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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

for the quarterly period ended September 30, 2004

Commission File Number: 0-28316

Trico Marine Services, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (985) 851-3833

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 Exchange Act Rule 12b-2.)    Yes  x    No  ¨

The number of shares of the Registrant’s common stock, $0.01 par value per share, outstanding at October 31, 2004 was 36,965,537.

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

as of September 30, 2004 and December 31, 2003

(Unaudited)

(Dollars in thousands, except share and per share amounts)

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share amounts)

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(Dollars in thousands)

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

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

1. Financial Statement Presentation:

The condensed consolidated financial statements for Trico Marine Services, Inc. (the “Company”) included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the nature of the Company’s business. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year or any future periods. The financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K (as amended) for the year ended December 31, 2003. Certain prior period amounts have been reclassified to conform to current presentations.

2. Restatement:

Following the filing of the Company’s Form 10-K for the fiscal year ended December 31, 2003 (the “2003 Form 10-K”), the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) selected the 2003 Form 10-K for review. The SEC commented that Statement of Financial Accounting Standards (“SFAS”) No. 6, “Classification of Short-Term Obligations Expected to be Refinanced – an amendment of ARB No. 43, Chapter 3A” appeared to apply to the Company’s Norwegian Kroner (“NOK”) 800 million revolving credit facility (the “Trico Supply Bank Facility”). After consultations with the staff members of the SEC and a review of the Trico Supply Bank Facility, the SEC advised, and the Company and its auditors agreed, that the outstanding balance of the facility should technically be classified as a current liability in accordance with SFAS No. 6 since the facility contains a subjective acceleration clause (material adverse change clause) and the agreement language replaces short-term advances with other short-term advances. Previously, the Company presented the outstanding balance as a long-term liability because the facility has a final maturity of September 2009 and the fact that the Company does not use cash to repay advances on a short-term basis, but instead rolls over an advance into a new advance period. The Company had NOK 365 million ($54.3 million) and NOK 410 million ($61.5 million) outstanding under this facility as of September 30, 2004 and December 31, 2003, respectively. The Company’s Norwegian operating subsidiary, Trico Shipping AS, is the borrower of this facility. This change in classification does not affect the Company’s compliance with this facility or other currently outstanding debt instruments, and does not affect the liquidity position of the Company for any period previously reported.

3. Liquidity

The Company is in the process of negotiating a major restructuring. This process, which is described in more detail below and in Note 4, will, if consummated, result in the exchange of all $250 million in outstanding 8 ⁷/8% senior notes due 2012 (the “Senior Notes”) and the outstanding unpaid interest ($19.9 million at September 30, 2004) for 100% of the new equity of the Company, subject to dilution by warrants issued to existing common stockholders and options to employees.

In connection with the restructuring, and in an effort to address liquidity issues relating to the Company’s operations while in a Chapter 11 case and following the completion of the restructuring, the Company is also negotiating to replace the 2004 senior secured credit facility (the “2004 Term Loan”) with a new secured term loan and revolving credit facility in the U.S.

The Company is attempting to arrange a debtor-in-possession financing facility (the “DIP Facility”) consisting of a non-amortizing $55 million term loan and a $20 million revolving line of credit. Under the terms of the proposal the Company is currently considering, the proposed borrowers would be the Company’s two primary U.S. subsidiaries, and the loans would be guaranteed by the Company and all domestic and foreign wholly-owned subsidiaries of the Company, excluding Trico Shipping AS. Interest would accrue at variable rates, plus a margin, subject to floors. If the Company is successful in arranging the DIP Facility, and if the DIP Facility is approved by the bankruptcy court, the proceeds of the term loan portion of the DIP Facility would be used to pay in full, without penalty or premium, all amounts currently due pursuant to the Company’s 2004 Term Loan.

Upon completion of the Chapter 11 case, provided that the Company meets certain conditions precedent to financing, the DIP Facility would convert to an exit term loan and exit revolving facility (the “Exit Facility”) in a similar amount subject to certain terms and conditions. The Exit Facility currently under negotiation by the Company would be subject to equal amortization requirements of $5 million commencing on the second anniversary of the Exit Facility effective date, with a final bullet installment of $40 million on the fifth anniversary of the effective date. The proposed Exit Facility would include fees on the unused portion of the exit revolving facility, as well as other customary fees. Any proposed Exit Facility would be subject to customary financial covenants, as well as covenants that restrict additional indebtedness and restrict uses of cash.

There can be no assurance as to the Company’s ability to successfully arrange or place the proposed DIP Facility and/or Exit Facility, or whether such facilities will be available on terms that are attractive to the Company, or at all.

Factors leading to the restructuring, as well as a discussion of the Company’s liquidity position at September 30, 2004, are described below.

Negative operating results and cash flows since 2002 have led the Company to design and complete steps to enhance liquidity. As part of this program, the Company refinanced long-term debt in 2002, sold vessels in September 2003 and 2004 and refinanced its U.S. revolving credit facility in February 2004. After taking these measures, the Company’s liquidity position continued to deteriorate, primarily due to extremely low demand for its vessels in its key markets.

In the second quarter of 2004, the Company decided to proactively address its financial leverage and liquidity situation while it had sufficient cash resources to allow it to pursue a variety of alternatives. On April 27, 2004, the

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

Company announced that it had retained legal and financial advisors to assist in its objective of fundamentally restructuring the Company’s capital structure. This initiative resulted in the decision not to pay the $11.1 million cash interest payment on its Senior Notes, which was due on May 15, 2004. As a result of the occurrence of an event of default, the entire outstanding principal balance of the Senior Notes has been classified as a current liability in the accompanying condensed consolidated balance sheet. During September 2004, the Company announced that it had reached a consensual restructuring agreement with the holders of more than 67 percent of the Senior Notes. Based on the agreement, the Company believes it has the support of the requisite body of the holders of the Senior Notes to implement the restructuring through a prepackaged or prearranged bankruptcy case, as discussed in more detail in Note 4.

The occurrence of an event of default under the Senior Notes indenture triggered a cross-default under the Company’s 2004 senior secured credit facility (the “2004 Term Loan”). Since an event of default has occurred under the 2004 Term Loan agreement, the holders of more than 50% of the unpaid principal or the administrative agent may declare the outstanding balance, including accrued interest, immediately due and payable. As a result of the Company’s default, the entire outstanding principal balance of the 2004 Term Loan has been classified as a current liability in the accompanying condensed consolidated balance sheet. On September 20, 2004, the Company announced it had received a notice of default and guarantee demand from the 2004 Term Loan’s administrative agent. According to the terms of the proposed restructuring discussed in more detail in Note 4, the 2004 Term Loan balance will not be impaired.

The costs associated with the Company’s restructuring initiatives will continue to have a significant negative impact on the Company’s cash flows in the near term. The Company has spent approximately $0.8 million per month in fees, which have been expensed as incurred, to pay its financial and legal advisors, and its creditors’ financial and legal advisors while undertaking this restructuring. In addition to the monthly fees, the Company has agreed to pay approximately $3.5 million in success fees to the Company’s financial advisors and the financial advisors to the holders of the Senior Notes upon consummation of a reorganization. These success fees will be accrued once the advisors have met the criteria for the fee under the agreement, which includes approval of the restructuring by the Bankruptcy court. There can be no assurance that any measures achieved will result in sufficient improvement to the Company’s financial position.

In addition to the balance sheet restructuring, the Company has also implemented steps to reorganize and improve the Company’s operations, including mobilizing vessels into more attractive markets, sales of older, less marketable vessels and cost reductions. The Company’s currently planned asset sales include the two oldest vessels in its North Sea class fleet. The Company is also exploring forming joint ventures in an effort to develop or expand its presence in growing international markets.

The Company’s liquidity and the ability of the Company to continue as a going concern, including its ability to meet its ongoing operational obligations, is dependent upon, among other things, (i) the Company’s ability to maintain adequate cash on hand, including repatriating cash from its foreign subsidiaries; (ii) the Company’s ability to generate cash from operations; (iii) the cost, duration and outcome of the restructuring process; (iv) the ability to comply with the credit agreements described in Notes 13 and 14, and (v) the Company’s ability to achieve profitability following a restructuring. The Company, in conjunction with its advisors, is working to design and implement strategies to ensure the Company maintains adequate liquidity. However, there can be no assurance as to the success of such efforts.

In general, the Company operates through two primary operating segments, the U.S. Gulf of Mexico and the North Sea. These business segments have been capitalized and are financed on a stand-alone basis. Debt covenants and the Norwegian shipping tax regime preclude the Company from effectively transferring the financial resources from one segment for the benefit of the other. Over the past three years, the Company’s U.S. Gulf of Mexico operating segment has incurred significant losses while operating under a significant debt burden, and has not been able to utilize the financial resources of its North Sea operating segment, which carries a lower level of debt. In an effort to maintain adequate funds for operations in the U.S., the Company has initiated the process of repatriating funds from Norway; however, there are substantial obstacles which the Company must overcome in order to achieve a funds transfer in a tax efficient manner and there can be no assurance as to the success of such efforts.

6

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

The potential adverse publicity associated with the Company’s announcements relating to its financial restructuring and the resulting uncertainty regarding the Company’s future prospects, may hinder the Company’s ongoing business activities and its ability to operate, fund and execute its business plan by, among other things, (i) impairing relations with existing and potential customers; (ii) limiting the Company’s ability to obtain trade credit on reasonable and customary terms and conditions; (iii) impairing present and future relationships with vendors and service providers; and (iv) negatively impacting the ability of the Company to attract, retain and compensate key executives, and to retain employees generally. The Company, in conjunction with its advisors, is working with its current customers, vendors and employees to minimize the disruption its restructuring will impose on the business. However, there can be no assurance as to the success of such efforts.

4. Proposed Consensual Restructuring Agreement with Holders of the Senior Notes

The Company has not made any adjustments for the proposed restructuring transactions discussed below in any financial statement presented in this Form 10-Q. The Company has reported the Senior Notes balance at its original unimpaired balance, and has continued to record and accrue interest expense for the Senior Notes through September 30, 2004 at the stated rates, as affected by default premiums.

During September 2004, the Company announced that it had reached a consensual restructuring agreement with the holders of more than 67 percent of the Senior Notes. Based on this agreement, the Company believes it has the support of the requisite body of the holders of the Senior Notes to implement the restructuring through a prepackaged or prearranged bankruptcy case. The parties to the restructuring agreement have signed binding agreements to support the restructuring on proposed terms, subject to finalization of definitive agreements and related documentation and the satisfaction of certain specified conditions. A summary of the terms of the financial restructuring follows:

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

Under the terms of the restructuring agreement, Thomas Fairley will continue as the Company’s Chief Executive Officer and Trevor Turbidy will continue as the Company’s Chief Financial Officer. Joseph Compofelice will remain as the Company’s non-executive Chairman of the Board of Directors.

The financial restructuring would be effectuated through a prepackaged or prearranged Chapter 11 plan of reorganization of Trico Marine Services, Inc. (the parent) and its two primary U.S. subsidiaries, Trico Marine Assets, Inc. and Trico Marine Operators, Inc. The Company does not anticipate, nor does the agreement contemplate, that any of its foreign subsidiaries, affiliates or assets would be subject to any Chapter 11 filing, bankruptcy proceeding or any other similar reorganization or insolvency proceeding.

The restructuring agreement reached between the Company and the applicable holders of the Senior Notes covers the broad economic terms of the financial restructuring and not all material terms expected to be contained in a plan of reorganization. The parties to the restructuring agreement have signed binding agreements to support the restructuring on the proposed terms, subject to finalization of definitive agreements and documentation and the satisfaction of certain specified conditions.

The Company is in the process of negotiating the final forms of the relevant plan documents with the holders of the Company’s Senior Notes and the 2004 Term Loan lenders. Following the negotiation of these documents, the Company plans to commence the solicitation of acceptances from all parties entitled to vote on the restructuring plan. If the Company receives properly completed ballots (that are not subsequently revoked) indicating acceptance of the restructuring plan in sufficient number and amount to meet the voting requirements prescribed by section 1126 of the bankruptcy code, the Company intends to file with the bankruptcy court voluntary petitions for relief under Chapter 11 of the bankruptcy code, and to seek, as promptly thereafter as practicable, confirmation of the plan. The effective date of the plan is expected to occur shortly after the bankruptcy court’s entry of the confirmation order. Given the inherent uncertainties associated with any restructuring process, there can be no assurance as to, at a minimum, (i) the timing of the commencement of solicitation, (ii) the commencement date of a Chapter 11 case, (iii) when and whether the plan will be approved, and/or (iv) when and whether the effective date of the plan will actually occur.

If the requisite acceptances to the plan are not received, the Company believes that it may have to file traditional, non-prepackaged petitions under Chapter 11 of the bankruptcy code. There can be no assurance, however, that the Company will be able to emerge from cases under Chapter 11 of the bankruptcy code in such circumstances, and they might be forced into liquidation under Chapter 7 of the bankruptcy code.

5. Restructuring costs:

Since April 2004, when the Company announced it had retained financial and legal restructuring advisors, the Company has incurred significant costs associated with the restructuring initiative. During the three and nine months ended September 30, 2004, the Company incurred restructuring charges of $2.6 million and $4.3 million, respectively, in fees paid to the Company’s financial and legal advisors, and the advisors of its creditors whom the Company is obligated to pay under certain agreements. In addition to the monthly fees, the Company has agreed to pay approximately $3.5 million in success fees to the Company’s financial advisors and the financial advisors to the holders of the Senior Notes upon consummation of a reorganization. These success fees will be accrued once the advisors have met the criteria for the fee under the agreement, which includes approval of the restructuring by the Bankruptcy court. The Company has also adopted a key employee retention plan, which calls for aggregate payments of $1.0 million payable based on service over a 15 month period. During the third quarter of 2004, the Company accrued approximately $0.1 million for the retention plan. These expenses are classified as “Restructuring costs,” an operating expense, in the condensed consolidated statements of operations for the three and nine months ended September 30, 2004.

6. Deferred financing costs and original issue discounts:

Since an event of default occurred under the Senior Notes indenture and the 2004 Term Loan agreement, the maturities under both facilities could be accelerated and the outstanding balances are payable immediately upon demand. As a result, the Company determined that there is substantial doubt about the future benefit the Company will receive from the deferred financing costs and original issue discounts associated with these debt offerings. Therefore, the Company expensed the remaining unamortized deferred finance cost balance of $7.2 million during the second quarter of 2004. This accelerated amortization is included in “Amortization of deferred finance costs” in the condensed consolidated statement of operations. In addition, the Company recorded a charge of $2.8 million during the second quarter of 2004 to accelerate the amortization of original issue discounts, which is included in “Interest expense” in the condensed consolidated statement of operations for the nine months ended September 30, 2004.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

7. Assets held for sale and sales of vessels:

During the second quarter of 2004, as a result of an inability to achieve adequate day rates and long-term contracts for some of the oldest North Sea vessels, the Company initiated the process of selling three of its North Sea class platform supply vessels (“PSVs”) that have an average age of 28 years. For assets held for sale, impairment charges are recorded when the carrying amount of the asset exceeds the estimated fair value of the asset less transaction costs or commissions. Based on the Company’s estimates of fair value less transaction costs or commissions, the Company recorded a total charge of $8.7 million on the three North Sea vessels during the second quarter of 2004. One of the vessels being held for sale was sold on July 8, 2004 for approximately $3.7 million. No gain or loss was recognized on the date of the transaction since the vessel’s book value was equal to the net sales price as a result of the write-down in the second quarter. The remaining two vessels are still being actively marketed for sale.

The Company intends to enter into a sale or sale-leaseback transaction for its 14,000 square foot primary office in the North Sea to provide additional liquidity. Since the Company is intending to enter into a sale-leaseback transaction for the office building, it is not included in “Assets held for sale” due to requirements in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” regarding sale-leaseback transactions.

During October 2004, the Company began actively marketing a group of five linehandler vessels, currently operating in Brazil. The five vessels are not included in assets held for sale at September 30, 2004 due to the timing of the marketing effort.

During the second quarter of fiscal year 2003, the Company committed to a formal plan to sell its investment in the construction of the anchor handling towing supply vessel (“AHTS”) which had a long-term contract with Petroleo Brasilerio S.A. (“Petrobras”) as well as dispose of one of its larger North Sea vessels. In accordance with SFAS No. 144, these assets were classified as held for sale, and the Company recorded a charge of approximately $5.2 million for the impairment related to the anticipated sale of the assets during the second quarter of 2003. The Company completed the sale of the above-described assets in September 2003. The Company received net proceeds in the amount of $52.5 million from the sale of the Brazilian AHTS and North Sea vessel and recorded an additional loss of $0.9 million on the transactions. The total loss on the sale of the North Sea vessel and Brazilian AHTS was $6.2 million.

In February 2003, the Company sold one of its crew boats for approximately $0.6 million and recognized a gain of approximately $0.5 million on the transaction. In March 2003, the Company completed the sale-leaseback on a 155-foot crew boat that had been under construction. The Company received approximately $2.9 million on the sale-leaseback transaction. In July 2003, the Company sold one crew boat and one supply boat for approximately $0.9 million, and recognized a gain of approximately $0.7 million on the transactions.

8. Vessel impairments:

In accordance with the provisions of SFAS No. 144, the Company reviews long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The Company performed an analysis as of September 30, 2004 and determined that events during the third quarter of 2004 did not indicate that a review for impairment was necessary.

However, due to changes to the Company’s operational restructuring plan as well as the continued low levels of day rates and utilization in the Company’s key market areas during the first half of the year, the Company determined that a test for impairment of its vessels was necessary as of June 30, 2004. The Company records impairment losses on long-lived assets held for use when the net undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. During the second quarter of 2004, based on the Company’s updated estimates of cash flows, the Company recorded a charge of $8.6 million on three of its North Sea vessels

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

classified as held for use. If market conditions were to further deteriorate in any markets in which the Company operates or if vessels are mobilized into a new market with new cash flow estimates, it could require the Company to re-evaluate the recoverability of its long-lived assets in that market. In addition, if the Company decides to sell additional vessels in the future, further impairments may be required depending on the estimated selling prices of the vessels.

9. Earnings Per Share:

Following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the three and nine month periods ending September 30, 2004 and 2003 (in thousands, except share and per share data).

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

For the three and nine month periods ending September 30, 2004, options to purchase 1,103,675 shares of common stock at prices ranging from $2.05 to $23.13 have been excluded from the computation of diluted earnings per share because inclusion of these shares would have been antidilutive. During the three and nine months ended September 30, 2004, 65,000 and 85,000 shares, respectively, of unvested restricted stock were excluded from the computation of diluted earnings per share because inclusion of these shares would have been antidilutive. During the three and nine months ended September 30, 2003, options to purchase 2,072,968 and 2,101,718 shares of common stock at prices ranging from $0.91 to $23.13 were excluded from the computation of diluted earnings per share because inclusion of these shares would have been antidilutive. During the three and nine months ended September 30, 2003, 60,000 shares of unvested restricted stock were excluded from the computation of diluted earnings per share because inclusion of these shares would have been antidilutive.

10. Stock Based Compensation

The Company sponsors an employee stock-based incentive compensation plan, the “1996 Stock Incentive Plan” (the “1996 Plan”), and a non-employee director stock-based incentive compensation plan (the “Director Plan”). Please refer to the Company’s December 31, 2003 Annual Report on Form 10-K for a description of the 1996 Plan.

Under the Director Plan, the Company is authorized to issue shares of Common Stock pursuant to “Awards” granted as unrestricted, fully vested shares. Each non-employee director is granted up to 20,000 shares each year, as determined by the Board of Directors, immediately following the annual meeting. The Compensation Committee administers the Plan. According to the Director Plan, Awards may be granted with respect to a maximum of 250,000 shares of common stock. As of September 30, 2004, 30,000 shares of stock had been granted under the Director Plan.

The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting For Stock Based Compensation” and, subsequently, SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB Statement No. 123.” For restricted stock awards, the fair value at the date of the grant is expensed over the vesting period. For director stock awards, compensation expense is recognized immediately since shares are unrestricted at the time of grant. For stock options, no compensation cost is reflected in earnings, as all options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the grant date. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

11. Taxes:

The Company’s income tax for the three and nine months ended September 30, 2004 is comprised of a tax expense of $0.4 million and an income tax benefit of $1.6 million, primarily associated with its Norwegian operations. In accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” no net tax benefit was recorded in the financial statements for the Company’s 2004 U.S. net operating losses and deferred tax assets, as management does not consider the benefit to be more likely than not to be realized. The Company’s effective income tax rate for the three and nine month periods ended September 30, 2004 was (3%) and 2%, respectively. The variance from the Company’s statutory rate was primarily due to the valuation allowance on U.S. net operating losses and deferred tax assets, lack of deductibility of costs associated with the financial restructuring and, to a lesser extent, income contributed by the Company’s Norwegian subsidiary for which income taxes were provided at the Norwegian statutory rate of 28%. The ability to deduct amounts incurred as a result of the financial restructuring process is dependent on several factors including the ultimate restructuring alternative that is implemented. The Company believes that it has provided appropriately for the potential non-deductibility of these expenses and any change in circumstances should not have a material adverse impact on its financial statements. For the three and nine month periods ended September 30, 2003, the Company recorded benefits of $0.2 million and $2.6 million, respectively, and had effective income tax rates of 2% and 4%, respectively. The variances from the Company’s statutory rate in 2003 were caused by the same factors as in 2004, excluding deductibility of restructuring costs.

The Company’s Brazilian subsidiary received a tax assessment from a Brazilian State tax authority for approximately 14.8 million Real ($5.2 million at September 30, 2004). The tax assessment is based on the premise that certain services provided in Brazilian federal waters are considered taxable by certain Brazilian states as transportation services and are subject to a state tax. The Company had filed a timely defense at the time of the assessment. In September 2003, an administrative court upheld the assessment. In response, the Company filed an administrative appeal in the Rio de Janeiro administrative tax court during October 2003. The Company is currently under no obligation to pay the assessment unless and until such time as all appropriate appeals are exhausted. The Company intends to vigorously challenge the imposition of this tax. Broader industry actions have been taken against the tax in the form of a suit filed at the Brazilian federal supreme court seeking a declaration that the state statute attempting to tax the industry’s activities is unconstitutional. If the Company’s challenge to the imposition of this tax (which may include litigation at the Rio de Janeiro state court) proves unsuccessful, current contract provisions and other factors could potentially mitigate the Company’s tax exposure.

During the third quarter of 2004, the Company received a separate tax assessment from the same Brazilian State tax authority for approximately 2.2 million Real ($0.8 million at September 30, 2004). This tax assessment is based on the same premise as noted above. The Company filed a timely defense during October 2004 and is awaiting a ruling. The Company has not accrued for either assessment or any potential interest charges for the liabilities as they are not considered “probable” as defined by SFAS No. 5.

12. Restricted cash and security deposits:

The Company segregates restricted cash due to the legal or other restrictions regarding its use. At September 30, 2004, the majority of the total restricted cash balance of $7.9 million relates to cash held in escrow for outstanding letters of credit, as prescribed following the Company’s retirement of the Bank Credit Facility (see Note 13). Since the cash held in escrow for outstanding letters of credit will not be used to offset currently maturing liabilities, the balance of $6.7 million has been classified as “Restricted cash – noncurrent” in the accompanying condensed consolidated financial statements. To a lesser extent, the Company has statutory requirements in Norway which require a subsidiary to segregate cash that will be used to pay tax withholdings in following periods, and other cash amounts held in escrow for specific purposes.

In addition, the Company provided General Electric Capital Corporation (“GECC”) with cash as additional security under the master bareboat charter agreement with GECC (the “Master Charter”) in the amount of $1.7

12

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

million during the second quarter of 2004, which became necessary following an S&P credit rating downgrade below the B- level. Since GECC has custody and control of the cash, the $1.7 million security deposit is included in “Other assets”, a noncurrent asset, in the accompanying condensed consolidated balance sheet as of September 30, 2004.

13. Debt:

The Company’s debt consists of the following at September 30, 2004 and December 31, 2003 (in thousands):

13

TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

Maturities on debt during the three month period ending December 31, 2004, the next five subsequent years and thereafter are as follows (in thousands):

As previously stated in Note 2, the Company has reclassified the entire outstanding balance of the Trico Supply Bank Facility as a current liability for presentation in accordance with SFAS No. 6 since the facility has both a subjective acceleration clause (material adverse change clause) and the facility replaces short-term advances with other short-term advances. Previously, the Company presented the outstanding balance as a long-term liability because the facility has a final maturity of September 2009 and the fact that the Company does not use cash to repay advances on a short-term basis, but instead rolls over an advance into a new advance period. The Company had NOK 365 million ($54.3 million) and NOK 410 million ($61.5 million) outstanding under this facility as of September 30, 2004 and December 31, 2003, respectively. The Company’s Norwegian operating subsidiary, Trico Shipping AS, is the borrower of this facility. This change in classification does not affect the Company’s compliance with this facility or other currently outstanding debt instruments, and does not affect the liquidity position of the Company for any period previously reported.

On February 12, 2004, the Company’s two primary U.S. subsidiaries entered into a $55 million term loan (the “2004 Term Loan”) to repay and retire the Bank Credit Facility discussed below. The 2004 Term Loan bears interest at LIBOR or 2%, whichever is higher, plus 6.0%, or U.S. Prime rate plus 5.0%, at the Company’s option, plus a default premium of 2% (10.8% at September 30, 2004 including the default premium). Pursuant to the credit agreement governing the 2004 Term Loan (the “2004 Credit Agreement”), the Company is not subject to financial maintenance covenants, but is subject to other covenants that place restrictions on the subsidiaries’ ability to incur additional indebtedness or liens, dispose of property, make dividends or make certain other distributions and other specified limitations. In addition, the 2004 Credit Agreement contains cross-default provisions, which could be triggered in the event of certain conditions, including an uncured default in the payment of principal or interest of any indebtedness in excess of $5.0 million. The occurrence of an event of default under the Senior Notes indenture triggered a cross-default under the 2004 Term Loan. Since an event of default has occurred under the 2004 Term Loan credit agreement, the holders of more than 50% of the unpaid principal or the administrative agent is able to declare the outstanding principal balance, including accrued interest, immediately due and payable. On September 20, 2004, the Company announced it had received a notice of default and guarantee demand from the 2004 Term Loan’s administrative agent. According to the terms of the proposed restructuring discussed in more detail in Note 4, the 2004 Term Loan balance will not be impaired. However, the Company is also proposing to refinance the 2004 Term Loan facility with a new secured term loan and revolving credit facility as part of the restructuring process. There can be no assurance as to the success of such efforts.

The 2004 Term Loan is collateralized by 43 vessels, together with the proceeds thereof (which represent substantially all of the Company’s U.S. Gulf class supply boats), a pledge of stock of the Company’s two primary U.S. subsidiaries, and the pledge of certain other collateral of the Company and its U.S. subsidiaries. The principal balance is reduced by quarterly principal payments of $0.2 million through 2007, payments of $10.5 million in 2008, and $42.3 million in 2009.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

In December 2002, the Company entered into a $50.0 million revolving credit agreement (the “Bank Credit Facility”). During February 2004, the Bank Credit Facility was repaid and retired, using a portion of the net proceeds of the 2004 Term Loan discussed above. A loss of $0.6 million was recognized on the repayment, primarily related to the recognition of unamortized issue costs. Bank Credit Facility borrowings bore interest at a Eurocurrency rate plus a margin that was indexed to the Company’s interest coverage ratio. The Bank Credit Facility was collateralized by substantially all of the Company’s U.S. Gulf class supply and crew boats and required the Company to maintain mortgaged vessel values equal to 200% of the borrowings under the Bank Credit Facility. The Bank Credit Facility contained covenants which required the Company to maintain minimum cash flow to interest expense ratios, positive working capital, a maximum debt to capitalization ratio and a minimum tangible net worth ratio, as defined. The Bank Credit Facility also placed certain restrictions on the Company with regard to the Company’s ability to incur additional indebtedness, make dividends or make certain other distributions and other specified limitations.

On May 31, 2002, the Company issued $250 million of 8 ⁷/8% senior notes due 2012 (the “Senior Notes”) pursuant to the terms of a senior note indenture (the “Senior Notes Indenture”). During September 2004, the Company announced that it had reached a consensual restructuring agreement with the holders of more than 67 percent of the Senior Notes. Based on the agreement, the Company believes it has the support of the requisite body of the holders of the Senior Notes to implement the restructuring through a prepackaged or prearranged bankruptcy case, as discussed in more detail in Note 4. The proposed restructuring plan would convert the entire Senior Notes balance into 100% of the outstanding common stock of the reorganized Company, subject to dilution by warrants issued to existing common stockholders and options to employees. The Company has not made any adjustments to the Senior Notes balance as of September 30, 2004 and continues to accrue interest at the stated rates. Because there has been no acceleration of the Senior Notes, the Company has not accrued any default interest on any outstanding principal amount of the Senior Notes. The Company’s has approximately $19.9 million in accrued interest related to the Senior Notes at September 30, 2004. The proposed restructuring plan does not require the cash payment of this accrued interest to the holders of the Senior Notes.

As of September 30, 2004, the entire $250 million of Senior Notes are currently outstanding. Interest payments on the Senior Notes are due on May 15 and November 15 of each year. The Senior Notes are guaranteed by the Company’s two primary U.S. subsidiaries. The Senior Notes Indenture does not contain any financial maintenance covenants, but it does contain certain other covenants that place restrictions on the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, pay dividends or make certain other distributions, unless the ratio of cash flow to interest expense on a rolling 12 months basis is at least 2.0 to 1. The Senior Notes Indenture also contains covenants that restrict the Company’s ability to create certain liens, sell assets, or enter into mergers or acquisitions. In addition, the Senior Notes Indenture also contains provisions that may require the Company to make an excess proceeds purchase offer of the Senior Notes from the net proceeds from asset sales not applied pursuant to section 4.10 under the Senior Notes Indenture after 365 days. If an excess proceeds purchase offer were made, it would further impair the Company’s liquidity, and cause further deterioration of the Company’s financial position. The Senior Notes Indenture also contains cross-default provisions, which could be triggered in the event of certain conditions, including the failure to pay principal or interest on any debt aggregating $10 million or more, that results in its acceleration.

The Company’s restructuring initiatives led to the decision to withhold the $11.1 million interest payment due May 15, 2004 on the Senior Notes. Since the Company did not cure the non-payment before the expiration of a 30-day grace period, the Company is in default under the Senior Notes indenture. The Company is obligated to pay interest on the overdue installment of interest at a rate of 9 ⁷/8%. Since an event of default under the Senior Notes indenture has occurred, the trustee or holders of greater than 25% of the notes can declare the notes immediately due and payable, or pursue any other remedy available to collect the payment of principal and accrued interest, including any default interest. As a result of the Company’s default, the entire outstanding balance under the indenture has been classified as a current liability in the accompanying condensed consolidated balance sheet.

In 1998, Trico Marine International, Inc., the Company’s special-purpose subsidiary, issued $10.0 million of 6.08% notes due 2006 (the “6.08% Notes”), of which $2.5 million is outstanding at September 30, 2004. In 1999, the subsidiary issued $18.9 million of 6.11% notes due 2014 (the “6.11% Notes”), of which $12.6 million is outstanding at September 30, 2004. The

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

special-purpose subsidiary is 100% owned by a subsidiary of the Company and is consolidated in the Company’s financial statements. Both notes are guaranteed by the Company and the U.S. Maritime Administration. The defaults under the 2004 Term Loan and Senior Notes did not trigger cross-defaults under the 6.11% Notes or 6.08% Notes. According to the terms of the proposed restructuring discussed in more detail in Note 4, the 6.08% Notes and the 6.11% Notes balances will not be impaired.

On June 26, 2003, we entered in a term loan (the “NOK Term Loan”) payable in Norwegian Kroner (“NOK”) in the amount of NOK 150.0 million ($22.3 million). Amounts borrowed under the NOK Term Loan bear interest at NIBOR plus 1.0% (3.05% at September 30, 2004). The NOK Term Loan is required to be repaid in five semi-annual repayments of NOK 7.5 million ($1.1 million), with the first payment due on June 30, 2004, and a final payment of NOK 112.5 million ($16.7 million) on June 30, 2006. Borrowings under the NOK Term Loan are collateralized by mortgages on two of our North Sea vessels. The NOK Term Loan contains a subjective acceleration clause (material adverse change clause), which if exercised by the lenders, could accelerate the maturity of the loan. As of September 30, 2004, the outstanding balance on the NOK Term Loan was NOK 142.5 million ($21.2 million). The defaults under the 2004 Term Loan and Senior Notes did not trigger cross-defaults under the NOK Term Loan.

In April 2002, the Company amended the NOK 650 million ($96.6 million) revolving credit facility (the “Trico Supply Bank Facility”) by increasing the capacity to NOK 800 million ($118.9 million) and revising reductions to the facility amount to provide for NOK 40 million ($5.9 million) reductions every six months starting in March 2003. The Trico Supply Bank Facility provides for a NOK 280 million ($41.6 million) balloon payment in September of 2009. At September 30, 2004, the Company had NOK 365 million ($54.3 million) outstanding under this facility. The amended credit facility is collateralized by mortgages on 11 North Sea vessels. The amended bank facility contains covenants that require the North Sea operating unit to maintain certain financial ratios and places limits on the operating unit’s ability to create liens, or merge or consolidate with other entities. The defaults under the 2004 Term Loan and Senior Notes did not trigger cross-defaults under the Trico Supply Bank Facility. However, after a review of the credit facility’s terms, the Company determined that since the facility has both a subjective acceleration clause (material adverse change clause) and the facility replaces short-term advances with other short-term advances, the entire outstanding balance of the credit facility must be classified as a current liability in accordance with SFAS No. 6. Previously, the Company presented the outstanding balance as a long-term liability because the facility has a final maturity of September 2009 and the fact that the Company does not use cash to repay advances on a short-term basis, but instead rolls over an advance into a new advance period.

On July 25, 2003, Moody’s downgraded our long-term senior implied rating to B3 from B1 and lowered our Senior Notes’ rating to Caa1 from B2. On January 27, 2004, Moody’s downgraded our long-term senior implied rating to Caa1 from B3 and lowered our Senior Notes’ rating to Caa2 from Caa1. On March 15, 2004, Moody’s downgraded our long-term senior implied rating to Caa2 from Caa1 and lowered our Senior Notes’ rating to Caa3 from Caa2, while changing the outlook for the Company from stable to negative. On May 11, 2004, Moody’s announced a reduction in the corporate implied rating from Caa2 to Ca, and a reduction in the Senior Notes rating from Caa3 to Ca, representing that the Senior Notes are categorized as “highest speculation.”

On November 24, 2003, S&P, a division of The McGraw-Hill Companies, Inc., downgraded our Senior Notes to CCC from CCC+ and placed that credit rating on creditwatch with negative implications. In addition, S&P lowered our corporate rating to B- from B on the same date. On March 11, 2004, S&P further downgraded the Senior Notes from CCC to CCC- and the corporate rating from B- to CCC+. On April 28, 2004, S&P placed the Company’s corporate rating on creditwatch, with negative implications. On May 17, 2004, S&P lowered the Company’s corporate and Senior Notes credit ratings to D and removed the credit ratings from creditwatch. S&P discontinued its coverage of the Company in October 2004.

14. Operating Leases:

On September 30, 2002, one of the Company’s primary U.S. subsidiaries, Trico Marine Operators, Inc., entered into the Master Charter with GECC for the sale and lease back of three Gulf-class vessels. All obligations under

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

the Master Charter are guaranteed by Trico Marine Assets, Inc., the Company’s other primary U.S. subsidiary, and Trico Marine Services, Inc, the parent. The Master Charter contains covenants that require the Company to post an additional letter of credit if the S&P credit rating for the Company drops below B-. To satisfy the additional security provision, the Company provided GECC with $1.7 million in cash deposits in lieu of letters of credit in June 2004. The deposits have been classified as non-current “Other assets” in the accompanying condensed consolidated balance sheet.

The Master Charter also contains cross-default provisions, which could be triggered in the event of certain conditions, or the default and acceleration of the Company or certain subsidiaries with respect to any loan agreement which results in an acceleration of such loan agreement. Upon any event of default under the Master Charter, GECC could elect to, among other things, terminate the Master Charter, repossess and sell the vessels, and require the Company or certain subsidiaries to make up to an $11.0 million stipulated loss payment to GECC. If the conditions of the Master Charter requiring the Company to make a stipulated loss payment to GECC were met, such a payment could further impair the Company’s liquidity, and could cause further deterioration of the Company’s financial position.

Since the Company received a notice of default from the 2004 Term Loan’s administrative agent, it is now in default under the Master Charter. However, as part of the $1.7 million Pledge Agreement, GECC agreed to forbear for a period of six months, until December 22, 2004, from exercising its remedies under the cross-default provisions in the Master Charter related to the Company’s failure to pay interest due on the Senior Notes. According to the terms of the proposed restructuring discussed in more detail in Note 4, the Master Charter obligation will not be impaired.

15. Employee Benefit Plans:

Substantially all of the Company’s Norwegian and United Kingdom employees are covered by a number of non-contributory, defined benefit pension plans. Benefits are based primarily on participants’ compensation and years of credited service. The Company’s policy is to fund contributions to the plans based upon actuarial computations. The Company made funding contributions to the plans of $0.1 million and $0.5 million during the three and nine months ended September 30, 2004, respectively, and contributions of $0.2 million and $0.5 million during the three and nine months ended September 30, 2003, respectively. The Company uses an October measurement date for all pension plans. Components of net periodic benefit cost are as follows for the three and nine month periods ended September 30, 2004 and 2003:

16. Contingent litigation:

On June 4, 2004, a punitive class-action lawsuit was filed against the Company, Thomas E. Fairley, the Company’s Chief Executive Officer, and Ronald O. Palmer, the Company’s former Chairman of the Board of Directors, in the United States District Court for the Eastern District of Louisiana. The lawsuit asserts a claim under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder for an unasserted amount of

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

damages on behalf of a class of individuals who purchased Company common stock between May 6, 2003 and May 10, 2004. The lawsuit alleges that the Company and the individual defendants made misstatements and omissions concerning the Company’s future earnings prospects. The Company denies the plaintiffs’ allegations and intends to vigorously defend the lawsuit.

In the ordinary course of business, the Company is involved in certain personal injury, pollution and property damage claims and related threatened or pending legal proceedings. The Company does not believe that any of these proceedings, if adversely determined, would have a material adverse effect on our financial position, results of operations or cash flows. Additionally certain claims would be covered under the Company’s insurance policies. Management, after review with legal counsel and insurance representatives, is of the opinion these claims and legal proceedings will be resolved within the limits of the Company s insurance coverages. At September 30, 2004 and December 31, 2003, the Company has accrued a liability in the amount of approximately $4.1 million and $4.5 million, respectively, based upon the insurance deductibles that management believes it may be responsible for paying in connection with these matters. The amounts the Company will ultimately be responsible for paying in connection with these matters could differ materially from amounts accrued.

17. New Accounting Standards:

In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revised version of SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, and 106.” This revised statement adds to the annual disclosures about pensions and other postretirement benefits that were required by the original statement issued in 1997. The revised statement also requires certain interim disclosures, effective for the Company beginning with the quarter ended March 31, 2004. Both the original and the revised statements address disclosure only and do not address accounting, measurement or recognition for benefit obligations. With certain limited exceptions, the added annual disclosures were effective as of December 31, 2003. The Company has presented the additional interim disclosures in Note 15.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The FASB subsequently revised FIN 46 with FIN 46R. FIN 46 and FIN 46R apply immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The statements apply in the first fiscal year or interim period ending after March 15, 2004, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of the provisions of FIN 46 had no impact on the Company’s financial position or results of operations.

As part of its short term international convergence project, the FASB is amending FAS No. 128, “Earnings Per Share” to make it consistent with international accounting standards and make EPS computations comparable on a global basis. The amendment changes the computation in of EPS by changing the treasury stock method and contingent share guidance for computing year-to-date EPS, assuming that the settlement of contracts that may be settled in stock will be settled by share issuances for the purposes of computing diluted EPS, and by requiring that mandatorily redeemable convertible securities be included in the weighted-average number of shares outstanding used in computing basic EPS from the date the conversion becomes mandatory. The proposed standard is expected to be issued in the fourth quarter of 2004 and will be effective for all periods ending after December 15, 2004. Although the Company is in process of analyzing this proposed statement, it is likely that the statement will lower diluted EPS in future periods if the Company reports net income.

18. Segment and Geographic Information:

The Company provides marine vessels and related services to the oil and gas industry. Substantially all revenues result from the charter of vessels owned by the Company. The Company’s three reportable segments are based on

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

geographic area, consistent with the Company’s management structure. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (please refer to the Company’s December 31, 2003 Annual Report on Form 10-K for a description of the significant policies) except for purposes of income taxes and intercompany transactions and balances. The North Sea segment provides for a flat tax, in addition to taxes on equity and net financial income, at a rate of 28%, which is the Norwegian statutory tax rate. Additionally, segment data includes intersegment revenues, receivables and payables, and investments in consolidated subsidiaries. The Company evaluates performance based on net income (loss). The U.S. segment represents the domestic operations; the North Sea segment includes Norway and the United Kingdom, and the other segment includes primarily Latin America and West Africa. Debt and related interest expense associated with the acquisitions of foreign subsidiaries are reflected in the U.S. segment.

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TRICO MARINE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

A reconciliation of segment data to consolidated data as of September 30, 2004 and 2003 is as follows (in thousands):