corresponding quarter in 2003, with the increase consisting primarily of severance-related expenses related to the resignation of our former chief financial officer during the quarter.

Revenues

For the quarter ended July 31, 2004, consolidated revenues increased by $2.5 million, or 63% to a total of $6.4 million, as compared to $3.9 million for the corresponding quarter in 2003. The increase in revenues was principally due to improvements in both leasing and sales activity during the quarter. For the quarter ended July 31, 2004, leasing revenues increased $0.7 million, of which approximately $0.6 million was related to rentals of marine equipment during the prior two quarters that had not been recorded due to collectibility issues. During the quarter, we agreed to accept certain marine seismic equipment owned by the customer as payment for the invoices billed but not paid. The equipment was appraised by a third-party and such values were used as the basis for the settlement of these outstanding receivables. Additionally, our leasing revenues significantly increased in our Australian operations but were largely offset by decreases from our Canadian operations. Foreign currency translation rates had the effect of increasing consolidated revenues in the quarter ended July 31, 2004 by $0.1 million over the comparable quarter in 2003.

Seismic equipment sales for the quarter ended July 31, 2004 were $3.0 million as compared to $1.3 million for the comparable quarter in 2003. Cost of equipment sales for the quarters ended July 31, 2004 and 2003 were $1.3 million and $0.6 million, respectively. Gross margins on equipment sales were 58% and 57% for the quarters ended July 31, 2004 and 2003, respectively. Gross margins on equipment sales will vary significantly between periods due to the mix of sales revenue between new seismic and oceanographic equipment as compared to sales of depreciated seismic equipment sold from our lease pool.

Costs and Expenses

For the quarter ended July 31, 2004, depreciation expense was $2.7 million, which is $1.1 million, or 29%, lower than the depreciation expense in the comparable quarter in 2003. The decrease in depreciation expense from the quarter ended July 31, 2003 to 2004 was primarily due to certain equipment reaching the end of its depreciable life during each of those years, coupled with the sales of assets with remaining depreciable life. For the quarter ended July 31, 2004, foreign currency translation rates had the effect of increasing depreciation expense by $0.1 million as compared to the amount in the comparable quarter in 2003.

Direct costs for the quarter ended July 31, 2004 were $0.2 million, which was approximately $0.3 million less than direct costs for the comparable quarter in 2003 primarily due to a decrease in repair expenses.

General and administrative expenses for the quarter ended July 31, 2004 totaled approximately $2.1 million, or $0.9 million greater than 2003 expenses of $1.2 million. During the quarter ended July 31, 2004, we incurred one-time severance-related charges of approximately $0.7 million related to the resignation of our former chief financial officer. Of this amount, $0.4 million was a non-cash stock-based compensation expense based on the estimated fair value of the option grant on the date of grant using the Black-Scholes option pricing model. The remaining increase in general and administrative expenses was primarily due to an increase in travel, customer relations, investor relations and professional fees, partially offset by a decrease in insurance expense.

For the quarter ended July 31, 2004, we recorded income from continuing operations in the approximate amount of $0.1 million, compared to a loss from continuing operations for the comparable quarter of 2003 of $2.3 million.

10

Income from discontinued operations for the quarter ended July 31, 2004 was $0.1 million, compared with a loss of $1.9 million for the comparable quarter of 2003.

For the six months ended July 31, 2004 and 2003

Revenues

For the six months ended July 31, 2004, consolidated revenues increased by $4.8 million, or 49% to a total of $14.6 million, as compared to $9.8 million for the corresponding period of the prior year. The increase in revenues was principally due to improvements in both leasing and sales activity during the period. For the six months ended July 31, 2004, leasing revenues increased $2.2 million, of which approximately $0.6 million is related to rentals of marine equipment during the prior two quarters that had not been recorded due to collectibility issues. We agreed to accept certain marine seismic equipment owned by the customer as payment for the invoices billed but not paid. The equipment was appraised by a third-party and such values were used as the basis for the settlement of these outstanding receivables. Additionally, our leasing revenues significantly increased in our Australian and US operations but were partly offset by a decrease from our Canadian operations. Foreign currency translation rates had the effect of increasing consolidated revenues in the six months ended July 31, 2004 by $0.4 million over the comparable period in 2003.

Seismic equipment sales for the six months ended July 31, 2004 were $5.8 million as compared to $3.2 million for the comparable period in 2003. Cost of equipment sales for the six months ended July 31, 2004 and 2003 were $2.8 million and $1.7 million, respectively. Gross margins on equipment sales were 52% and 45% for the six months ended July 31, 2004 and 2003, respectively. Gross margins on equipment sales will vary significantly between periods due to the mix of sales revenue between new seismic and oceanographic equipment as compared to sales of depreciated seismic equipment sold from our lease pool.

Costs and Expenses

For the six months ended July 31, 2004, depreciation expense was $5.4 million, which was $2.0 million, or 27%, lower than the depreciation expense in the comparable six-month period in 2003. The decrease in depreciation expense for the six months ended July 31, 2004 from the comparable six-month period ended July 31, 2003 was principally due to certain equipment reaching the end of its depreciable life during each of those years, coupled with the sales of assets with remaining depreciable life. For the six months ended July 31, 2004, foreign currency translation rates had the effect of increasing depreciation expense by $0.2 million over the amount in the reported comparable period in 2003.

Direct costs for the six months ended July 31, 2004 were $0.9 million, which was relatively unchanged from the comparable period in 2003.

General and administrative expenses for the six months ended July 31, 2004 totaled approximately $3.9 million, or $1.4 million greater than 2003 expenses of $2.5 million. During the six months ended July 31, 2004, we incurred one-time severance-related charges of approximately $0.7 million related to the resignation of our former chief financial officer. Of this amount, $0.4 million was recorded as a non-cash stock-based compensation expense. Additionally, during the six months ended July 31, 2004 we incurred approximately $0.3 million in non-recurring professional fees related to the internal investigation conducted by the Company. The remaining increase in general and administrative expenses was primarily due to an increase in travel, customer relations, investor relations, insurance, compensation expenses and professional fees.

For the six months ended July 31, 2004, we recorded income from continuing operations in the amount of $1.4 million, compared to a loss from continuing operations for the comparable six-month period of 2003 of $2.8 million. Income from discontinued operations for the six months ended July 31, 2004 was $0.1 million, compared with a loss of $2.8 million for the comparable six-month period of 2003.

Liquidity and Capital Resources

As of July 31, 2004, we had net working capital of approximately $13.3 million as compared to net working capital of $7.4 million at January 31, 2004. Historically, our principal liquidity requirements and uses of cash have been for

11

capital expenditures and working capital. Our principal sources of cash have been cash flows from operations and proceeds from sales of lease pool equipment. Net cash provided by operating activities for the six months ended July 31, 2004 was $8.5 million, as compared to net cash provided by operating activities of $5.0 million for the six months ended July 31, 2003. Net cash used in financing activities for the six months ended July 31, 2004 was $2.4 million, compared to net cash used in financing activities for the comparable period in 2003 of $1.0 million.

We are committed to purchase $2.25 million of land data acquisition equipment by December 31, 2004, under an agreement with Sercel. We expect that cash on hand and cash flows from operations will be sufficient to meet this commitment. Capital expenditures for the six months ended July 31, 2004 totaled approximately $1.2 million as compared to capital expenditures of $1.5 million for the comparable period in 2003. Our 2004 and 2003 capital expenditures for the seismic equipment lease pool were made to fulfill specific lease contracts.

At July 31, 2004, we had trade accounts and notes receivable of $2.1 million that were more than 90 days past due. As of July 31, 2004, our allowance for doubtful accounts was approximately $0.9 million, which management believes is sufficient to cover any losses in our receivable balances. During the six months ended July 31, 2004, the Company acquired seismic equipment in exchange for cancellation of certain accounts receivable due from two customers in the approximate amount of $0.7 million.

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. Until there is a question as to whether an account is collectible, the sales revenue and cost of goods sold is recognized at the transfer of title of the equipment.

In February 2002, we obtained an $8.5 million term loan with First Victoria National Bank, the remaining principal balance of which was approximately $3.5 million at July 31, 2004. The loan is payable in forty-eight equal installments of approximately $197,000 and bears interest at the rate of prime plus 1/2%. The loan is secured by lease pool equipment and all proceeds from lease pool equipment leases and sales.

We paid for our $3.5 million in capital expenditures during the fiscal year ended January 31, 2004, using $1.8 million in cash and entering into separate short-term note agreements with three seismic equipment manufacturers related to the purchase of equipment for our lease pool. The aggregate amount financed by the manufacturers was $1.7 million, all of which has been repaid as of July 31, 2004. The notes called for monthly payments aggregating approximately $121,000 and bore interest ranging from 0% to 8%. All three notes had 12-month repayment terms and matured during fiscal 2005.

On March 30, 2004, we obtained a $4 million revolving loan agreement and credit line with First Victoria National Bank. The line allows us to borrow funds to purchase equipment and is secured by the equipment purchased and any leases on that equipment. Interest is payable monthly at prime plus 1/2%. Principal is due on each note 25% after six months, 25% after nine months and the remaining 50% after a year from the date of each note. The last date that advances can be made is June 30, 2005. We have not yet borrowed any funds available under this line. Although we have sufficient cash to meet known commitments and no current plans to draw down any amount, this credit line gives us the financial flexibility to acquire equipment for resale and for lease, as needed, on short notice to take advantage of strategic opportunities regardless of our cash position at the time.

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 12 months. However, should demand warrant, we may pursue additional borrowings to fund capital expenditures and acquisitions.

12

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 uncollectible accounts receivable 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 operations and require management’s subjective judgment. Below is a brief discussion of our critical accounting policies.

Revenue Recognition

Leases

We recognize lease revenue ratably over the term of the lease until there is a question as to whether it is collectible. Commission income is recognized once it has been paid to us. We do not enter into leases with imbedded maintenance obligations. Under our standard lease contract, the lessee is responsible for maintenance and repairs to the equipment, excluding fair wear and tear. We provide technical advice to our customers as part of our customer service practices.

Equipment Sales

We recognize revenue and cost of goods sold from the equipment sales upon transfer of title. We occasionally offer extended payment terms on equipment sales transactions. These terms are generally less than one year in duration.

Allowance for Doubtful Accounts

We make provisions to the allowance for doubtful accounts periodically, as conditions warrant, based on whether we believe such receivables are collectible. 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 and do not recognize interest earned until the entire principal balance has been collected.

Long-Lived Assets

We carry property and equipment at cost, net of accumulated depreciation, and compute depreciation on the straight-line method over the estimated useful lives of the property and equipment, which range from three to seven years. Buildings are depreciated over 40 years, property improvements are amortized over 10 years and leasehold improvements are amortized over the life of the leases. We review our long-lived 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, we record an impairment charge. During fiscal 2004, we recorded a non-cash impairment charge of $0.7 million related to the sale of DSI’s operating assets.

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, 2003 and 2004, we have recorded a net deferred tax asset of $9.4 million and $11.6 million, respectively. As we believe it is not assured that these net deferred tax assets will be realized, we have provided valuation allowances of $9.4 million and $11.6 million at January 31, 2003 and 2004, respectively. We periodically reevaluate these estimates and assumptions as circumstances change. Such factors may significantly impact our results of operations from period to period.

13

Item 3. 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., Canadian and Australian dollars to mitigate the exposure to fluctuations in foreign currencies. Since the majority of our lease and sales contracts with our customers are denominated in U.S., Canadian and Australian dollars, there is little risk of economic (as opposed to accounting) loss from fluctuations in foreign currencies.

Item 4. Controls and Procedures

As required by SEC Rule 13a-15(b), we evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our principal executive officer and principal financial officer have concluded that, with the exceptions noted below, our current disclosure controls and procedures are effective to timely alert them to material information regarding the Company that is required to be included in our periodic reports filed with the SEC, and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles. This Item 4 contains the information regarding the evaluation of the Company’s disclosure controls and procedures that is referred to in paragraph 4(b) of the certifications of the CEO and Controller attached as Exhibits 31.1 and 31.2 to this report, and should be read in conjunction with those certifications for a thorough understanding and presentation of that information.

During the quarter ending April 30, 2004, management became aware of a possible issue related to certain accounts receivable of our Canadian subsidiary, Mitcham Canada, that were recognized in the fourth quarter of the fiscal year ended January 31, 2004. In April 2004, an employee reported to the Audit Committee some concern regarding the integrity of those receivables. Our Audit Committee immediately began an investigation, engaging independent legal counsel and independent forensic accountants. As a result of the investigation, and based on comments made to us by our independent auditor, material weaknesses in internal controls over financial reporting at Mitcham Canada discussed below were identified and fully disclosed to our Audit Committee and independent auditor.

In addition, as a result of the independent investigation, we became aware of an isolated incident in which certain of our employees overrode the system of internal controls in connection with the preparation of an invoice. The incident, which did not indicate a weakness in our system of internal controls over financial reporting, had no effect on our financial statements, and was fully disclosed to the Audit Committee and our independent auditors.

We have identified the following weaknesses in internal controls over financial reporting:

Implementation of a winter season billing practice change for leasing customers of Mitcham Canada that began in November 2003. Mitcham Canada equipment lease customers were resistant to the acceptance of the recent changes in billing policy for certain leased equipment. As a result, several customers disputed their billings during the fourth quarter and receivables balance at January 31, 2004. These billing and collection issues were resolved in the first quarter of fiscal 2005, when Mitcham Canada provided certain customers with credits of disputed receivables. All resolutions have been appropriately accounted for.

By way of explanation, the current market of seismic data acquisition contractors in Canada is limited, consisting of perhaps between 12-16 contractors. Each of these contractors’ financial condition is sensitive to changes in demand for seismic services and to the timeliness in which they are paid for their services, which in turn affect the timing of when Mitcham Canada is paid for its equipment leasing. To compete effectively in the market, Mitcham Canada must respond to these market conditions.

The lack of required formal high-level management reporting for Mitcham Canada, along with regular on-site reviews of accounting policies and practices. We have historically relied on non-standardized verbal updates from our subsidiaries on high-level management issues, which can affect both the timeliness and accuracy of accounting for certain transactions. Formal high-level management reporting and regular on-site reviews of accounting policies

14

and practices would have sooner identified the issues discussed in the preceding paragraph, and with more specificity. Prior to the investigation but before the publication of our financial results for the fiscal year ended January 31, 2004, disputed amounts were reflected in our general, but not our specific, reserves for doubtful accounts.

The lack of automated equipment inventory management systems at Mitcham Canada. While our headquarters in Huntsville, Texas employs an inventory tracking and management system that is fully integrated with its accounting system, Mitcham Canada is not on the same fully integrated system. Instead, management relies on manual reconciliations of equipment from spreadsheets to the accounting system, which require accounting staff resources to track the movement of equipment to and from the customer, as well as between Huntsville, Texas and Calgary, Canada. This tracking process uses a number of databases, thus creating inefficiencies in identifying and deploying equipment that is available for rent, as well as additional required reconciliation procedures between the databases and the general ledger.

We are in the process of implementing the following changes or additions to our internal controls and procedures, on a post-fiscal-year end basis:

•

We now require a monthly formal high-level executive summary for Mitcham Canada and SAP as part of their regular monthly financial reporting packages.

•

We have established quarterly (for Mitcham Canada) and semi-annual (for SAP) on-site reviews of accounting policies and practices with internal accounting personnel and local management of Mitcham Canada and SAP, and formalized monthly telephonic reviews of the management report.

•

We are evaluating how best to implement an integrated software system to effectively track and account for lease equipment at Mitcham Canada and SAP, and the timetable in which this can reasonably be accomplished.

•

Until we can implement an integrated software system, we will require more frequent reconciliations of the manual systems to the general ledger accounts, and more levels of review of those reconciliations.

•

We will engage our independent auditor to observe our physical inventory of the Canadian lease pool during the coming summer months, which is the Canadian low season.

•

We will as soon as practicable hire an internal auditor who will report directly to the Audit Committee.

•

We are interviewing consultants to begin the Section 404 internal controls documentation work so that there is adequate time for us to comply with those requirements for the fiscal year ended January 31, 2006.

In addition, our Chief Financial Officer, who was also a director and our Chief Operating Officer, has resigned. We have therefore initiated a formal search for a new CFO and COO. In the interim, our Controller is fulfilling the CFO duties.

Management views the short-term and long-term remediation of our internal control deficiencies as a top-priority item. We will continue to evaluate the effectiveness of our internal controls and procedures to take action as appropriate. Other than implementing the improvements discussed above, there have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Forward-Looking Statements and Risk Factors

Certain information contained in this Quarterly Report on Form 10-Q (including statements contained in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Part I, Item 4. “Controls and Procedures” and in Part II, Item 1. “Legal Proceedings”), as well as other written and oral statements made or incorporated by reference from time to time by us and our representatives in other reports, filings with the United States Securities and Exchange Commission (the “SEC’’), 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 (the “Exchange Act’’). 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

15

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 in our Annual Report on Form 10-K for the year ended January 31, 2004 and elsewhere within this Quarterly Report on Form 10-Q.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is a party to legal proceedings arising in the ordinary course of business. The Company is not currently a party to any litigation that it believes could have a material adverse effect on the results of operations or financial condition of the Company.

Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits
		The following documents are filed as exhibits to this Report:
		10.1 – Separation Agreement, Consulting Agreement and Release, dated June 24, 2004 between P. Blake Dupuis and Mitcham Industries, Inc.*
		31.1 – Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
		31.2 – Certification of Christopher C. Siffert, Corporate Controller, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
		32.1 – Certification of Billy F. Mitcham, Jr., Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350
		32.2 – Certification of Christopher C. Siffert, Corporate Controller, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350
*		Management contract or compensatory plan or arrangement
(b)		Reports on Form 8-K
		Current Report on Form 8-K dated May 14, 2004 announcing the completion of the Company’s internal investigation.
		Current Report on Form 8-K dated June 2, 2004 related to the Company’s earnings for the fiscal year ended January 31, 2004.
		Current Report on Form 8-K dated June 14, 2004 related to the Company’s earnings for the first quarter ended April 30, 2004.
		Current Report on Form 8-K dated July 28, 2004 related to the Company’s distribution to shareholders of its 2004 Annual Report, the CEO’s accompanying letter of which contained certain forward-looking information regarding industry trends, capital expenditures and profitability.

16

SIGNATURES

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

17

Exhibit Index

		10.1 – Separation Agreement, Consulting Agreement and Release, dated June 24, 2004 between P. Blake Dupuis and Mitcham Industries, Inc.*
		31.1 – Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
		31.2 – Certification of Christopher C. Siffert, Corporate Controller, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
		32.1 – Certification of Billy F. Mitcham, Jr., Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350
		32.2 – Certification of Christopher C. Siffert, Corporate Controller, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350
*		Management contract or compensatory plan or arrangement