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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q   (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended April 30, 2005o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-25142   MITCHAM INDUSTRIES, INC.  Texas
(State or other jurisdiction of
incorporation or organization)
    
    76-0210849
(I.R.S. Employer
Identification No.)
 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 o Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act).  Yes
o    No
x Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date: 9,046,732 shares of Common Stock, $0.01 par value, were
outstanding as of June 7, 2005.




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MITCHAM INDUSTRIES, INC.
INDEX PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets.
    
    3Condensed Consolidated Statements of Operations.
    
    4Condensed Consolidated Statements of Cash Flows.
    
    5Notes to Condensed Consolidated Financial Statements.
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations.
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    13Item 4.
    
    Controls and Procedures.
    
    13PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    14Item 6.
    
    Exhibits.
    
    14Signatures.
    
    15Certification of Billy F. Mitcham, Jr. - CEOCertification of Michael A. Pugh - CFOCertification of Billy F. Mitcham, Jr. - CEOCertification of Michael A. Pugh - CFO
 2




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PART I. FINANCIAL
INFORMATION 
 Item 1.  Financial
Statements
 
 MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data) January 31,
    
    
    April 30,2005
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,138
    
    
    $
    12,229Accounts receivable, net of allowance for
doubtful accounts of $723 and $845
    
    
    6,021
    
    
    
    5,860Current portion of notes receivable, net of
allowance for doubtful
notes of $286 and $243
    
    
    1,192
    
    
    
    980Prepaid expenses and other current assets
    
    
    705
    
    
    
    797Current assets of discontinued operations
    
    
    393
    
    
    
    432Total current assets
    
    
    21,449
    
    
    
    20,298Seismic equipment lease pool, property and equipment
    
    
    74,792
    
    
    
    74,204Accumulated depreciation of seismic equipment lease
pool, property and equipment
    
    
    (55,067
    )
    
    
    (55,752
    )Long-term assets of discontinued operations
    
    
    216
    
    
    
    145Notes receivable
    
    
    
    
    
    
    41Other assets
    
    
    5
    
    
    
    2Total assets
    
    $
    41,395
    
    
    $
    38,938LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,893
    
    
    $
    1,299Current maturities  long-term debt
    
    
    918
    
    
    
    338Deferred revenue
    
    
    652
    
    
    
    102Income taxes payable
    
    
    284
    
    
    
    340Wages payable
    
    
    299
    
    
    
    278Accrued expenses and other current liabilities
    
    
    458
    
    
    
    697Current liabilities of discontinued operations
    
    
    14
    
    
    
    7Total current liabilities
    
    
    7,518
    
    
    
    3,061Commitments and contingenciesShareholders equity:Preferred stock, $1.00 par value; 1,000,000
shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 20,000,000 shares
authorized; 9,893,732 and 9,909,732 shares
issued, respectively
    
    
    99
    
    
    
    99Additional paid-in capital
    
    
    62,702
    
    
    
    62,720Treasury stock, at cost (915,000 shares)
    
    
    (4,686
    )
    
    
    (4,686
    )Deferred compensation
    
    
    (94
    )
    
    
    (58
    )Accumulated deficit
    
    
    (26,282
    )
    
    
    (24,140
    )Accumulated other comprehensive income
    
    
    2,138
    
    
    
    1,942Total shareholders equity
    
    
    33,877
    
    
    
    35,877Total liabilities and shareholders equity
    
    $
    41,395
    
    
    $
    38,938
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share and per share data)
(Unaudited) Three Months EndedApril 30,2004
    
    
    2005Revenues:Equipment leasing
    
    $
    5,401
    
    
    $
    6,196Equipment sales
    
    
    2,805
    
    
    
    1,442Total revenues
    
    
    8,206
    
    
    
    7,638Costs and expenses:Direct costs  seismic leasing
    
    
    689
    
    
    
    597Cost of equipment sales
    
    
    1,551
    
    
    
    692General and administrative
    
    
    1,837
    
    
    
    1,874Provision for doubtful accounts
    
    
    
    
    
    
    79Depreciation and amortization
    
    
    2,707
    
    
    
    2,177Total costs and expenses
    
    
    6,784
    
    
    
    5,419Operating income
    
    
    1,422
    
    
    
    2,219Other income (expense)  net
    
    
    (52
    )
    
    
    85Income before income taxes
    
    
    1,370
    
    
    
    2,304Provision for income taxes
    
    
    
    
    
    
    162Net income
    
    
    1,370
    
    
    
    2,142Net income per common shareBasic
    
    $
    0.16
    
    
    $
    0.24Diluted
    
    $
    0.15
    
    
    $
    0.22Shares used in computing net income per common share:Basic
    
    
    8,800,000
    
    
    
    8,976,000Dilutive effect of common stock equivalents
    
    
    381,000
    
    
    
    612,000Diluted
    
    
    9,181,000
    
    
    
    9,588,000
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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MITCHAM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Three Months EndedApril 30,2004
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,370
    
    
    $
    2,142Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,707
    
    
    
    2,177Stock-based compensation
    
    
    
    
    
    
    36Provision for doubtful accounts, net of charge offs
    
    
    
    
    
    
    79Net book value of seismic equipment sold
    
    
    940
    
    
    
    91Changes in:Trade accounts receivable
    
    
    (27
    )
    
    
    253Federal income taxes, current
    
    
    
    
    
    
    56Accounts payable, accrued expenses and other
current liabilities
    
    
    (336
    )
    
    
    (3,926
    )Other, net
    
    
    44
    
    
    
    (89
    )Net cash provided by operating activities
    
    
    4,698
    
    
    
    819Cash flows from investing activities:Purchases of seismic equipment held for lease
    
    
    (404
    )
    
    
    (1,007
    )Purchases of property and equipment
    
    
    (33
    )
    
    
    (184
    )Net cash used in investing activities
    
    
    (437
    )
    
    
    (1,191
    )Cash flows from financing activities:Proceeds from issuance of common stock upon exercise of options
    
    
    
    
    
    
    18Payments on borrowings
    
    
    (907
    )
    
    
    (580
    )Net cash used in financing activities
    
    
    (907
    )
    
    
    (562
    )Net increase (decrease) in cash and cash equivalents-continuing
operations
    
    
    3,354
    
    
    
    (934
    )Net increase (decrease) in cash and cash equivalents-discontinued
operations
    
    
    (73
    )
    
    
    25Cash and cash equivalents, beginning of period
    
    
    6,834
    
    
    
    13,138Cash and cash equivalents, end of period
    
    $
    10,115
    
    
    $
    12,229
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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MITCHAM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  1.
    Basis of PresentationThe 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, 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, 2005. In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position as of April 30,
2005; the results of operations for the three months ended April 30, 2005 and 2004; and the
cash flows for the three months ended April 30, 2005 and 2004, 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, 2006.  2.
    OrganizationMitcham Industries, Inc., a Texas corporation, was incorporated in 1987. The Company and
Mitcham Canada Ltd., 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 classified as
discontinued operations and all prior period statements have been reclassified accordingly.
See Note 8. All intercompany transactions and balances have been eliminated in
consolidation.  3.
    Earnings Per ShareFor the three months ended April 30, 2004 and 2005, the following table sets forth the
number of dilutive shares that may be issued pursuant to options currently outstanding,
which number was used in the per share calculations. Three Months Ended April 30,2004
    
    
    2005Stock options
    
    
    381,000
    
    
    
    603,000Warrants
    
    
    
    
    
    
    9,000Total dilutive securities
    
    
    381,000
    
    
    
    612,000
 6




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4.
    Comprehensive IncomeSFAS 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
changes in foreign currency to U.S. dollar exchange rates, which is recorded as follows: Three Months Ended April 30,2004
    
    
    2005Net income
    
    $
    1,370
    
    
    $
    2,142Change in foreign currency translation adjustment
    
    
    (544
    )
    
    
    (196
    )Comprehensive income (loss)
    
    $
    826
    
    
    $
    1,946
  5.
    Supplemental Statements of Cash Flows InformationSupplemental disclosures of cash flow information for the three months ended April 30, 2004
and 2005 are as follows: Three Months Ended April 30,2004
    
    
    2005Interest paid
    
    $
    66
    
    
    $
    12
  6.
    ReclassificationsCertain 2004 amounts have been reclassified to conform to the 2005 presentation. Such
reclassifications had no effect on net income or loss. 7




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7.
    Stock OptionsThe 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. Three Months Ended April 30,2004
    
    
    2005Pro forma impact of fair value method (FAS 148)Reported net income
    
    $
    1,370
    
    
    $
    2,142Less: fair value impact of employee stock compensation
    
    
    (83
    )
    
    
    (218
    )Pro forma net income
    
    $
    1,287
    
    
    $
    1,924Income per common shareReported net income per share:Basic
    
    $
    0.16
    
    
    $
    0.24Diluted
    
    $
    0.15
    
    
    $
    0.22Pro forma net income per share:Basic
    
    $
    0.15
    
    
    $
    0.21Diluted
    
    $
    0.14
    
    
    $
    0.20Weighted average Black-Scholes fair value assumptionsRisk free interest rate
    
    
    3-5%
    
    
    
    3-5%Expected life
    
    8 yrs.
    
    
    8 yrs.Expected volatility
    
    
    65%
    
    
    
    68%Expected dividend yield
    
    
    0.0%
    
    
    
    0.0%
  8.
    Discontinued OperationsOn 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 reclassified accordingly. A summary of
DSIs revenues and pretax income (loss) is reflected as follows. Three Months Ended April 30,2004
    
    
    2005Revenues
    
    $
    
    
    
    $
    Pretax income (loss)
    
    $
    
    
    
    $
    
 8




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8.
    Discontinued Operations (continued)A summary of DSIs assets and liabilities is reflected as follows: January 31,
    
    
    April 30,2005
    
    
    2005Accounts and notes receivable of discontinued operations
    
    $
    498
    
    
    $
    465Other current assets of discontinued operations
    
    $
    111
    
    
    $
    112Accounts payable and accrued liabilities of
discontinued operations
    
    $
    14
    
    
    $
    7
 
 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 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 April 30, 2005 were for a term of less than
one year. Seismic equipment held for lease is carried at cost, net of accumulated depreciation. In
addition to leasing of seismic equipment, 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 quarter ended April 30, 2005, we recorded net income from continuing operations of $2.1
million, compared to net income for the comparable quarter of 2004 of $1.4 million. During the quarter ended April 30, 2005, our results of operations were affected by several
significant factors, which are discussed below. Our revenues decreased approximately $0.6 million,
reflecting a decrease in sales of $1.4 million which was partially offset by an increase in leasing revenues of $0.8 million from the
corresponding quarter in the prior fiscal year. 9




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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 $2.2
million for the quarter ended April 30, 2005, 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. Revenues For the quarter ended April 30, 2005, consolidated revenues decreased by $0.6 million, or 7%, to a
total of $7.6 million, as compared to $8.2 million for the corresponding quarter in 2004. The
decrease in revenues was principally due to two large sales recorded in the prior years first
quarter. For the quarter ended April 30, 2005, leasing revenues increased to $6.2 million compared
to $5.4 million in the prior year. Additionally, our leasing revenues significantly increased in
our Australian operations to $1.2 million from $0.2 million in 2005 and 2004, respectively, while
our Canadian and U.S. operations reported relatively flat revenues in the quarter ended April 30,
2005 as compared to the corresponding quarter in 2004. Foreign currency exchange rates had the
effect of increasing consolidated revenues in the quarter ended April 30, 2005 by $0.2 million over
the comparable quarter in 2004. Equipment sales for the quarter ended April 30, 2005 were $1.4 million as compared to $2.8 million
for the comparable quarter in 2004. Cost of equipment sales for the quarters ended April 30, 2005
and 2004 were $0.7 million and $1.6 million, respectively. Gross margins on equipment sales were
52% and 45% for the quarters ended April 30, 2005 and 2004, respectively. Gross margins on
equipment sales may 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 April 30, 2005, depreciation expense was $2.2 million, which was $0.5
million, or 19%, lower than the depreciation expense in the comparable quarter in 2004. The
decrease in depreciation expense from the quarter ended April 30, 2004 to 2005 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 April 30, 2005, foreign
currency exchange rates had the effect of increasing depreciation expense by $0.1 million as
compared to the amount in the comparable quarter in 2004. Direct costs for the quarter ended April 30, 2005 were $0.6 million, which was approximately $0.1
million less than direct costs for the comparable quarter in 2004 primarily due to a decrease in
repair expenses. General and administrative expenses for the quarter ended April 30, 2005 totaled approximately $1.9
million, or $0.1 million greater than 2004 expenses of $1.8 million. The increase in general and
administrative expenses was primarily due to an increase in wages and accounting and consulting
expenses, offset by a decrease in legal costs as compared to 2004. Provision for doubtful accounts expense increased $0.1 million for the quarter ended April 30, 2005
compared to the quarter ended April 30, 2004, related to past due receivables for one customer. For the quarter ended April 30, 2005, we recorded estimated income tax expense in the amount of
$0.2 million, compared to no income tax expense in the comparable quarter of the prior year. The
estimated tax expense is primarily attributable to the operations of SAP, after taking into account
all net operating loss carryforwards available to us. 10




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Liquidity and Capital Resources As of April 30, 2005, we had net working capital of approximately $17.2 million as compared to net
working capital of $13.9 million at January 31, 2005. Historically, our principal liquidity
requirements and uses of cash have been for 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 three months ended April 30, 2005
was $0.8 million, as compared to net cash provided by operating activities of $4.7 million for the
three months ended April 30, 2004. Net cash used in financing activities for the three months
ended April 30, 2005 was $0.6 million, compared to net cash used in financing activities for the
comparable period in 2004 of $0.9 million. Capital expenditures for the three months ended April 30, 2005 totaled approximately $1.2 million
as compared to capital expenditures of $0.4 million for the comparable period in 2004. Our 2005
and 2004 capital expenditures for the seismic equipment lease pool were made to fulfill specific
lease contracts. At April 30, 2005, we had trade accounts and notes receivable of $1.1 million that were more than
90 days past due. As of April 30, 2005, our allowance for doubtful accounts was approximately $1.1
million, which management believes is sufficient to cover any losses in our receivable balances. 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 inception of
the transaction. In February 2002, we obtained an $8.5 million term loan with First Victoria National Bank, the
remaining principal balance of which was approximately $0.3 million at April 30, 2005. 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 $3.6 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 was repaid as of January 31,
2005. The notes provided 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 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. On October 20, 2004, we issued a press release to announce that we entered into a nonbinding letter
of intent with Seamap International Holdings Pte Ltd regarding a potential acquisition of Seamap
International Holdings three subsidiaries. The letter of intent provides for a period during
which we will conduct a due diligence review of Seamap and negotiate a definitive purchase agreement. We anticipate that the aggregate purchase
price for Seamap will be $6.5 million in cash and notes and an earn out component based on
performance of up to an additional $2.0 million. 11




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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. 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 embedded maintenance obligations. Under our standard lease contract, the
lessee is responsible for maintenance and repairs to the equipment, excluding normal 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 agreement of terms and
when delivery has occurred unless there is a question as to its collectibility. 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 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 shorter of useful life or
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. 12




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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, 2004 and 2005, we have recorded a net deferred tax asset of $10.1 million and $9.9
million, respectively. As we believe it is not assured that these net deferred tax assets will be
realized, we have provided valuation allowances of $10.1 million and $9.9 million at January 31,
2004 and 2005, respectively. We periodically reevaluate these estimates and assumptions as
circumstances change. Such factors may significantly impact our results of operations from period
to period. 
 Item 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 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. During the three months ended April 30, 2005, we have made no change in our internal
controls over financial reporting that has materially affected, or is 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 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, 2005 and elsewhere within
this Quarterly Report on Form 10-Q. 13




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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 The following documents are filed as exhibits to this Report: 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 Michael A. Pugh, Executive Vice President-Finance and Chief
Financial Officer, 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 Michael A. Pugh, Executive Vice President-Finance and Chief
Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350 14




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. MITCHAM INDUSTRIES, INC.Date:  June 13, 2005

/s/ Michael A. PughMichael A. PughExecutive Vice President-Finance and Chief Financial
Officer
(Authorized Officer and Principal Accounting Officer) 15




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EXHIBIT INDEX Exhibit
Number
    
    
    
    Description31.1
    
    
    
    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 amended31.2
    
    
    
    Certification of Michael A. Pugh, Executive Vice President-Finance and Chief
Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended32.1
    
    
    
    Certification of Billy F. Mitcham, Jr., Chief Executive Officer, under Section 906 of
the Sarbanes-Oxley Act of 2002, U.S.C. 135032.2
    
    
    
    Certification of Michael A. Pugh, Executive Vice President-Finance and Chief
Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. 1350