##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|                              |  |                                                                                             
|----------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                    |  |                                                                                             
|þ                             |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                              |  | For the Fiscal Year Ended January 31,
    2004                                              
|                             
|OR                           
|                             
|o                             |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                             
|Commission File No. 000-25142



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Mitcham Industries, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                     |  |                                         
|---------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Texas                                                                                                |  | 76-0210849                              
|(State or other jurisdiction of
    incorporation or organization)                                   |  | (I.R.S. Employer
    Identification No.)
|8141 SH 75 South
    P.O. Box 1175
    Huntsville, Texas(Address of principal executive
    offices) |  | 77342(Zip Code)                         

Registrants telephone number, including
area code:

936-291-2277


SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT:



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None

SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:

Common Stock, $.01 par value

(Title of class)


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

Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this form
10-K.     o

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

Aggregate market
value of the voting stock held by non-affiliates of the
registrant: $15,060,815 as of July 31, 2003.

As of May 20,
2004, there were outstanding 8,799,994 shares of the
registrants common stock, par value $.01, which is the
only class of common or voting stock of the registrant.



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MITCHAM INDUSTRIES, INC.

ANNUAL REPORT ON FORM 10-K


TABLE OF CONTENTS

|                                        |  |                                                                                           |  |   
|--------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --
|PART I                                 
|Item 1.                                 |  | Business                                                                                  |  | 2 
|Item 2.                                 |  | Properties                                                                                |  | 10
|Item 3.                                 |  | Legal Proceedings                                                                         |  | 10
|Item 4.                                 |  | Submission of Matters to a
    Vote of Security Holders                                   |  | 10
|PART II                                
|Item 5.                                 |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters         |  | 10
|Item 6.                                 |  | Selected Financial Data                                                                   |  | 11
|Item 7.                                 |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  | 11
|Item 7A.                                |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  | 17
|Item 8.                                 |  | Financial Statements and
    Supplementary Data                                           |  | 17
|Item 9.                                 |  | Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure  |  | 17
|Item 9A.                                |  | Controls and Procedures                                                                   |  | 17
|PART III                               
|Item 10.                                |  | Directors and Executive
    Officers of the Registrant                                    |  | 19
|Item 11.                                |  | Executive Compensation                                                                    |  | 21
|Item 12.                                |  | Security Ownership of
    Certain Beneficial Owners and Management                        |  | 26
|Item 13.                                |  | Certain Relationships and
    Related Transactions                                        |  | 28
|Item 14.                                |  | Principal Accountant Fees
    and Services                                                |  | 28
|PART IV                                
|Item 15.                                |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                      |  | 30
|                                        |  | Signatures                                                                                |  | 32
|2nd Amended and Restated Bylaws        
|Amendment to Equipment Lease Agreement 
|Promissory Note                        
|Loan Agreement                         
|Subsidiaries of the Company            
|Consent of Hein & Associates LLP       
|Certification of Billy F. Mitcham, Jr. 
|Certification of Christopher C. Siffert
|Certification of Billy F. Mitcham, Jr. 
|Certification of Christopher C. Siffert



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PART I






|        |         
|------- | --------
|Item 1. | Business

Mitcham Industries, Inc. (the
Company), a Texas corporation, was incorporated in
1987. Since our organization, we have primarily been engaged in
the leasing and sales of seismic equipment to the seismic
industry worldwide. The Company consists of the operations of
Mitcham Industries, Inc. and our two wholly-owned subsidiaries,
Mitcham Canada Ltd. and Seismic Asia Pacific Pty Ltd.
(SAP).

We lease and sell geophysical and other equipment
used primarily by seismic data acquisition contractors to
perform seismic data acquisition surveys on land and in
transition zones (marsh and shallow water areas). We conduct our
operations on a worldwide basis and are the largest independent
seismic equipment lessor in North and South America. Over the
last several years advances in seismic technology have increased
drilling success rates, thereby reducing the overall costs of
finding oil and gas.

We own a variety of technologically advanced
equipment acquired from the leading seismic manufacturers. Our
lease pool includes many types of equipment used in seismic data
acquisition, including all electronic components of land and
transition zone seismic data acquisition systems, geophones and
cables, earth vibrators, peripheral equipment, survey and other
equipment. A substantial amount of our equipment lease pool is
provided by two manufacturers, the Sercel subsidiaries of
Compagnie Generale de Geophysique (collectively,
Sercel) and Input/ Output, Inc. (I/O).
We believe that the majority of the advanced seismic data
acquisition systems in use worldwide are either Sercel or I/O
systems. At January 31, 2004, approximately 40% of our
equipment lease pool, on a cost basis, consisted of seismic
recording channel boxes, with the remainder consisting of
geophones and other peripheral equipment.

We lease our equipment on a short-term basis,
generally for three to nine months, to seismic contractors who
need additional capacity to complete a seismic survey. Certain
of our short-term leases contain a purchase option. Short-term
leasing enables our customers to achieve operating and capital
investment efficiencies. A typical seismic crew uses a wide
variety of equipment to perform seismic data acquisition
surveys. Our customers may lease a small amount of equipment to
expand an existing crews capabilities or a complete
seismic data acquisition system to equip an entire crew. Demand
for short-term seismic equipment leases is affected by many
factors, including: (i) the highly variable size and
technological demands of individual seismic surveys,
(ii) seasonal weather patterns and sporadic demand for
seismic surveys in certain regions and (iii) costs of
seismic equipment. We believe these factors allow seismic
contractors to use short-term seismic equipment leasing as a
cost-effective alternative to purchasing additional equipment.
Our equipment lease rates vary according to an items
expected useful life, utilization and initial cost.

We also sell a broad range of used seismic
equipment on a worldwide basis and 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.

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

Business Strategy

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Provide a technologically advanced seismic
    equipment lease pool.We intend to
    maintain the size and diversity of our equipment lease pool,
    including most recently, the addition of marine equipment. We
    believe that the availability of a large and diverse seismic
    equipment lease pool encourages seismic data acquisition
    contractors to lease, rather than purchase, such equipment, due
    to the capital and operating efficiencies provided by short-term
    leases.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to expand international
    operations.Historically, North and
    South America have been our core operating areas, with a limited
    amount of international leasing activities, but as domestic
    drilling activity has decreased, our revenues from international
    sources have increased. We believe there are significant
    opportunities to continue to expand our international leasing
    activities.
|
| |  | Maintain alliances with major seismic
    equipment manufacturers.Our
    relationships with leading seismic equipment manufacturers allow
    us to expand our equipment lease pool on favorable terms. We
    believe such relationships improve our access to customers and
    provide a competitive advantage.                                                                                                             
|
| |  | Pursue additional business development
    opportunities.We regularly evaluate
    opportunities to expand our business activities within the oil
    service industry, particularly in the seismic sector.                                                                                                                                                                                                                     

Seismic Technology and the Industry

Seismic surveys are a principal source of
information used by oil and gas companies to identify geological
conditions that are favorable for the accumulation of oil and
gas and to evaluate the potential for successful drilling,
development and production of oil and gas. Seismic technology
has been used by the oil and gas industry since the 1920s
and has advanced significantly with improvements in computing
and electronic technologies. Beginning in the early 1990s,
the oil and gas industry has significantly expanded its use of
3-D seismic data which provides a more comprehensive subsurface
image and is believed to have contributed to improved drilling
success rates, particularly in mature oil and gas basins such as
those in North America. Additionally, 2-D seismic data continues
to be used in many areas where 3-D data acquisition is cost
prohibitive or logistical access is limited.

Oil and gas exploration companies utilize seismic
data generated from the use of digital seismic systems and
peripheral equipment in determining optimal locations for
drilling oil and gas wells, in the development of oil and gas
reserves and in reservoir management for the production of oil
and gas. A complete digital seismic data acquisition system
generally consists of (i) a central electronics unit that
records and stores digital data (CEU),
(ii) seismic recording channel boxes that contain from one
to eight seismic channels (channel boxes),
(iii) geophones, or seismic sensors, (iv) energy
sources including dynamite, compressed air guns or earth
vibrators that create the necessary acoustic wave to be
recorded, (v) cables that transmit digital seismic data
from the channel boxes to the CEU, (vi) geographic survey
equipment, drilling equipment for shot holes and
(vii) other peripheral, or accessory, equipment.

In seismic data acquisition, an acoustic wave is
generated at or below the earths surface through the
discharge of compressed air, the detonation of small explosive
charges or the use of vibrators. As the acoustic wave travels
through the earth, it is reflected by the underlying rock layers
and the reflected energy is captured by the geophones, which are
sited at intervals along paths from the point of acoustical
impulse. The resulting signals are then transmitted to the
channel boxes, which convert the signals from analog to digital
data and transmit this data via cable to the CEU. The CEU stores
the seismic data on magnetic tape or disk for processing. The
digital data is then input into a specialized seismic processing
system that uses sophisticated computer software programs to
enhance the recorded signal and produce an image of the
subsurface strata. By interpreting seismic data, oil and gas
exploration companies create detailed maps of exploration
prospects and oil and gas reservoirs.

In the past, the 2-D seismic survey was the
standard data acquisition technique used to map geologic
formations over a broad area. 2-D seismic data can be visualized
as a single vertical plane of subsurface information. Data
gathered from a 3-D seismic survey is best visualized as a cube
of information that can be sliced into numerous planes,
providing different views of a geologic structure with much
higher resolution than is available with traditional 2-D seismic
survey techniques. 3-D seismic surveys generally require a
larger amount of equipment than 2-D surveys. By using a greater
number of channels and flexible configuration, 3-D seismic data
provides more extensive and detailed information regarding the
subsurface geology than does 2-D data. As a result, 3-D data
allows the geophysicists interpreting the data to more closely
select the optimal location of a prospective drillsite or oil
and gas reservoir.

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In the exploration and development process, oil
and gas companies establish requirements for seismic data
acquisition programs based on their technical objectives.
Because of the expense associated with drilling oil and gas
wells, decisions whether or where to drill are critical to the
overall process. Since 3-D seismic data increase drilling
success rates and reduce costs, we believe that 3-D seismic
surveys are now predominant. As a result of the increasing
requirements for this higher resolution data, which in turn
requires additional channels to collect and transmit the data,
seismic data acquisition systems have been expanding in size
during the past several years.

Industry advances include the use of high
resolution 3-D, three-component geophones (3D-3C),
which enhance the 3-D image, and time lapse (4-D)
seismic, where surveys are periodically reacquired to allow the
monitoring of producing oil and gas fields for optimal
production and reserve recovery. These and other technical
advances have contributed to increased drilling success rates
and reduced oil and gas finding costs.

With the expanded use of seismic technology,
particularly 3-D seismic, the size of data acquisition surveys
has increased substantially in the past several years. Demand
for higher resolution data, larger surveys and more rapid
completion of such surveys is requiring seismic contractors to
use data acquisition systems with a greater number of seismic
recording channels. Additionally, in many areas, such as North
America, the size of seismic surveys varies significantly,
requiring frequent changes in the configuration of equipment and
crews used for seismic surveys. As a result of these advances,
seismic survey channel count has increased from smaller 2-D
surveys, which typically averaged 120 channels, to larger 3-D
surveys which today average approximately 2,000 channels and
often use 5,000 or more channels. We believe that many seismic
contractors will continue to meet changes in equipment needs by
leasing incremental equipment to expand crew size as necessary,
thereby reducing the substantial capital expenditures required
to purchase such equipment.

Business and Operations

Seismic Equipment
Leasing.We own a comprehensive lease
pool of seismic equipment for short-term (typically less than
one year) lease to our customers, which primarily include
seismic contractors. We lease such equipment multiple times
until the end of its useful life or its sale. Our equipment
leasing services generally include the lease of the various
components of seismic data acquisition systems and related
equipment to meet a customers job specifications. Such
specifications frequently vary as to the number of required
recording channels, geophones, energy sources (e.g., earth
vibrators) and other equipment. Our customers generally lease
seismic equipment to supplement their owned inventory of
recording channels and related equipment.

Our equipment lease pool includes a total of
approximately 38,600 seismic recording channels (each channel
being capable of electronically converting seismic data from
analog to digital format and transmitting the digital data),
geophones and cables, earth vibrators, peripheral equipment and
geographic survey and other equipment. All of our lease pool
equipment is manufactured by leading seismic equipment
manufacturers and is widely used in the seismic industry.

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

Our equipment lease rates vary according to an
items expected useful life, utilization and initial cost.
The lessee must also obtain and keep in force insurance for the
replacement value of the equipment and a specified minimum
amount of general liability and casualty insurance on the leased
equipment during the term of the lease. Before equipment is
delivered, the lessee must provide certification that we have
been named an additional insured and loss payee on its policies.
The lessee is responsible for all maintenance and repairs of
leased equipment other than those arising from normal wear and
tear. All taxes (other than U.S. federal income taxes) and
assessments are the contractual obligation of the lessee.

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Seismic equipment leasing is susceptible to
weather patterns in certain geographic regions. In Canada, a
significant percentage of the seismic survey activity occurs in
the winter season, from November through March. During the
months in which the weather is warmer, certain areas are not
accessible to trucks, earth vibrators and other heavy equipment
because of the unstable terrain. In the United States and in
international markets other than Canada, most of the seismic
survey work is not usually affected by weather. As a result of
Canadian weather conditions, we attempt to manage our equipment
lease pool to meet seasonal demands. Equipment leased in Canada
during the winter months is typically moved to other markets
during periods of slack Canadian demand.

While it is our general practice to lease our
seismic equipment on a monthly basis, to respond to very
competitive market conditions in the Canadian market in the
winter months, we have in recent years leased certain equipment
on a usage rather than on a monthly basis. In fiscal 2004, we
implemented a new billing practice for these customers of
requiring that certain seismic equipment be leased on a monthly
rather than on a usage basis.

Seismic Equipment
Sales.We buy equipment for resale in
response to specific customer orders. We also sell used
equipment from our lease pool. On occasion, we will also hold
equipment of third parties and sell such equipment on
consignment.

Other Equipment
Sales.SAP, headquartered in Brisbane,
Australia, 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. SAP
is a manufacturers representative for an array of
equipment lines. SAP also supplies and services hydrographic,
and radio and satellite positioning equipment for government and
private entities.

Key Supplier Agreements



| |                           
| | --------------------------
| | The Sercel Lease Agreement

Effective April 9, 2003, we renewed our
then-existing exclusive leasing arrangement with Sercel, a major
manufacturer of 3-D seismic data acquisition equipment, by
entering into a new Equipment Lease Agreement (the Sercel
Agreement).

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

The Sercel Agreement now expires
December 31, 2004, but is subject to termination by Sercel
before that date on (a) Sercels reasonable belief
that we have violated or intend to violate the Foreign Corrupt
Practices Act of 1977, as amended, (b) our refusal or
inability to certify that we are in compliance with laws
applicable to its activities, or (c) our insolvency,
voluntary or involuntary bankruptcy, assignment for the benefit
of creditors or discontinuance as a going concern.



| |                 
| | ----------------
| | Other Agreements

We have an exclusive lease referral agreement
(the Pelton Agreement) with Pelton, a leading
manufacturer and supplier of vibrator control electronics, which
was acquired by I/O in January 2001. The terms of the Pelton
Agreement are similar to those of the Sercel Agreement, except
that (a) Pelton may not engage in short-term leasing
(leases for periods of less than a year) of the equipment
covered, and (b) the Pelton Agreement may be terminated by
either party upon 90 days prior written notice.

SAP has a number of manufacturers
representation agreements for major product lines, including:
acoustic positioning systems, computer and electronic
maintenance consumables, data acquisition and management
systems, electrostatic and plotter consumables, geophone, cable
and instrument repairs,

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geophones, hydrophones, connectors, cables, test
equipment, GPS systems  geodetic and navigational,
including Sercel differential GPS, graphic recorders, heave
compensators and attitude sensors, hydrographic data acquisition
systems, magnetometers, oceanographic and hydrographic
instrumentation, tide gauges and current meters, radio
positioning equipment, underwater and surface ROVs, land and
marine seismic sources, side-scan sonar and sub-bottom profiling
systems, underwater communications and location devices, echo
sounders and transducers.


In fiscal years 2002 and 2003, we had a
Commercial Representative Agreement (the Sercel Sales
Agreement) with Georex, Inc., a wholly-owned subsidiary of
Sercel, under which we were Sercels designated sales
representative in Canada for seismic data acquisition and other
field equipment. The Sercel Sales Agreement was subject to
termination by either party on 90 days prior written
notice. On October 28, 2002, we were notified that Sercel
was terminating the Sercel Sales Agreement effective
January 26, 2003. Total commissions earned under this
agreement in the 2002 and 2003 fiscal years were $1,273,000,
with $4,000 of that amount earned in fiscal 2003.

Discontinued Operations

On January 28, 2002, we formed a
wholly-owned subsidiary, Drilling Services, Inc. (DSI), to own
and operate a fleet of seismic shot hole drills and to provide
other services required by seismic data acquisition contractors.
On August 1, 2003, we sold the operating assets of DSI. Our
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.

We have recorded an asset impairment charge of
$700,000 related to the sale of those assets. The impairment
charge is included in the loss from discontinued operations. The
operating results and assets and liabilities of DSI are
presented as discontinued operations and all prior period
statements have been restated accordingly. We recorded a loss
from discontinued operations, net of applicable taxes of
$2,422,000 in fiscal 2003 and $2,715,000 in fiscal 2004.

Customers; Sales and Marketing

Our lease customers are seismic data acquisition
contractors. We typically have a small number of lease
customers, the composition of which changes yearly as leases are
negotiated and concluded and equipment needs vary. As of
January 31, 2004, we had lease customers with 57 active
leases of various lengths, but typically for less than a year.
Our seismic equipment sales customers include seismic data
acquisition contractors, foreign governments, universities,
engineering firms and research organizations worldwide.

We participate in both domestic and international
trade shows and expositions to inform the industry of our
products and services. In addition to advertising in major
geophysical trade journals, direct advertising in the form of a
semi-annual listing of equipment offerings is mailed to over
1,000 industry participants. In addition, we advertise our
alliances with Sercel and Pelton in major geophysical trade
journals and list our seismic equipment available for sale and
lease on our website, www.mitchamindustries.com.

We work with a network of representatives in
several international markets, including Europe, Russia and
other former Soviet Union countries. These agents generate
equipment sales and, to a lesser extent, equipment leasing
business for us and are compensated on a commission basis. We
also expend resources in the areas of customer service, product
support and the maintenance of customer relationships.

Competition

Our major competitors are the major seismic
equipment manufacturers, who sell equipment on financed terms.
We face lesser competition from several companies that engage in
seismic equipment leasing, but competition has historically been
fragmented and our competitors have not had as extensive a
seismic equipment lease pool as we do. We compete for seismic
equipment leases on the basis of (i) price and delivery,
(ii) variety and availability of both peripheral seismic
equipment and complete data acquisition systems and
(iii) length of lease term. Our lease pool service and
repair is also a major competitive advantage.

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We compete in the used equipment sales market
with a broad base of seismic equipment owners, including major
oil and gas exploration companies and seismic data acquisition
contractors which use and eventually dispose of seismic
equipment, many of which have substantially greater financial
resources than us. We believe there is one competitor in the
used seismic equipment sales business that generates comparable
revenues from such sales, as well as numerous, smaller
competitors who, in the aggregate, generate significant revenue
from such sales.

Suppliers

We have several suppliers of seismic equipment
for our lease pool. We acquire the majority of our seismic lease
pool equipment from equipment manufacturers, Sercel and I/O.
Other suppliers of peripheral seismic equipment include OYO
Geospace Corporation (geophones, cables and seismic cameras),
Steward Cable (cables) and Mark Products (geophones and
cables). From time to time, we purchase new and used peripheral
seismic equipment from various other manufacturers. Management
believes that its current relationships with its suppliers are
satisfactory.

Employees

As of January 31, 2004, we employed 62
people, none of whom is covered by a collective bargaining
agreement. We consider our employee relations to be satisfactory.

Forward-Looking Statements and Risk
Factors

Certain information contained in this Annual
Report on Form 10-K (including statements contained in
Part I, Item 1. Business, Part I,
Item 3. Legal Proceedings Part II,
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and
Part II, Item 9A. Controls and
Procedures), 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 below and elsewhere within this Annual
Report on Form 10-K.

Demand for Land-Based Seismic Data Not
Assured

Demand for our services depends on the level of
spending by oil and gas companies for exploration, production
and development activities, as well as on the number of crews
conducting land and transition zone seismic data acquisition
worldwide, and especially in North America.

Loss of Significant Customers Will Adversely
Affect Us

We typically lease and sell significant amounts
of seismic equipment to a relatively small number of customers,
the composition of which changes from year to year as leases are
initiated and concluded and as customers equipment needs
vary. Therefore, at any one time, a large portion of our
revenues may be derived from a limited number of customers. In
the fiscal years ended January 31, 2002, 2003 and 2004, the
single largest customer accounted for approximately 22%, 13% and
11%, respectively, of our consolidated revenues.

7



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Because our customer base is relatively small,
the loss of one or more customers for any reason could adversely
affect our results of operations.


Significant Defaults of Past-Due Customer
Accounts Would Adversely Affect Our Results of
Operations

On January 31, 2004, we had approximately
$7.8 million of customer accounts and notes receivable of
which $1.7 million was over 90 days past due. At
January 31, 2004, we had an allowance of $0.9 million
to cover losses in our receivable balances. Significant payment
defaults by our customers in excess of the allowance would have
a material adverse effect on our financial position and results
of operations.

International Economic and Political
Instability Could Adversely Our Results of Operations

Our results of operations are dependent upon the
current political and economic climate of several international
countries in which our customers either operate or are located.
International sources (including Canada) accounted for
approximately 74% of our revenues in the fiscal year ended
January 31, 2004. Since the majority of our lease and sales
contracts with our customers are denominated in U.S., Australian
and Canadian dollars, there is little risk of economic (as
opposed to accounting) loss from fluctuations in foreign
currencies. However, our internationally-sourced revenues are
still subject to the risk of currency exchange controls (in
which payment could not be made in U.S. dollars), taxation
policies, and expropriation, as well as to political turmoil,
civil disturbances, armed hostilities, and other hazards.

Foreign Currency Exchange Rates Have
Increasingly Materially Affected Our Results of
Operations

For accounting purposes, balance sheet accounts
of the Canadian and Australian subsidiaries are translated at
the current exchange rate as of the end of the accounting
period. Income statement items are translated at average
currency exchange rates. The resulting translation adjustment is
recorded as a separate component of comprehensive income within
shareholders equity. This translation adjustment has
become material because of the significant amount of equipment
assigned to our Canadian operations and the significant
fluctuations in the Canadian dollar exchange rate over the last
few years.

We Must Continually Obtain Additional Lease
Contracts

Our seismic equipment leases typically have a
term of three to nine months and provide gross revenues that
recover only a portion of our capital investment. Our ability to
generate lease revenues and profits is dependent on obtaining
additional lease contracts after the termination of an original
lease. However, lessees are under no obligation to, and
frequently do not, continue to lease seismic equipment after the
expiration of a lease. Although we have been successful in
obtaining additional lease contracts with other lessees after
the termination of the original leases, there can be no
assurance that we will continue to do so. Our failure to obtain
additional leases or extensions beyond the initial lease term
would have a material adverse effect on our operations and
financial condition.

Dependence on Key Personnel

Our success is dependent on, among other things,
the services of certain key personnel, including specifically
Billy F. Mitcham, Jr., our Chairman of the Board, President and
Chief Executive Officer. Mr. Mitchams employment
agreement is automatically renewed on a year-to-year basis until
terminated by either party giving 30 days notice prior to
the end of the current term (subject to earlier termination on
certain stated events). The agreement prohibits Mr. Mitcham
from engaging in any business activities that are competitive
with our business and from diverting any of our customers to a
competitor for two years after the termination of his
employment. The loss of the services of Mr. Mitcham could
have a material adverse effect on us.

Our Seismic Lease Pool is Subject to
Technological Obsolescence

We have a substantial capital investment in
seismic data acquisition equipment. The development by
manufacturers of seismic equipment of newer technology systems
or component parts that have significant

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competitive advantages over seismic systems and
component parts now in use could have an adverse effect on our
ability to profitably lease and sell our existing seismic
equipment. Significant improvements in technology may also
require us to recognize an asset impairment charge to our lease
pool investment, and to correspondingly invest significant sums
to upgrade or replace our existing lease pool with
newer-technology equipment demanded by our customers.


Weather Conditions Cause Seasonal
Results

The first and fourth quarters of our fiscal year
have historically accounted for a greater portion of our
revenues than do our second and third quarters. This seasonality
in revenues is primarily due to the increased seismic survey
activity in Canada from November through March. This seasonal
pattern may cause our results of operations to vary
significantly from quarter to quarter. Accordingly,
period-to-period comparisons are not necessarily meaningful and
should not be relied on as indicative of future results.

Competition

We have several competitors engaged in seismic
equipment leasing and sales, including seismic equipment
manufacturers, data acquisition contractors and oil and gas
exploration companies that use seismic equipment, many of which
have substantially greater financial resources than us. There
are also several smaller competitors that, in the aggregate,
generate significant revenue from the sale of seismic survey
equipment. Pressures from existing or new competitors could
adversely affect our business operations.

We are also aware of several companies that
engage in seismic equipment leasing. We believe that our
competitors, in general, have neither as extensive a seismic
equipment lease pool as we do, or similar exclusive lease
referral agreements with suppliers. Competition exists to a
lesser extent from seismic data acquisition contractors that may
lease equipment that is temporarily idle.

Volatile Stock Prices and No Payment of
Dividends

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

Possible Adverse Effect of Anti-Takeover
Provisions; Potential Issuance of Preferred Stock

Certain provisions of our Articles of
Incorporation and the Texas Business Corporation Act may tend to
delay, defer or prevent a potential unsolicited offer or
takeover attempt that is not approved by our Board of Directors
but that our shareholders might consider to be in their best
interest, including an attempt that might result in shareholders
receiving a premium over the market price for their shares.
Because our Board of Directors is authorized to issue preferred
stock with such preferences and rights as it determines, it may
afford the holders of any series of preferred stock preferences,
rights or voting powers superior to those of the holders of
common stock. Although we have no shares of preferred stock
outstanding and no present intention to issue any shares of our
preferred stock, there can be no assurance that we will not do
so in the future.

Limitation on Directors
Liability

Our Articles of Incorporation provide, as
permitted by governing Texas law, that a director of the Company
shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty
as a director, with certain exceptions. These provisions may
discourage shareholders from bringing suit against a director
for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by shareholders on behalf of the
Company against a director.

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|        |           
|------- | ----------
|Item 2. | Properties

We own our corporate office and warehouse
facilities in Huntsville, Texas. Our headquarters facility
consists of 25,000 square feet of office and warehouse space on
approximately six acres. We also lease approximately 31,000
square feet of office and warehouse space at our facility in
Calgary, Canada. SAP leases approximately 4,400 square feet of
office and warehouse space in Brisbane, Australia. Our
U.S. subsidiary, DSI, leases approximately 26,650 square
feet of office and warehouse space in Brookshire, Texas. The DSI
leases will terminate in fiscal 2005.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

No material lawsuits existed as of the fiscal
year ended January 31, 2004.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None




PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Market Information for Common Stock

Our common stock is traded on the Nasdaq National
Market under the symbol MIND. The following table
sets forth, for the periods indicated, the high and low sales
prices as reported on the Nasdaq National Market.

|                                    |                |      |   |      |  |  |   |      | 
|----------------------------------- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|                                    |                | High |   | Low 
|                                    |                |      |   |     
|Fiscal Year Ended January 31, 2003: |                |      |   |      |  |  |   |     
|                                    | First Quarter  |      | $ | 4.40 |  |  | $ | 3.50 | 
|                                    | Second Quarter |      |   | 4.10 |  |  |   | 1.76 | 
|                                    | Third Quarter  |      |   | 2.12 |  |  |   | 1.05 | 
|                                    | Fourth Quarter |      |   | 1.75 |  |  |   | 1.05 | 
|                                   
|Fiscal Year Ended January 31, 2004: |                |      |   |      |  |  |   |     
|                                    | First Quarter  |      | $ | 1.47 |  |  | $ | 0.87 | 
|                                    | Second Quarter |      |   | 2.22 |  |  |   | 1.15 | 
|                                    | Third Quarter  |      |   | 2.50 |  |  |   | 1.65 | 
|                                    | Fourth Quarter |      |   | 4.18 |  |  |   | 1.90 | 

As of May 20, 2004, there were over 4,000
holders of the common stock.

DIVIDEND POLICY

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

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                                         |  |                                                  |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                         |  |                                                 
|                                                                         |  | Years Ended January 31,                         
|                                                                         |  |                                                 
|                                                                         |  | 2000                                             |        | 2001 |  | 2002 |        | 2003 |  | 2004
|                                                                         |  |                                                  |        |      |  |      |        |      |  |     
|                                                                         |  |                                                 
|                                                                         |  | (Amounts in thousands, except per share amounts)
|Net sales and other revenues                                             |  | $                                                | 10,644 |      |  | $    | 20,597 |      |  | $    | 27,183 |   |  | $ | 14,139 |   |  | $ | 22,406 |  
|Loss from continuing operations                                          |  |                                                  | (4,864 | )    |  |      | (2,946 | )    |  |      | (8,457 | ) |  |   | (7,677 | ) |  |   | (3,574 | )
|Loss from continuing operations per common
    share  basic and diluted |  |                                                  | (0.51  | )    |  |      | (0.32  | )    |  |      | (0.95  | ) |  |   | (0.88  | ) |  |   | (0.41  | )
|Cash dividends declared per common share                                 |  |                                                  |       |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |       |  
|Balance Sheet Data:                                                      |  |                                                  |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|Cash and marketable securities                                           |  |                                                  | 17,399 |      |  |      | 11,402 |      |  |      | 8,244  |   |  |   | 5,137  |   |  |   | 6,834  |  
|Seismic equipment lease pool, property and
    equipment, cost basis     |  |                                                  | 74,537 |      |  |      | 91,435 |      |  |      | 90,381 |   |  |   | 84,552 |   |  |   | 84,624 |  
|Total assets                                                             |  |                                                  | 67,705 |      |  |      | 72,561 |      |  |      | 58,795 |   |  |   | 44,340 |   |  |   | 40,730 |  
|Long-term debt                                                           |  |                                                  |       |      |  |      | 5,444  |      |  |      | 4,079  |   |  |   | 4,622  |   |  |   | 2,418  |  
|Total liabilities                                                        |  |                                                  | 7,430  |      |  |      | 18,573 |      |  |      | 16,192 |   |  |   | 10,682 |   |  |   | 9,933  |  
|Total shareholders equity                                               |  |                                                  | 60,275 |      |  |      | 53,988 |      |  |      | 42,603 |   |  |   | 33,658 |   |  |   | 30,797 |  






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | 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. An accurate and reliable
census of active crews does not exist, therefore, 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. Our analysis of the
available information is that land-based data acquisition
activity is increasing. 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
January 31, 2004 were for a term of less than one year.
Seismic equipment held for lease is carried at cost, net of
accumulated depreciation. SAP sells equipment, consumables,
systems integration, engineering hardware and software
maintenance support services to the seismic, hydrographic,
oceanographic, environmental and defense industries throughout
South East Asia and Australia.

For the years ended January 31, 2002, 2003
and 2004, revenues from foreign customers totaled
$21.7 million, $12.0 million and $16.5 million,
which is 80%, 85% and 74% of consolidated revenues in those
fiscal years, respectively. The majority of our transactions
with foreign customers are denominated in United States,
Australian and Canadian dollars.

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Seasonality

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

During fiscal 2004, our results of operations
were affected by several significant factors. Our revenues
increased $8.3 million, reflecting significant increases in
both leasing and sales from the prior fiscal year. The increase
in revenues is attributable to several factors. One significant
factor is the inclusion of the results of SAP for the whole
fiscal year versus two months in the prior year, which accounted
for approximately $2.7 million of the current year
increase, primarily from sales of hydrographic and oceanographic
equipment. Additionally, during the fiscal year, we expanded our
marine seismic business, which resulted in the execution of
several high-dollar rental contracts and several marine sales
transactions having an aggregate value of $1.2 million.
Also contributing to our increase in fiscal 2004 revenues is a
general increase in demand for short-term rentals in the United
States from some of our seismic contractor customers. We believe
that this increased demand resulted from the decision by a major
contractor to cease land-based operations in North America,
which benefited these customers due to the reduced level of
competition.

Our fixed and variable costs are an important
factor affecting our results of operations. Due to the size and
age of our seismic equipment lease pool, depreciation expense is
our single largest expense item, which amounted to
$13.7 million for fiscal 2004. This expense will vary
between periods based on acquisitions of new equipment and sales
of equipment with remaining depreciable life. Our general and
administrative expenses remained fairly level over the past
three fiscal years, except for fiscal 2004, which included a
full year of expenses related to SAP totaling $0.6 million.
Direct cost of seismic leasing is a variable expense that
fluctuates 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.

Another significant factor that affected our
results of operations for fiscal 2004 was currency translation
adjustments. The decline in value of the United States dollar
relative to the Canadian dollar resulted in an increase in both
revenues and expenses from our Canadian subsidiary. The result
was that our net loss was $0.3 million greater than it
would have been had the results from our Canadian operations
been translated at the average exchange rate that prevailed in
fiscal 2003.

Revenues

For fiscal 2004, consolidated revenues increased
$8.3 million, or 58%, to $22.4 million from fiscal
2003, driven by increases in both leasing and sales activity
during the year. Consolidated revenues for fiscal 2003 decreased
approximately $13.0 million, or 48%, from fiscal 2002 due
mainly to the loss of three significant customers that ceased
operations in fiscal 2002.

During fiscal 2004, leasing revenues increased
$5.4 million, primarily as a result of an increase in our
North American revenues, our expanding marine seismic business,
our first large rental contract in the South East Asia market,
and the inclusion of the operations of SAP, which we acquired in
December 2002. SAPs revenues for fiscal 2004 were
approximately $3.3 million as compared to approximately
$0.6 million in fiscal 2003. Foreign currency translation
rates had the effect of increasing fiscal 2004 revenues by
$1.0 million from fiscal 2003 levels.

During fiscal 2003, leasing revenues decreased
primarily due to the business decline of three of our customers
in fiscal 2002. Foreign currency translation rates had the
effect of decreasing fiscal 2003 revenues by approximately
$38,000 from fiscal 2002 levels.

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

Seismic equipment sales for fiscal 2004 were
$8.6 million as compared to $5.8 million and
$5.9 million for fiscal 2003 and 2002, respectively. Cost
of sales for the fiscal years ended January 31, 2004, 2003
and 2002 was $4.7 million, $4.6 million and
$5.0 million, respectively. Gross margins on equipment
sales were 45%, 22% and 16% for fiscal years 2004, 2003 and
2002, respectively. Gross margins on equipment sales will vary
significantly between periods due to the mix of sales revenue
between new seismic equipment versus sales of depreciated
seismic equipment being sold from our lease pool.

Costs and Expenses

For fiscal 2004, depreciation expense was
$13.7 million, which is $1.0 million, or 7%, lower than
fiscal 2003 depreciation expense. During fiscal 2003, we
recorded depreciation expense in the amount of
$14.7 million. This amount reflects a decrease of
$1.3 million, or 8%, from the fiscal 2002 amount. For
fiscal 2004, foreign currency translation rates had the effect
of increasing depreciation expense by $1.1 million from the
fiscal 2003 amount. Foreign currency translation rates had the
effect of decreasing depreciation expense for fiscal 2003 by
$58,000 from the fiscal 2002 amount. In fiscal 2002, we recorded
depreciation expense in the amount of $16.0 million, which
reflected a $2.9 million, or 22%, increase above the fiscal
2001 amount. Foreign currency translation rates had the effect
of decreasing depreciation expense for fiscal 2002 by $353,000
from the fiscal 2001 amount.

The decrease in fiscal 2004 and fiscal 2003
depreciation expense is largely because certain equipment
reached the end of its depreciable life during each of those
years, coupled with the sales of assets with remaining
depreciable life. The increase in depreciation expense during
fiscal 2002 was primarily a result of our replacement of older,
fully depreciated seismic equipment with new, state-of-the-art
technology.

Direct costs for fiscal 2004 were
$2.3 million, which was approximately $1.0 million
greater than fiscal 2003 direct costs. The increase is largely
attributable to an increase in sublease expenses of $645,000.
For fiscal 2003, direct costs totaled $1.4 million,
representing a decrease of $0.9 million from the fiscal
2002 amount of $2.2 million. This decrease is attributable
to the significant decrease in leasing activity during the
fiscal year. Specifically, the decrease is mainly attributable
to decreases in freight, equipment repairs and sublease expenses
of $134,000, $474,000 and $276,000, respectively. For fiscal
2002, our direct costs totaled approximately $2.2 million,
for an increase of $450,000 over the fiscal 2001 amount. This
increase is a result of the significant increase in equipment
leasing activity during the year. The increase is attributable
to increases in freight and equipment repairs of $72,000 and
$478,000, respectively, partially offset by a decrease in leased
equipment expenses of $152,000. Direct costs typically fluctuate
with leasing revenues, as the three main components of direct
costs are freight, equipment repairs and sublease expense.

General and administrative expenses for fiscal
2004 totaled $5.1 million, or $0.6 million greater
than fiscal 2003 expenses of $4.5 million. This increase is
due to the inclusion of the results of operations of SAP for a
full year, which had general and administrative expenses
totaling $0.5 million greater than the prior year. For the
fiscal year ended January 31, 2003, our general and
administrative expenses totaled $4.5 million, or
$.1 million above those of fiscal 2002, which is entirely
attributable to the inclusion of SAP. For the fiscal year ended
January 31, 2002, our general and administrative expenses
totaled approximately $4.4 million, or $0.2 million
above those of fiscal 2001. This increase is primarily due to an
increase in insurance, professional fees and debt acquisition
costs, partially offset by a decrease in travel, rent and
customer relation expenses.

During fiscal 2004, we recorded a provision for
doubtful accounts in the amount of $25,000 compared to a
non-cash net benefit for doubtful accounts in the amount of
$1.9 million recorded in fiscal 2003. Of this net benefit,
approximately $1.7 million represents recoveries of
receivables written off in the prior fiscal year. The recovery
was in the form of seismic equipment that we accepted as a
settlement of trade receivables owed to

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us by a former customer, who ceased operations
that year. The remaining $0.2 million benefit resulted from
our collecting an outstanding note receivable that had been
fully reserved in prior fiscal years due to the uncertainty of
collection. Once the funds were collected, we reduced our
allowance for doubtful accounts and recorded the net benefit.
Our provision for doubtful accounts in fiscal 2002 was
approximately $5.1 million. In fiscal 2002, we had reserved
or written off approximately $5.0 million in trade and note
receivables related to three customers who advised us they were
ceasing operations and did not have the resources to pay their
outstanding obligations to us. At January 31, 2004 and
2003, we had past due trade accounts and note receivables in the
approximate amount of $1.7 million and $0.7 million,
respectively. As of January 31, 2004 and 2003, our
allowance for doubtful accounts and notes receivable amounted to
$0.9 million and $0.8 million, respectively.


During fiscal 2004, we recorded a non-cash
impairment charge of $0.7 million against assets held for
sale as a result of our decision to sell the operating assets of
DSI. No such charge was recorded in fiscal 2003 or 2002.

For fiscal 2004, we recorded a net loss from
continuing operations in the amount of $3.6 million,
compared to a net loss from continuing operations for fiscal
2003 and 2002 in the amount of $7.7 million and
$8.5 million, respectively. The net loss from discontinued
operations in fiscal 2004 was $2.7 million, compared with a
net loss of $2.4 million in fiscal 2003 and nil in 2002.

Liquidity and Capital Resources

As of January 31, 2004, we had net working
capital of approximately $7.4 million as compared to net working
capital of $3.3 million at January 31, 2003.
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 year ended
January 31, 2004 was $7.0 million, as compared to net
cash used in operating activities of $0.5 million and net
cash provided by operating activities of $12.3 million for
the years ended January 31, 2003 and 2002, respectively.
Net cash used in financing activities for the year ended
January 31, 2004 was $2.1 million, compared to net
cash provided by financing activities for the year ended
January 31, 2003 of $0.1 million and net cash used in
financing activities of $2.0 million for fiscal year 2002.
During fiscal 2002, we liquidated temporary investments in
marketable securities of approximately $7.1 million to fund
a portion of our capital expenditure program. The temporary
investments were originally made with surplus cash generated in
prior fiscal years, which were invested in marketable securities
until such time as the funds were needed.

We are committed to purchase $2.25 million
of land data acquisition equipment by December 31, 2004,
under the Sercel Agreement. We expect that cash on hand and cash
flows from operations will be sufficient to meet this commitment.

Capital expenditures for the 2004 fiscal year
totaled approximately $3.6 million as compared to capital
expenditures of $4.8 million for fiscal 2003. Capital
expenditures of $18.0 million in fiscal 2002 were mainly
comprised of purchases of Sercel 408UL seismic data recording
equipment pursuant to the Sercel Agreement. The 408UL equipment
is the latest generation equipment available to the market. Our
fiscal 2004 and 2003 capital expenditures were made to fulfill
specific lease contracts.

Subsequent to January 31, 2004, we
negotiated and issued credits and other future customer
enhancements with certain Canadian leasing customers totaling
$315,000. As of January 31, 2004, we had $125,000 allocated
to these matters in our allowance for doubtful accounts. After
recording these credits, that allocation was no longer necessary
and was reversed out of the allowance for doubtful accounts. The
impact was a $190,000 net increase in our net loss recorded at
January 31, 2004. At January 31, 2004, we had trade
accounts and notes receivable of $1.7 million that were more
than 90 days past due. As of January 31, 2004, our
allowance for doubtful accounts was approximately
$0.9 million, which management believes is sufficient to
cover any losses in our trade accounts receivable and notes
receivable.

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

In February 2002, we obtained an
$8.5 million term loan with First Victoria National Bank,
the remaining principal balance of which was approximately
$4.6 million at January 31, 2004. The loan is payable
in forty-eight equal installments of $197,000 and bears interest
at the rate of prime plus  1/2%. The loan is secured by
lease pool equipment and all proceeds from lease pool equipment
leases and sales.

We paid for our $3.5 million capital
expenditure in 2004 in part by three 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, of
which $1.3 million remains unpaid as of January 31,
2004. The notes call for monthly payments aggregating
approximately $121,000 and bear interest ranging from 0% to 8%.
All three notes have 12-month repayment terms and mature 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 at any time as necessary and is secured by
the equipment purchased and any leases on that equipment.
Interest is payable monthly at prime plus  1/2%. Principal
is due on each note 25% after six months, 25% after nine months
and the remaining 50% after a year from the date of each note.
The last date that advances can be made is June 30, 2005.
We have not yet borrowed any funds available under this line.
Although we have sufficient cash to meet known commitments and
no current plan 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.

During fiscal 2003, we repurchased 7,800 shares
of our common stock for an aggregate cost of $15,000, or an
average cost of $1.97 per share. We did not repurchase any
shares of our common stock during fiscal 2004. 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.

The following table sets forth estimates of
future payments of our consolidated contractual obligations as
of January 31, 2004:

|                                           |  |                        |           |           |  |           |           |           |  |         |           |  |  |   |        |  |  |   |   | 
|------------------------------------------ |  | ---------------------- | --------- | --------- |  | --------- | --------- | --------- |  | ------- | --------- |  |  | - | ------ |  |  | - | - | 
|                                           |  |                       
|                                           |  | Payments Due by Period
|                                           |  |                       
|                                           |  |                        |           | Less Than |  |           |           | More Than
|Contractual Obligations                    |  | Total                  |           | 1 year    |  | 1-3 Years |           | 3-5 Years |  | 5 Years
|                                           |  |                        |           |           |  |           |           |           |  |        
|Long-term debt and equipment notes payable |  | $                      | 5,917,000 |           |  | $         | 3,499,000 |           |  | $       | 2,418,000 |  |  | $ |       |  |  | $ |  | 
|Operating leases                           |  |                        | 913,000   |           |  |           | 344,000   |           |  |         | 473,000   |  |  |   | 96,000 |  |  |   |  | 
|Equipment purchase obligations             |  |                        | 2,250,000 |           |  |           | 2,250,000 |           |  |         |          |  |  |   |       |  |  |   |  | 
|                                           |  |                        |           |           |  |           |           |           |  |         |           |  |  |   |        |  |  |   |   | 
|Total                                      |  | $                      | 9,080,000 |           |  | $         | 6,093,000 |           |  | $       | 2,891,000 |  |  | $ | 96,000 |  |  | $ |   | 
|                                           |  |                        |           |           |  |           |           |           |  |         |           |  |  |   |        |  |  |   |   | 

15



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##### Table of Contents



Critical Accounting Policies

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

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



| |                    
| | -------------------
| | Revenue Recognition



| |       
| | ------
| | Leases

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



| |                
| | ---------------
| | Equipment Sales

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



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

We make provisions to the allowance for doubtful
accounts periodically as conditions warrant based on whether
such receivables are collectible. In certain instances when
customers have been unable to repay their open accounts
receivable balances, we have agreed to a structured repayment
program using an interest-bearing promissory note. In these
cases, we provide a reserve for doubtful accounts against the
balance and do not recognize interest earned until the entire
principal balance has been collected.



| |                  
| | -----------------
| | Long-Lived Assets

We carry property and equipment at cost, net of
accumulated depreciation and compute depreciation on the
straight-line method over the estimated useful lives of the
property and equipment, which range from three to seven years.
Buildings are depreciated over 40 years, property
improvements are amortized over 10 years and leasehold
improvements are amortized over the life of the leases.

We review our long-lived assets for impairment at
each reporting date. If our assessment of the carrying amount of
such assets exceeds the fair market value in accordance with the
applicable accounting regulations, we record an impairment
charge. During fiscal 2004, we recorded a non-cash impairment
charge of $0.7 million related to the sale of DSIs
operating assets.



| |             
| | ------------
| | Income Taxes

We account for our taxes under the liability
method, whereby we recognize, on a current and long-term basis,
deferred tax assets and liabilities which represent differences
between the financial and income tax reporting bases of our
assets and liabilities. A valuation allowance is established
when uncertainty exists as to the ultimate realization of net
deferred tax assets. As of January 31, 2003 and 2004, we
have recorded a net deferred tax asset of $9.4 million and
$11.6 million, respectively. As we believe it is not
assured that these net deferred tax assets will be realized, we
have provided valuation allowances of $9.4 million and
$11.6 million at January 31, 2003 and 2004,
respectively.

16



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##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

We operate internationally, giving rise to
exposure to market risks from changes in foreign exchange rates
to the extent that transactions are not denominated in
U.S. dollars. We typically denominate the majority of our
lease and sales contracts in U.S., 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. and Canadian
dollars, there is little risk of economic (as opposed to
accounting) loss from fluctuations in foreign currencies.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The information required by this item appears at
pages F-1 through F-21 hereof and incorporated herein by
reference.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure

None






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As required by SEC Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the
participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Our principal executive officer and
principal financial officer have concluded that, with the
exceptions noted below, our current disclosure controls and
procedures are effective to timely alert them to material
information regarding the Company that is required to be
included in our periodic reports filed with the SEC, and that
our internal controls are effective to provide reasonable
assurance that our financial statements are fairly presented in
conformity with generally accepted accounting principles. This
Item 9A contains the information regarding the evaluation
of the Companys disclosure controls and procedures that is
referred to in paragraph 4(b) of the certifications of the
CEO and Controller attached as Exhibits 31.1 and 31.2 to
this report, and should be read in conjunction with those
certifications for a thorough understanding and presentation of
that information.

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

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

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



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

17



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | By way of explanation, the current market of
    seismic data acquisition contractors in Canada is limited,
    consisting of perhaps between 12-16 contractors. Each of these
    contractors financial condition is sensitive to changes in
    demand for seismic services and to the timeliness in which they
    are paid for their services, which in turn affect the timing of
    when Mitcham Canada is paid for its equipment leasing. To
    compete effectively in the market, Mitcham Canada must respond
    to these market conditions.                                                                                                                                                                                                                                                                                                                                        
|
| |  | The lack of required formal high-level
    management reporting for Mitcham Canada, along with regular
    on-site reviews of accounting policies and
    practices.We have historically relied
    on non-standardized verbal updates on high-level management
    issues, which can affect both the timeliness and accuracy of
    accounting for certain transactions. Formal high-level
    management regular on-site reviews of accounting policies and
    practices, would have sooner identified the issues discussed in
    the preceding paragraph, and with more specificity. Prior to the
    investigation but before the publication of our financial
    results for the fiscal year ended January 31, 2004,
    disputed amounts were reflected in our general, but not our
    specific, reserves for doubtful accounts.                                                     
|
| |  | The lack of automated equipment inventory
    management systems at Mitcham Canada.While our headquarters in Huntsville, Texas employs an inventory
    tracking and management system that is fully integrated with its
    accounting system, Mitcham Canada is not on the same fully
    integrated system. Instead, management relies on manual
    reconciliations of equipment from Excel spreadsheets to the
    accounting system, which require accounting staff resources to
    track the movement of equipment to and from the customer, as
    well as between Huntsville, Texas and Calgary, Canada. This
    tracking process uses a number of databases, thus creating
    inefficiencies in identifying and deploying equipment that is
    available for rent, as well as additional required
    reconciliation procedures between the databases and the general
    ledger.

After the conclusion of the investigation,
management and our independent auditor performed additional
procedures to ensure that the internal control deficiencies
noted above did not result in material misstatements to the
audited financial statements for the 2004 fiscal year. Our
independent auditor subsequently reviewed and assessed with us
all post fiscal year-end accommodations made to Mitcham Canada
leasing customers and determined that the unpublished fourth
quarter results of operations should be reduced by $190,000.
Therefore, we believe the impact of the identified weaknesses in
internal controls was addressed and mitigated in preparing this
report. However, our continued reliance on manual procedures and
reconciliations, even on a short-term basis, results in
increased risk that some of the identified weaknesses in
internal controls could impact future reporting periods.

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



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We now require a monthly formal high-level
    executive summary for Mitcham Canada and SAP as part of their
    regular monthly financial reporting packages.                                                                                                                                          
|
| |  | We have established quarterly (for Mitcham
    Canada) and semi-annual (for SAP) on-site reviews of accounting
    policies and practices with internal accounting personnel and
    local management of Mitcham Canada and SAP, and formalized
    monthly telephonic reviews of the management report.
|
| |  | We are evaluating how best to implement an
    integrated software system to effectively track and account for
    lease equipment at Mitcham Canada and SAP, and the timetable in
    which this can reasonably be accomplished.                                                                       
|
| |  | Until we can implement an integrated software
    system, we will require more frequent reconciliations of the
    manual systems to the general ledger accounts, and more levels
    of review of those reconciliations.                                                                               
|
| |  | We will engage our independent auditor to conduct
    a physical inventory of the Canadian lease pool during the
    coming summer months, which is the Canadian low season.                                                                                                                            
|
| |  | We will as soon as practicable hire an internal
    auditor who will report directly to the Audit Committee.                                                                                                                                                                                            

18



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##### Table of Contents





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

In addition, our Chief Financial Officer, who was
also a director and our Chief Operating Officer, has resigned.
We have therefore initiated a formal search for a new CFO and
COO. In the interim, we have retained a CFO consultant, Gary
Brooks, who, together with our Controller, are fulfilling the
CFO duties.

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




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The following table sets forth the names and ages
of our directors and executive officers. Our directors are
elected annually and serve one-year terms and until their
successors are elected. Our executive officers are elected
annually by the Board of Directors and serve one-year terms or
until their death, resignation or removal by the Board of
Directors. There are no family relationships between any of our
directors and executive officers. In addition, there are no
arrangements or understandings between any of our executive
officers and any other person pursuant to which any person was
selected as an executive officer.

|                       |  |     |    |                |  |                                         |  |  |      | 
|---------------------- |  | --- | -- | -------------- |  | --------------------------------------- |  |  | ---- | 
|Name                   |  | Age |    | Positions Held |  | Director Since                         
|                       |  |     |    |                |  |                                        
|Billy F. Mitcham, Jr.  |  |     | 56 |                |  | Chairman of the Board, President        |  |  | 1987 | 
|                       |  |     |    |                |  | and Chief Executive Officer             |  |  |      | 
|Peter H. Blum          |  |     | 47 |                |  | Director                                |  |  | 2000 | 
|R. Dean Lewis          |  |     | 60 |                |  | Director                                |  |  | 1995 | 
|John F. Schwalbe       |  |     | 59 |                |  | Director                                |  |  | 1994 | 
|Christopher C. Siffert |  |     | 36 |                |  | Vice President and Corporate Controller |  |  | N/A  | 
|Paul Guy Rogers        |  |     | 54 |                |  | Vice President of Business Development  |  |  | N/A  | 

Business Experience of Our Directors and
Executive Officers

Billy F. Mitcham, Jr. is Chairman of the
Board, President and Chief Executive Officer. Mr. Mitcham
has more than 25 years of experience in the geophysical
industry. From 1979 to 1987, he served in various management
capacities with Mitcham Associates, an unrelated equipment
leasing company. From 1975 to 1979, Mr. Mitcham served in
various capacities with Halliburton Services, primarily in
oilfield services.

Peter H. Blum has been President of Bear Ridge
Capital, L.L.C., a private investment banking firm, since
November 1998. From June 1998 until March 2003, Mr. Blum
served as Director, and from September 2001 until March 2003, as
Executive Vice President, of Mallon Resources Corporation, an
oil and gas exploration and production company that merged with
Black Hills Corporation on March 10, 2003. During 1997 and
1998, Mr. Blum served as Senior Managing Director of GBI
Capital Management, now known as Landenburg Thalman Capital
Management. From December 1996 through 1997, Mr. Blum was a
Managing Director and head of the energy group at
Rodman & Renshaw.

R. Dean Lewis is the Dean of the Business
School at Sam Houston State University and has served in this
capacity since October 1995. From 1987 to October 1995,
Dr. Lewis was the Associate Dean and Professor of Marketing
at Sam Houston State University. Prior to 1987, Dr. Lewis
held a number of executive positions in the banking and finance
industries.

19



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##### Table of Contents



John F. Schwalbe has been a Certified Public
Accountant in private practice since 1978, with primary emphasis
on tax planning, consultation and compliance.

Christopher C. Siffert is a Vice President and
our Corporate Controller. From November 1994 to January 1998,
Mr. Siffert served as Internal Audit Manager for Houston
Cellular Telephone Company and from July 1990 to November 1994
he was employed by Arthur Andersen LLP as a Senior Audit
Supervisor. Mr. Siffert is a Certified Public Accountant.

Paul Guy Rogers is Vice President of Business
Development. Mr. Rogers has 10 years experience in the
geophysical industry. Prior to joining Mitcham, Mr. Rogers
was employed by Geo Space LP, a worldwide manufacturer of
geophysical equipment, with responsibilities for sales in the
United States and Latin America.

Compliance with Section 16(a) of the
Exchange Act

Section 16(a) of the Exchange Act requires
our directors, executive officers and persons who own more than
10% of our outstanding common stock, par value $0.01 per share
(Common Stock), to file initial reports of ownership
and changes in ownership of Common Stock with the SEC. Reporting
persons are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file. Based solely
on our review of the copies of reports we received, we believe
that all filings required to be made under Section 16(a)
were timely made, except as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | R. Dean Lewis failed to make a timely filing
    of a statement of changes in beneficial ownership with respect
    to the options granted to him on July 17, 2003, the filing
    for which was made four days late;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | R. Chaney & Partners IV L.P.,
    a shareholder who, acting with R. Chaney &
    Partners III L.P. as a group for purposes of
    Section 13(d) of the Exchange Act, is a 10% owner of the
    Common Stock, failed to make a timely filing of a statement of
    changes in beneficial ownership with respect to its sale of
    shares of Common Stock on each of January 8, 2004 (filing
    was eight days late), January 12, 2004 (filing was six days
    late) and January 13, 2004 (filing was five days
    late); and                                                                                                                                                                                                                                         
|
| |  | R. Chaney & Partners III L.P.,
    a shareholder who, acting with R. Chaney &
    Partners IV L.P. as a group for purposes of
    Section 13(d) of the Exchange Act, is a 10% owner of the
    Common Stock, failed to make a timely filing of a statement of
    changes in beneficial ownership with respect to its sale of
    shares of Common Stock on each of January 8, 2004 (filing
    was 16 days late), January 12, 2004 (filing was
    14 days late), January 13, 2004 (filing was
    13 days late), January 16, 2004 (filing was eight days
    late), January 20, 2004 (filing was six days late),
    January 21, 2004 (filing was five days late),
    January 22, 2004 (filing was two days late) and
    January 23, 2004 (filing was one day late).

Code of Ethics

Our Board of Directors has adopted a Code of
Ethics that applies to all of our employees, including our Chief
Executive Officer and our Corporate Controller to ensure that
our business is conducted in a legal and ethical manner. Copies
of the Code of Ethics may be obtained without charge by
contacting our Secretary by mail at Mitcham Industries, Inc.,
8141 SH 75 South, P.O. Box 1175, Huntsville,
Texas 77342, Attention: Secretary, or by telephone
(936) 291-2277. The Audit Committee has adopted separate
policies and procedures for handling reports of suspected
wrongdoing related to accounting and audit matters.

Audit Committee of the Board of
Directors

The Audit Committee, which is comprised of
Messrs. Schwalbe (Chairman), Lewis and Blum, held five
meetings during the fiscal year ended January 31, 2004. Our
Board of Directors has determined that each member of the Audit
Committee is an independent director, as that term is defined in
Rule 4350 of the Nasdaq Marketplace Rules, and meets the
criteria for independence set forth in Rule 10A-3
promulgated under the Exchange Act. In addition, our Board of
Directors has determined that Mr. Schwalbe has the
financial experience required by the Nasdaq Marketplace Rules
and is an audit committee financial expert as
defined by applicable SEC regulations.

20



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Summary Compensation Table

The following table shows all compensation earned
for services rendered during the fiscal years ended
January 31, 2002, 2003 and 2004 by our Chief Executive
Officer and each of our other executive officers (collectively,
the Named Executives).

|                            |                             |                     |      |                        |  |                  |         |                |  |            |   |        |  |  |        |   |  |  |        |        | 
|--------------------------- | --------------------------- | ------------------- | ---- | ---------------------- |  | ---------------- | ------- | -------------- |  | ---------- | - | ------ |  |  | ------ | - |  |  | ------ | ------ | 
|                            |                             |                     |      |                       
|                            |                             | Annual Compensation |      | Long Term Compensation
|                            |                             |                     |      |                       
|                            |                             | Fiscal Year         |      |                        |  |                  |         | Shares        
|                            |                             | Ended               |      |                        |  | Restricted Stock |         | Underlying    
|Name and Principal Position |                             | January 31,         |      | Salary($)              |  | Bonus($)         |         | Award(s)($)(1) |  | Options(#)
|                            |                             |                     |      |                        |  |                  |         |                |  |           
|Billy F. Mitcham, Jr.       |                             |                     | 2004 |                        |  |                  | 253,223 |                |  |            | 0 |        |  |  | 34,020 |   |  |  | 30,000 |       
|                            | Chairman of the Board,      |                     |      | 2003                   |  |                  |         | 245,931        |  |            |   | 0      |  |  |        | 0 |  |  |        | 85,000 | 
|                            | President and Chief         |                     |      | 2002                   |  |                  |         | 228,098        |  |            |   | 20,000 |  |  |        | 0 |  |  |        | 80,000 | 
|                            | Executive Officer           |                     |      |                        |  |                  |         |                |  |            |   |        |  |  |        |   |  |  |        |        | 
|                           
|P. Blake Dupuis             |                             |                     | 2004 |                        |  |                  | 192,707 |                |  |            | 0 |        |  |  | 22,680 |   |  |  | 20,000 |       
|                            | Chief Operating Officer     |                     |      | 2003                   |  |                  |         | 160,833        |  |            |   | 0      |  |  |        | 0 |  |  |        | 45,000 | 
|                            | and Chief Financial Officer |                     |      | 2002                   |  |                  |         | 144,295        |  |            |   | 15,000 |  |  |        | 0 |  |  |        | 30,000 | 
|                           
|Christopher C. Siffert      |                             |                     | 2004 |                        |  |                  | 111,207 |                |  |            | 0 |        |  |  | 14,175 |   |  |  | 12,500 |       
|                            | Vice President             |                     |      | 2003                   |  |                  |         | 100,417        |  |            |   | 0      |  |  |        | 0 |  |  |        | 15,000 | 
|                            | Corporate Controller        |                     |      | 2002                   |  |                  |         | 95,779         |  |            |   | 10,000 |  |  |        | 0 |  |  |        | 15,000 | 
|                           
|Paul Guy Rogers(2)          |                             |                     | 2004 |                        |  |                  | 122,919 |                |  |            | 0 |        |  |  | 14,175 |   |  |  | 12,500 |       
|                            | Vice President             |                     |      | 2003                   |  |                  |         | 110,607        |  |            |   | 0      |  |  |        | 0 |  |  |        | 20,000 | 
|                            | Business Development        |                     |      | 2002                   |  |                  |         | 27,397         |  |            |   | 5,000  |  |  |        | 0 |  |  |        | 10,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The value of each restricted stock award was
    determined by multiplying the closing price of the Common Stock
    as of the date of grant, July 17, 2003 in all instances, by
    the number of shares awarded to the particular the Named
    Executives (18,000 shares for Mr. Mitcham;
    12,000 shares for Mr. Dupuis; and 7,500

shares for each of Messrs. Siffert and
Rogers) and then subtracting the consideration paid by the Named
Executives for such shares ($0.01 per shares in all
instances). The forfeiture provisions relating to the shares of
restricted stock expire ratably over a period of three years).
As of January 30, 2004, the last trading day of the fiscal
year ended January 31, 2004, and using the fair market
value of the Common Stock as of such date (closing price of
$3.73), the number and value of aggregate restricted stock award
holdings were as follows: 18,000 shares ($67,140) by
Mr. Mitcham; 12,000 shares ($44,760) by
Mr. Dupuis; and 7,500 shares ($27,975) for each of
Messrs. Siffert and Rogers).




|    |                                              
|--- | ---------------------------------------------
|(2) | Mr. Rogers joined us on October 23,
    2001.

Option Grants in Last Fiscal Year

The following table sets forth information
concerning stock option grants made in the fiscal year ended
January 31, 2004 to the Named Executives. There were no
grants of stock appreciation rights to the Named Executives
during the fiscal year ended January 31, 2004.

|                       |  |                   |        |                      |  |                |       |                  |  |                |      |        |  |  |          |  |  |  |        |  |  |  |        | 
|---------------------- |  | ----------------- | ------ | -------------------- |  | -------------- | ----- | ---------------- |  | -------------- | ---- | ------ |  |  | -------- |  |  |  | ------ |  |  |  | ------ | 
|                       |  |                   |        |                      |  |               
|                       |  | Individual Grants |        |                      |  |               
|                       |  |                   |        |                     
|                       |  |                   |        | Potential Realizable
|                       |  |                   |        | Value at Assumed    
|                       |  | Number of         |        |                      |  | Annual Rate of
|                       |  | Securities        |        | % of Total           |  |                |       | Stock Price     
|                       |  | Underlying        |        | Options              |  |                |       | Appreciation for
|                       |  | Options           |        | Granted to           |  | Exercise or    |       |                  |  | Option Term(2)
|                       |  | Granted           |        | Employees in         |  | Base Price     |       | Expiration       |  |               
|Name                   |  | (#)(1)            |        | Fiscal Year          |  | ($/Sh)         |       | Date             |  | 5%($)          |      | 10%($)
|                       |  |                   |        |                      |  |                |       |                  |  |                |      |       
|Billy F. Mitcham, Jr.  |  |                   | 30,000 |                      |  |                | 32.43 |                  |  |                | 1.90 |        |  |  | 07/17/13 |  |  |  | 35,847 |  |  |  | 90,843 | 
|P. Blake Dupuis        |  |                   | 20,000 |                      |  |                | 21.62 |                  |  |                | 1.90 |        |  |  | 07/17/13 |  |  |  | 23,898 |  |  |  | 60,562 | 
|Christopher C. Siffert |  |                   | 12,500 |                      |  |                | 13.51 |                  |  |                | 1.90 |        |  |  | 07/17/13 |  |  |  | 14,936 |  |  |  | 37,851 | 
|Paul Guy Rogers        |  |                   | 12,500 |                      |  |                | 13.51 |                  |  |                | 1.90 |        |  |  | 07/17/13 |  |  |  | 14,936 |  |  |  | 37,851 | 

21



---



##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The options terminate on the earlier of their
    expiration date, 10 years after grant or three months after
    termination of employment, subject to certain exceptions. The
    options become exercisable in three equal annual installments
    beginning one year after the grant date, but vesting may be
    accelerated on the consummation of a specified change of control.                         
|   
|(2) | The indicated 5% and 10% rates of appreciation
    are provided to comply with SEC regulations and do not
    necessarily reflect our views as to the likely trend in our
    stock price. Actual gains, if any, on stock option exercises and
    the sale of Common Stock holdings will depend on, among other
    things, the future performance of our Common Stock and overall
    stock market conditions.

Option Exercises and Year-End Option
Values

The following table provides information as to
options exercised by the Named Executives in the 2004 fiscal
year and year-end value of unexercised options held by the Named
Executives.

Aggregate Option Exercises in 2004 Fiscal Year
and January 31, 2004 Option Values

|                       |  |                 |   |              |  |               |   |                   |  |  |                 |  |  |  |                | 
|---------------------- |  | --------------- | - | ------------ |  | ------------- | - | ----------------- |  |  | --------------- |  |  |  | -------------- | 
|                       |  |                 |   |              |  | Number of     |   |                  
|                       |  |                 |   |              |  | Securities    |   | Value of         
|                       |  |                 |   |              |  | Underlying    |   | Unexercised      
|                       |  |                 |   |              |  | Unexercised   |   | In-the-Money     
|                       |  |                 |   |              |  | Options at    |   | Options at       
|                       |  |                 |   |              |  | January 31,   |   | January 31,      
|                       |  |                 |   |              |  | 2004 (#)      |   | 2004 ($)         
|                       |  | Shares Acquired |   |              |  |               |   |                  
|                       |  | on Exercise     |   | Value        |  | Exercisable/  |   | Exercisable/     
|Name                   |  | (#)             |   | Realized ($) |  | Unexercisable |   | Unexercisable (1)
|                       |  |                 |   |              |  |               |   |                  
|Billy F. Mitcham, Jr.  |  |                 | 0 |              |  |               | 0 |                   |  |  | 266,915/113,335 |  |  |  | 61,284/153,501 | 
|P. Blake Dupuis        |  |                 | 0 |              |  |               | 0 |                   |  |  | 150,500/60,000  |  |  |  | 27,885/88,800  | 
|Christopher C. Siffert |  |                 | 0 |              |  |               | 0 |                   |  |  | 60,000/27,500   |  |  |  | 10,400/40,275  | 
|Paul Guy Rogers        |  |                 | 0 |              |  |               | 0 |                   |  |  | 16,666/25,834   |  |  |  | 11,599/46,076  | 



---



|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Value is based on the $3.73 per share
    closing price of Common Stock on January 30, 2004, the last
    day of trading prior to the end of the fiscal year, less the
    exercise price.

Compensation of Directors



| |                  
| | -----------------
| | Cash Compensation

We pay each of our non-employee directors an
annual fee of $20,000 for their services as directors and
reimburse them for their reasonable out-of-pocket expenses
incurred in connection with their attendance at board and
committee meetings.



| |              
| | -------------
| | Stock Options

In addition to cash compensation, our
non-employee directors are eligible, at the discretion of our
full Board of Directors, to receive discretionary grants of
stock options under our 2000 Stock Option Plan. For the fiscal
year ending January 31, 2004, each of our non-employee
directors was awarded options to
purchase 30,000 shares of Common Stock, which options
will vest in full on July 17, 2004 (the first anniversary
of the grant date).

Employment Agreement

In January 1997, we entered into an employment
agreement with Billy F. Mitcham, Jr., our Chairman of the
Board, President and Chief Executive Officer. The term of the
agreement, which was originally for a period of five years, is
automatically extended for successive one-year periods unless
either party gives written notice of termination at least
30 days prior to the end of the then-current term. The
agreement provides for an annual salary and a bonus at the
discretion of our Board of Directors.

22



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##### Table of Contents



Mr. Mitchams employment agreement may
be terminated prior to the end of any extension period: upon his
death; if it is determined that he has become disabled (as
defined in the agreement); if he provides three months prior
notice of his desire to resign; or if we provide him with notice
of termination without cause (as defined in the agreement). In
addition, Mr. Mitchams employment agreement may be
terminated before the end of the then-current term if our Board
of Directors determines that he has: breached the agreement in
any material respect; misappropriated a material business
opportunity available to us; engaged in fraud or dishonesty with
respect to our business; or been convicted of, or indicted for,
any felony criminal offense or any crime punishable by
imprisonment. If Mr. Mitcham terminates his employment
within 60 days following (i) a material reduction in
his duties and responsibilities occurring without his consent or
(ii) a reduction in, or our failure to pay when due, any
portion of his salary, Mr. Mitcham will be entitled to
payments equal to $450,000, payable ratably over the
24 months following his termination of his employment.

For a period of two years after the termination
of the agreement, Mr. Mitcham is prohibited from engaging
in any business activities which are competitive with our
business and from diverting any of our customers to a
competitor. We have not entered into employment agreements with
any of our other executive officers.

Compensation Committee Interlocks and Insider
Participation

No member of the Compensation Committee is now,
or at any time has been, employed by or served as an officer of
Mitcham or any of its subsidiaries or had any substantial
business dealings with Mitcham or any of its subsidiaries. No
executive officer of Mitcham is now, or at any time has been, a
member of the compensation committee or board of directors of
another entity, one of whose executive officers has been a
member of the Compensation Committee or the Board of Directors.

23



---



##### Table of Contents



COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION

Our executive compensation program is designed to
attract, motivate and retain talented management personnel and
to reward management for our successful financial performance
and for increasing shareholder value. Our executive compensation
has three components: base salaries, annual performance bonuses
and long-term incentive stock-based awards.

Base Salaries.We
determine the salary ranges for our executive officers based
upon their responsibilities and the salary levels of similarly
positioned officers in comparable companies. Our philosophy has
been to establish base salaries in the median area of the range
of such salaries at comparable companies, because we consider
long-term stock-based compensation to be more important than
annual base salaries in aligning the executives financial
rewards to the shareholders financial interests for the
long term. The Compensation Committees practice has been
to review the base salaries of our officers at the regular July
meeting of the Board of Directors. At our July 2003 meeting, we
determined not to increase Mr. Mitchams base salary
of $250,000. We also determined not to increase the base salary
of any other Named Executive, except for Mr. Rogers, whose
base salary was increased by 9%.

Annual Performance
Bonuses.Annual bonuses are awarded
using a qualitative analysis. In making our determination of
whether to award an annual bonus and the amount of the bonus, we
consider several factors, including our financial performance in
relation to planned expectations and level of responsibility or
duties, successful completion of particular projects or
acquisition and implementation of new technical knowledge. For
fiscal 2004, we determined that uncertain future industry
conditions precluded us from granting discretionary bonus awards.

Long-Term Stock-Based
Compensation.We believe that a
substantial percentage of executive compensation should be tied
to equity-based plans and thereby directly related to
improvement in shareholder value over the long term. In
determining the number of options to grant, we make a subjective
determination based on the same factors as we do in determining
bonuses. For fiscal 2004, we approved the grant to executive
officers of the options shown in the Summary Compensation Table
for that fiscal year, which vest ratably over three years.



| |                           
| | --------------------------
| | The Compensation Committee
|
| | John F. Schwalbe          
| | R. Dean Lewis             
| | Peter H. Blum             

24



---



##### Table of Contents



Performance Graph

The following graph compares our Common
Stocks cumulative total return for the period beginning
January 31, 1999, through January 31, 2004, to the
cumulative total return on (i) the S&Ps Smallcap
600 stock index and (ii) an index of peer companies we
selected. In the past, we have provided a comparison of the
cumulative total return on our Common Stock to the S&P Oil
and Gas (Drilling & Equipment) index, and the following
performance graph compares the cumulative total return on our
Common Stock to the cumulative total return on that index for
the period from January 31, 1998, through January 31,
2002. The cumulative total return assumes that the value of an
investment in our Common Stock and each index was $100 at
January 31, 1999, and that all dividends were reinvested.

Comparison of Cumulative Total
Returns

(PERFORMANCE GRAPH)

|                         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                        
|                        
|                         |  | 1/31/99 |        | 1/31/00 |  | 1/31/01 |        | 1/31/02 |  | 1/31/03 |        | 1/31/04
|                        
|                        
|Mitcham Industries, Inc. |  | $       | 100.00 |         |  | $       | 89.23  |         |  | $       | 132.31 |         |  | $ | 104.62 |  |  | $ | 35.45  |  |  | $ | 91.82  | 
|S&P Smallcap 600         |  | $       | 100.00 |         |  | $       | 110.31 |         |  | $       | 132.72 |         |  | $ | 136.77 |  |  | $ | 111.77 |  |  | $ | 165.30 | 
|Peer Company Index       |  | $       | 100.00 |         |  | $       | 109.08 |         |  | $       | 162.05 |         |  | $ | 98.25  |  |  | $ | 45.51  |  |  | $ | 90.60  | 



The index of peer companies consists of:
Compagnie Generale de Geophysique (NYSE: GGY), Dawson
Geophysical Company (NASDAQ: DWSN), Input/ Output, Inc. (NYSE:
IO), Omni Energy Services Corp. (NASDAQ: OMNI) and Veritas DGC,
Inc. (NYSE: VTS).

25



---



##### Table of Contents








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table sets forth the beneficial
ownership of the outstanding shares of Common Stock as of
May 20, 2004, with respect to each person we know to be the
beneficial owner of 5% or more of the outstanding shares of
Common Stock. All persons listed have sole disposition and
voting power with respect to the indicated shares except as
otherwise indicated in the footnotes below the table.

|                                               |                                  |                    |         |          |  |  |      |   | 
|---------------------------------------------- | -------------------------------- | ------------------ | ------- | -------- |  |  | ---- | - | 
|                                               |                                  |                   
|                                               |                                  | Common Stock      
|                                               |                                  | Beneficially Owned
|                                               |                                  |                   
|Name and Address                               |                                  | Number             |         | Percent 
|of Beneficial Owner                            |                                  | of Shares          |         | of Class
|                                               |                                  |                    |         |         
|Billy F. Mitcham, Jr.                          |                                  |                    | 685,467 | (1)      |  |  | 7.6  | %
|                                               | P.O. Box 1175                    |                    |         |          |  |  |      |   | 
|                                               | Huntsville, Texas 77342          |                    |         |          |  |  |      |   | 
|                                              
|R. Chaney & Partners IV
    L.P.               |                                  |                    | 804,800 | (2)      |  |  | 9.2  | %
|                                               | 909 Fannin, Suite 1275           |                    |         |          |  |  |      |   | 
|                                               | Two Houston Center               |                    |         |          |  |  |      |   | 
|                                               | Houston, Texas 77010             |                    |         |          |  |  |      |   | 
|                                              
|Dimensional Fund Advisors, Inc.                |                                  |                    | 555,300 | (3)      |  |  | 6.3  | %
|                                               | 1299 Ocean Avenue, 11th Floor    |                    |         |          |  |  |      |   | 
|                                               | Santa Monica, California 90401   |                    |         |          |  |  |      |   | 
|                                              
|Stuart Sternberg                               |                                  |                    | 874,500 | (4)      |  |  | 10.0 | %
|                                               | c/o Spear Leeds & Kellogg        |                    |         |          |  |  |      |   | 
|                                               | 120 Broadway                     |                    |         |          |  |  |      |   | 
|                                               | New York, New York 10271         |                    |         |          |  |  |      |   | 
|                                              
|First Wilshire Securities Management,
    Inc. |                                  |                    | 923,120 | (5)      |  |  | 10.6 | %
|                                               | 600 South Lake Street, Suite 100 |                    |         |          |  |  |      |   | 
|                                               | Pasadena, California 91106       |                    |         |          |  |  |      |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 293,000 shares of Common Stock
    owned directly by Billy F. Mitcham, Jr. and an aggregate of
    134,634 shares owned by Billy F. Mitcham, Sr.
    (77,040 shares) and two trusts established for the benefit
    of the sons of Mr. Mitcham, Jr. (the Mitcham
    Childrens Trusts) (57,594 shares), as to which
    Mr. Mitcham, Jr. has sole voting rights under a Voting
    Agreement. Also includes shares underlying currently exercisable
    options, and options that will become exercisable within
    60 days of May 20, 2004, to purchase an aggregate of
    257,833 shares of Common Stock.
|   
|(2) | As of March 3, 2004, based upon information
    contained in a Form 4, dated March 4, 2004, filed
    jointly by R. Chaney & Partners IV L.P.
    (Fund IV) and R. Chaney &
    Partners III L.P. (Fund III) with the SEC.                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | As of December 31, 2003, based upon
    information contained in a Schedule 13G/A, dated
    February 6, 2004, filed with the SEC by Dimensional Fund
    Advisors, Inc. (Dimensional). All securities
    reported in the Schedule 13G/A filed by Dimensional are
    owned by certain of its clients, none of which is known by
    Dimensional to own more than 5% of the outstanding shares of
    Common Stock.                                                                                                                                                                                                   
|   
|(4) | As of January 28, 2004, based upon
    information contained in a Form 4, dated February 2,
    2004, filed with the SEC by Stuart Sternberg.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | As of April 30, 2004, based upon information
    contained in two Forms 3, each dated May 3, 2004,
    filed with the SEC by First Wilshire Securities Management, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                  

26



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##### Table of Contents



Security Ownership of Management

The following table sets forth the beneficial
ownership of Common Stock as of May 20, 2004, by
(i) each executive officer whose total annual salary and
bonus exceeded $100,000 in the fiscal year ended
January 31, 2004; (ii) each director and nominee; and
(iii) all directors and executive officers as a group. All
persons listed have sole disposition and voting power with
respect to the indicated shares except as otherwise indicated in
the footnotes below the table.

|                                                                    |  |                    |           |                  |  |  |      |  
|------------------------------------------------------------------- |  | ------------------ | --------- | ---------------- |  |  | ---- | -
|                                                                    |  |                   
|                                                                    |  | Common Stock      
|                                                                    |  | Beneficially Owned
|                                                                    |  |                   
|Name of Beneficial Owner                                            |  | Number of Shares   |           | Percent of Class
|                                                                    |  |                    |           |                 
|Billy F. Mitcham, Jr.                                               |  |                    | 685,467   | (1)              |  |  | 7.5  | %
|P. Blake Dupuis                                                     |  |                    | 185,000   | (2)              |  |  | 2.1  | %
|Christopher C. Siffert                                              |  |                    | 76,666    | (3)              |  |  | *    |  
|Paul Guy Rogers                                                     |  |                    | 28,332    | (4)              |  |  | *    |  
|R. Dean Lewis                                                       |  |                    | 92,000    | (5)              |  |  | 1.0  | %
|John F. Schwalbe                                                    |  |                    | 94,000    | (5)              |  |  | 1.1  | %
|Peter H. Blum                                                       |  |                    | 324,879   | (6)              |  |  | 3.7  | %
|All directors and executive officers as a group
    (seven persons) |  |                    | 1,486,344 | (7)              |  |  | 15.5 | %



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(1) | Includes 293,000 shares of Common Stock
    owned directly by Billy F. Mitcham, Jr. and an aggregate of
    134,634 shares owned by Billy F. Mitcham, Sr.
    (77,040 shares) and the Mitcham Childrens Trusts
    (57,594 shares), as to which Mr. Mitcham, Jr. has
    sole voting rights under a Voting Agreement. Also includes
    shares underlying currently exercisable options, and options
    that will become exercisable within 60 days of May 20,
    2004, to purchase an aggregate of 257,833 shares of Common
    Stock.                                                                             
|   
|(2) | Includes shares underlying currently exercisable
    options to purchase an aggregate of 175,000 shares of
    Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Includes shares underlying currently exercisable
    options, and options that will become exercisable within
    60 days of May 20, 2004, to purchase an aggregate of
    69,166 shares of Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Includes shares underlying currently exercisable
    options, and options that will become exercisable within
    60 days of May 20, 2004, to purchase an aggregate of
    20,832 shares of Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) | Represents shares underlying currently
    exercisable options, and options that will become exercisable
    within 60 days of May 20, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | Includes shares underlying currently exercisable
    options, and options that will become exercisable within
    60 days of May 20, 2004, to purchase an aggregate of
    80,000 shares of Common Stock, 22,624 shares
    underlying currently exercisable warrants, 2,000 shares
    owned by Mr. Blums spouses IRA, and
    3,500 shares owned by Mr. Blums minor son.                                                                                                                                                                                                                                          
|   
|(7) | Includes: (a) shares underlying currently
    exercisable options and warrants, and options that will become
    exercisable within 60 days, to purchase an aggregate of
    788,831 shares of Common Stock, as follows: the
    257,833 shares referred to in footnote (1) above, and
    an aggregate of 530,998 shares attributable to P. Blake
    Dupuis (175,000 shares), Christopher C. Siffert
    (69,166 shares), Paul Guy Rogers (20,832 shares), R.
    Dean Lewis (92,000 shares), John F. Schwalbe
    (94,000 shares) and Peter H. Blum
    (80,000 shares  options; and
    22,624 shares  warrants).

27



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##### Table of Contents



Securities Authorized for Issuance Under
Equity Compensation Plans

The following table sets forth certain
information with respect to our equity compensation plans as of
January 31, 2004:

EQUITY COMPENSATION PLAN INFORMATION

|                                                               |  |                      |           |                   |  |                       |      |  |  |  |         | 
|-------------------------------------------------------------- |  | -------------------- | --------- | ----------------- |  | --------------------- | ---- |  |  |  | ------- | 
|                                                               |  | Number of Securities |           | Weighted-Average  |  | Number of Securities 
|                                                               |  | to be Issued Upon    |           | Exercise Price of |  | Remaining Available  
|                                                               |  | Exercise of          |           | Outstanding       |  | for Future Issuance  
|                                                               |  | Outstanding Options, |           | Options, Warrants |  | Under Equity         
|Plan Category                                                  |  | Warrants and Rights  |           | and Rights        |  | Compensation Plans(1)
|                                                               |  |                      |           |                   |  |                      
|Equity compensation plans approved by our
    stockholders(2)  |  |                      | 1,394,790 |                   |  | $                     | 3.91 |  |  |  | 158,490 | 
|Equity compensation plans not approved by our
    stockholders |  |                      | 0         |                   |  |                       | 0    |  |  |  | 0       | 



---



|    |                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes securities to be issued upon the
    exercise of outstanding options, warrants and rights.                                                                                                                                                               
|   
|(2) | Includes options granted under the 1994 Stock
    Option Plan, 1994 Non-Employee Director Stock Option Plan, 1998
    Stock Awards Plan and 2000 Stock Option Plan, each of which is
    further described in footnote 16 to our audited financial
    statements.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Voting Agreement.Effective September 20, 1993, we entered into a Voting
Agreement (the Voting Agreement) with Billy F.
Mitcham, Jr., Billy F. Mitcham, Sr. and the Mitcham
Childrens Trusts. Under the Voting Agreement,
Mr. Mitcham, Jr. has the authority to vote all shares
of Common Stock held by the parties to the agreement, which as
of May 20, 2004 includes 293,000 shares owned directly
by Mr. Mitcham Jr. and an additional 134,634 shares
owned by the other parties, representing 3.3% and 1.5%,
respectively (for an aggregate of 4.8%), of the shares of Common
Stock outstanding on such date. The Voting Agreement will
terminate on the first to occur of (i) the agreement of the
parties, (ii) the transfer by the parties thereto of their
shares or (iii) the expiration of 25 years.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The following table sets forth the amount of
audit fees, audit related fees and tax fees billed or expected
to be billed by Hein & Associates LLP, our independent
auditor, for the fiscal years ended January 31, 2003 and
January 31, 2004, respectively:

|                      |            |        |         |         |  |   |         |         | 
|--------------------- | ---------- | ------ | ------- | ------- |  | - | ------- | ------- | 
|                      |            | 2004   |         | 2003   
|                      |            |        |         |        
|                      |            | Amount |         | Amount 
|Audit Fees(1)         |            | $      | 110,000 |         |  | $ | 100,880 |        
|Audit-Related Fees(2) |            |        |        |         |  |   |        |        
|Tax Fees(3)           |            |        | 55,000  |         |  |   | 55,606  |        
|All Other Fees        |            |        |        |         |  |   |        |        
|                      |            |        |         |         |  |   |         |        
|                      | Total Fees |        | $       | 165,000 |  |   | $       | 156,486 | 
|                      |            |        |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the annual consolidated financial
    statement audit, review of quarterly reports on Form 10-Q
    and other services associated with the audit.                                        
|   
|(2) | During the indicated periods, our independent
    auditor did not provide us with any information technology
    services relating to financial information systems design and
    implementation.
|   
|(3) | Includes fees and expenses for services primarily
    related to tax compliance, tax advice and tax planning for
    certain acquisitions.                                                        

28



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##### Table of Contents



The Audit Committee has pre-approved all audit
services and permitted non-audit services provided by the
independent auditors, and the compensation, fees and terms for
such services, for the fiscal year ended January 31, 2005.
The Committee also has approved a policy that requires Audit
Committee pre-approval of the compensation and terms of service
for audit services and any permitted non-audit services based on
ranges of fees, and any changes in terms, conditions and fees
resulting from changes in audit scope or other matters. Any
proposed audit or non-audit services exceeding the pre-approved
fee ranges require additional pre-approval by the Audit
Committee or its Chairman.

29



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##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) List of Documents Filed



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements                                                                                                                    
|
| | The financial statements filed as part of this
    Annual Report are listed in Index to Consolidated
    Financial Statements on page F-1.
|
| | (1) Financial Statement Schedules                                                                                                           
|
| | This Annual Report includes the following
    financial statement schedule:                                                                 

Schedule II  Valuation and
Qualifying Accounts



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | (2) Exhibits  The exhibits
    required by Item 601 of Regulation S-K are listed in
    subparagraph (c) below.

(b) Reports on Form 8-K

During the quarter end January 31, 2004, we
filed a Current Report on Form 8-K, related to the
Companys earnings for the third quarter ended October 31,
2003.

(c) Exhibits

|        |     |     |  |   |  |                                                                                                                                                                           
|------- | --- | --- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |     |  |  
|Number  |     |     |  |  
|        |     |     |  |  
|        | 3   | .1  |  |  |  | Amended and Restated Articles of Incorporation of
    Mitcham Industries, Inc. (1) (Exhibit 3.1)                                                                          
|        | 3   | .2  |  |  |  | Second Amended and Restated Bylaws of Mitcham
    Industries, Inc.**                                                                                                      
|        | 9   |     |  |  |  | Voting Agreement, dated September 20, 1993,
    between the Company, Billy F. Mitcham, Jr. and certain
    shareholders (2) (Exhibit 9)                                   
|        | *10 | .1  |  |  |  | Employment Agreement, dated January 15,
    1997, between the Company and Billy F. Mitcham, Jr. (3)
    (Exhibit 10.4)                                                    
|        | 10  | .2  |  |  |  | Exclusive Lease Referral Agreement, dated
    May 14, 1996, between the Company and Pelton Company, Inc.,
    an Oklahoma corporation (Pelton) (4)                      
|        | 10  | .3  |  |  |  | First Amendment to Exclusive Lease Referral
    Agreement, dated January 15, 1997, between the Company and
    Pelton (3) (Exhibit 10.17)                                 
|        | 10  | .4  |  |  |  | Second Amendment to Exclusive Lease Referral
    Agreement, dated November 24, 1997, between Mitcham Industries,
    Inc. and Pelton (5) (Exhibit 10.3)                   
|        | *10 | .5  |  |  |  | Mitcham Industries, Inc. 1994 Stock Option Plan
    (2) (Exhibit 10.9)                                                                                                    
|        | 10  | .6  |  |  |  | Mitcham Industries, Inc. 1994 Non-Employee
    Director Stock Option Plan (2) (Exhibit 10.12)                                                                             
|        | *10 | .7  |  |  |  | Mitcham Industries, Inc. 1998 Stock Awards Plan
    (6)                                                                                                                   
|        | *10 | .8  |  |  |  | Mitcham Industries, Inc. 2000 Stock Option Plan
    (7)                                                                                                                   
|        | 10  | .9  |  |  |  | Warrant No. M-7, dated July 18, 2001,
    issued to Bear Ridge Capital, L.L.C. (8)                                                                                        
|        | 10  | .10 |  |  |  | Share Sale Agreement, dated December 2002,
    between Mitcham Industries, Inc. and Nautronix, Inc. (9)                                                                   
|        | *10 | .11 |  |  |  | Agreement, dated April 4, 2003, between
    Mitcham Industries, Inc. and William J. Sheppard (10)
    (Exhibit 10.14)                                                     
|        | *10 | .12 |  |  |  | Second Consultant Agreement, dated April 1,
    2003, but effective January 1, 2004, between Mitcham
    Industries, Inc. and William J. Sheppard (10)
    (Exhibit 10.16)
|        | 10  | .13 |  |  |  | Equipment Lease Agreement, dated April 9,
    2003, between Mitcham Industries, Inc. and Sercel, Inc., an
    Oklahoma corporation (Sercel) (10)
    (Exhibit 10.17)    
|        | 10  | .14 |  |  |  | Amendment to the Equipment Lease Agreement, dated
    as of December 17, 2003, between Mitcham Industries, Inc.
    and Sercel**                                          

30



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##### Table of Contents



|        |    |     |  |   |  |                                                                                                                                                                             
|------- | -- | --- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |  
|Number  |    |     |  |  
|        |    |     |  |  
|        | 10 | .15 |  |  |  | Promissory Note of Mitcham Industries, Inc.,
    dated as of February 11, 2002, payable to First Victoria
    National Bank in the original principal amount of $8,518,919**
|        | 10 | .16 |  |  |  | Loan Agreement, dated March 30, 2004, by and
    between Mitcham Industries, Inc. and First Victoria National
    Bank**                                                    
|        | 21 |     |  |  |  | Subsidiaries of the Company**                                                                                                                                               
|        | 23 |     |  |  |  | Consent of Hein & Associates LLP**                                                                                                                                          
|        | 31 | .1  |  |  |  | Certification of Billy F. Mitcham, Jr., Chief
    Executive Officer, pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended**         
|        | 31 | .2  |  |  |  | Certification of Christopher C. Siffert,
    Corporate Controller, pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended**           
|        | 32 | .1  |  |  |  | Certification of Billy F. Mitcham, Jr., Chief
    Executive Officer, under Section 906 of the Sarbanes-Oxley
    Act of 2002, 18 U.S.C. § 1350**                            
|        | 32 | .2  |  |  |  | Certification of Christopher C. Siffert,
    Corporate Controller, under Section 906 of the
    Sarbanes-Oxley Act of 2002, U.S.C. § 1350**                                 






|   |                                                            
|-- | -----------------------------------------------------------
|*  | Management contract or compensatory plan or
    arrangement
|  
|** | Filed herewith                                             



| |     |                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-8 (File No. 333-67208), filed with the SEC on
    August 9, 2001.      
|
| | (2) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form SB-2, filed with the SEC on July 5, 1994.                                
|
| | (3) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-1 (File No. 333-19997), filed with the SEC on
    January 17, 1997.    
|
| | (4) | Incorporated by reference to Exhibit 10.1 of
    the Companys Registration Statement on Form S-3/ A
    (File No. 333-10555), filed with the SEC on
    October 25, 1996.                 
|
| | (5) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-3/ A (File No. 333-40507), filed with the SEC on
    December 17, 1997.
|
| | (6) | Incorporated by reference to Exhibit A of
    the Companys proxy statement for the fiscal year ended
    January 31, 1998, filed with the SEC on June 1, 1998.                            
|
| | (7) | Incorporated by reference to Exhibit A of
    the Companys proxy statement for the fiscal year ended
    January 31, 2000, filed with the SEC on May 26, 2000.                            
|
| | (8) | Incorporated by reference to Exhibit 10.14
    of the Companys Annual Report on Form 10-K for the
    fiscal year ended January 31, 2002, filed with the SEC on
    May 1, 2002.          
|
| | (9) | Incorporated by reference to Exhibit 2.1 of
    the Companys Current Report on Form 8-K, filed with
    the SEC on January 13, 2003.                                                      



|     |                                                                                                                                                                                                 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the indicated
    exhibit number of the Companys Annual Report on
    Form 10-K for the fiscal year ended January 31, 2003,
    filed with the SEC on May 1, 2003.

31



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 28th day of May,
2004.



| |                         
| | ------------------------
| | MITCHAM INDUSTRIES, INC.



| |     |                          
| | --- | -------------------------
| | By: | /s/ BILLY F. MITCHAM, JR.

| |                                 
| | --------------------------------
| |                                 
| | Billy F. Mitcham, Jr.,          
| | Chairman of the Board, President
| | and Chief Executive Officer     
| | (principal executive officer)   

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                                 |  |                                                                               |  |              |  | 
|------------------------------------------------ |  | ----------------------------------------------------------------------------- |  | ------------ |  | 
|                                                 |  |                                                                               |  |             
|Signature                                        |  | Title/Capacity                                                                |  | Date        
|                                                 |  |                                                                               |  |             
|                                                
|/s/ BILLY F. MITCHAM, JR.Billy F. Mitcham, Jr.   |  | Chairman of the Board,
    President and Chief
    Executive Officer          |  | May 28, 2004
|                                                
|/s/ CHRISTOPHER C. SIFFERTChristopher C. Siffert |  | Vice President and
    Corporate Controller
    (principal financial officer) |  | May 28, 2004
|                                                
|/s/ PETER H. BLUMPeter H. Blum                   |  | Director                                                                      |  | May 28, 2004
|                                                
|/s/ JOHN F. SCHWALBEJohn F. Schwalbe             |  | Director                                                                      |  | May 28, 2004
|                                                
|/s/ RANDAL DEAN LEWISRandal Dean Lewis           |  | Director                                                                      |  | May 28, 2004

32



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                                                |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                |  | Page
|                                                                                                                                                |  |     
|Independent Auditors
    Report                                                                                                                |  |      | F-2 | 
|Consolidated Balance Sheets
    as of January 31, 2003 and 2004                                                                                 |  |      | F-3 | 
|Consolidated Statements of
    Operations for the Years Ended January 31, 2002, 2003 and
    2004                                               |  |      | F-4 | 
|Consolidated Statements of
    Changes in Shareholders Equity and Comprehensive Income
    for the Years Ended January 31, 2002, 2003 and 2004 |  |      | F-5 | 
|Consolidated Statements of
    Cash Flows for the Years Ended January 31, 2002, 2003 and
    2004                                               |  |      | F-6 | 
|Notes to Consolidated
    Financial Statements                                                                                                  |  |      | F-7 | 

F-1



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##### Table of Contents






INDEPENDENT AUDITORS REPORT

Board of Directors and Shareholders

Mitcham Industries, Inc.


Huntsville, Texas


We have audited the accompanying consolidated
balance sheets of Mitcham Industries, Inc. and Subsidiaries as
of January 31, 2003 and 2004, and the related consolidated
statements of operations, changes in shareholders equity
and comprehensive income and cash flows for each of the years in
the three-year period ended January 31, 2004. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Mitcham Industries, Inc. and Subsidiaries as of
January 31, 2003 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended January 31, 2004, in conformity
with accounting principles generally accepted in the United
States of America.



| |                          
| | -------------------------
| | /s/ HEIN & ASSOCIATES LLP
| |                          
| | Hein & Associates LLP    

Houston, Texas

May 20, 2004


F-2



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##### Table of Contents



MITCHAM INDUSTRIES, INC.




CONSOLIDATED BALANCE SHEETS

|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |             |            | 
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ---------- |  | ----------- | ----------- | ---------- | 
|                                                                                         |                                                                                                                                         |                                           
|                                                                                         |                                                                                                                                         | January 31,                               
|                                                                                         |                                                                                                                                         |                                           
|                                                                                         |                                                                                                                                         | 2003                                       |             | 2004       
|                                                                                         |                                                                                                                                         |                                            |             |            
|ASSETS                                                                                  
|Current assets:                                                                          |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         | Cash and cash equivalents                                                                                                               |                                            | $           | 5,137,000   |            |  | $           | 6,834,000   |           
|                                                                                         | Accounts receivable, net of allowance for
    doubtful accounts of $770,000 and $847,000 at January 31,
    2003 and 2004, respectively |                                            |             | 2,908,000   |            |  |             | 5,635,000   |           
|                                                                                         | Current portion of notes receivable                                                                                                     |                                            |             | 12,000      |            |  |             | 811,000     |           
|                                                                                         | Prepaid expenses and other current assets                                                                                               |                                            |             | 611,000     |            |  |             | 700,000     |           
|                                                                                         | Current assets of discontinued operations                                                                                               |                                            |             | 685,000     |            |  |             | 898,000     |           
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total current assets                       |             |             | 9,353,000  |  |             |             | 14,878,000 | 
|Seismic equipment lease pool, property and
    equipment                                 |                                                                                                                                         |                                            | 84,552,000  |             |            |  | 84,624,000  |            
|Accumulated depreciation of seismic equipment
    lease pool, property and equipment     |                                                                                                                                         |                                            | (51,398,000 | )           |            |  | (59,265,000 | )          
|Notes receivable, net of allowance for doubtful
    notes of $29,000 at January 31, 2004 |                                                                                                                                         |                                            |            |             |            |  | 487,000     |            
|Long-term assets of discontinued operations                                              |                                                                                                                                         |                                            | 1,789,000   |             |            |  | 4,000       |            
|Other assets                                                                             |                                                                                                                                         |                                            | 44,000      |             |            |  | 2,000       |            
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total assets                               |             | $           | 44,340,000 |  |             | $           | 40,730,000 | 
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                        
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                
|Current liabilities:                                                                     |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         | Accounts payable                                                                                                                        |                                            | $           | 1,495,000   |            |  | $           | 1,532,000   |           
|                                                                                         | Current maturities  long-term debt                                                                                                     |                                            |             | 2,092,000   |            |  |             | 2,203,000   |           
|                                                                                         | Equipment notes payable                                                                                                                 |                                            |             |            |            |  |             | 1,296,000   |           
|                                                                                         | Deferred revenue                                                                                                                        |                                            |             | 216,000     |            |  |             | 345,000     |           
|                                                                                         | Wages payable                                                                                                                           |                                            |             | 414,000     |            |  |             | 495,000     |           
|                                                                                         | Accrued expenses and other current liabilities                                                                                          |                                            |             | 646,000     |            |  |             | 1,245,000   |           
|                                                                                         | Current liabilities of discontinued operations                                                                                          |                                            |             | 1,197,000   |            |  |             | 399,000     |           
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total current liabilities                  |             |             | 6,060,000  |  |             |             | 7,515,000  | 
|Long-term debt                                                                           |                                                                                                                                         |                                            | 4,622,000   |             |            |  | 2,418,000   |            
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total liabilities                          |             |             | 10,682,000 |  |             |             | 9,933,000  | 
|Commitments and contingencies (Note 15)                                                  |                                                                                                                                         |                                            |             |             |            |  |             |            
|Shareholders 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; 9,657,801 and
    9,714,994 shares issued, respectively                 |                                            |             | 97,000      |            |  |             | 97,000      |           
|                                                                                         | Additional paid-in capital                                                                                                              |                                            |             | 61,814,000  |            |  |             | 61,913,000  |           
|                                                                                         | Treasury stock, at cost (915,000 shares)                                                                                                |                                            |             | (4,686,000  | )          |  |             | (4,686,000  | )         
|                                                                                         | Deferred compensation                                                                                                                   |                                            |             |            |            |  |             | (83,000     | )         
|                                                                                         | Accumulated deficit                                                                                                                     |                                            |             | (22,122,000 | )          |  |             | (28,411,000 | )         
|                                                                                         | Accumulated other comprehensive income (loss)                                                                                           |                                            |             | (1,445,000  | )          |  |             | 1,967,000   |           
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total shareholders equity                 |             |             | 33,658,000 |  |             |             | 30,797,000 | 
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            
|                                                                                         |                                                                                                                                         | Total liabilities and shareholders equity |             | $           | 44,340,000 |  |             | $           | 40,730,000 | 
|                                                                                         |                                                                                                                                         |                                            |             |             |            |  |             |            

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

F-3



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##### Table of Contents



MITCHAM INDUSTRIES, INC.




CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |            |            |  
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | ---------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | -
|                                                                                                                      |                                                                                                              |                                            
|                                                                                                                      |                                                                                                              | Years Ended January 31,                    
|                                                                                                                      |                                                                                                              |                                            
|                                                                                                                      |                                                                                                              | 2002                                        |            | 2003       |            | 2004
|                                                                                                                      |                                                                                                              |                                             |            |            |            |     
|Revenues:                                                                                                             |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      | Equipment leasing                                                                                            |                                             | $          | 19,994,000 |            |      | $           | 8,306,000  |            |   | $          | 13,765,000 |           
|                                                                                                                      | Equipment sales                                                                                              |                                             |            | 5,920,000  |            |      |             | 5,829,000  |            |   |            | 8,641,000  |           
|                                                                                                                      | Commissions                                                                                                  |                                             |            | 1,269,000  |            |      |             | 4,000      |            |   |            |           |           
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Total revenues                              |            |            | 27,183,000 |      |             |            | 14,139,000 |   |            |            | 22,406,000 |  
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Costs and expenses:                                                                                                   |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      | Direct costs  seismic leasing                                                                               |                                             |            | 2,239,000  |            |      |             | 1,369,000  |            |   |            | 2,326,000  |           
|                                                                                                                      | Cost of equipment sales                                                                                      |                                             |            | 4,993,000  |            |      |             | 4,561,000  |            |   |            | 4,715,000  |           
|                                                                                                                      | General and administrative                                                                                   |                                             |            | 4,374,000  |            |      |             | 4,502,000  |            |   |            | 5,095,000  |           
|                                                                                                                      | Provision (benefit) for doubtful accounts                                                                    |                                             |            | 5,065,000  |            |      |             | (1,920,000 | )          |   |            | 25,000     |           
|                                                                                                                      | Depreciation and amortization                                                                                |                                             |            | 16,015,000 |            |      |             | 14,681,000 |            |   |            | 13,677,000 |           
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Total costs and expenses                    |            |            | 32,686,000 |      |             |            | 23,193,000 |   |            |            | 25,838,000 |  
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Operating loss                                                                                                        |                                                                                                              |                                             | (5,503,000 | )          |            |      | (9,054,000  | )          |            |   | (3,432,000 | )         
|Other income (expense):                                                                                               |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      | Interest expense (net of interest income of
    approximately $331,000, $186,000 and $100,000, respectively) |                                             |            | (231,000   | )          |      |             | (281,000   | )          |   |            | (176,000   | )         
|                                                                                                                      | Other, net                                                                                                   |                                             |            | 2,000      |            |      |             | 11,000     |            |   |            | 34,000     |           
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Total other income (expense)                |            |            | (229,000   | )    |             |            | (270,000   | ) |            |            | (142,000   | )
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Loss from continuing operations before income
    taxes                                                               |                                                                                                              |                                             | (5,732,000 | )          |            |      | (9,324,000  | )          |            |   | (3,574,000 | )         
|Provision (benefit) for income taxes                                                                                  |                                                                                                              |                                             | 2,725,000  |            |            |      | (1,647,000  | )          |            |   |           |           
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Loss from continuing operations                                                                                       |                                                                                                              | $                                           | (8,457,000 | )          |            | $    | (7,677,000  | )          |            | $ | (3,574,000 | )         
|Loss from discontinued operations, net of income
    taxes of $0.00 (including impairment charge of $700,000 in 2004) |                                                                                                              |                                             |           |            |            |      | (2,422,000  | )          |            |   | (2,715,000 | )         
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Net loss                                                                                                              |                                                                                                              | $                                           | (8,457,000 | )          |            | $    | (10,099,000 | )          |            | $ | (6,289,000 | )         
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|Loss per common share from continuing operations:                                                                     |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Basic and diluted                           |            | $          | (0.95      | )    |             | $          | (0.88      | ) |            | $          | (0.41      | )
|Loss per common share from discontinued
    operations:                                                               |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Basic and diluted                           |            | $          |           |      |             | $          | (0.28      | ) |            | $          | (0.31      | )
|Net loss per common share  basic and
    diluted                                                                     |                                                                                                              | $                                           | (0.95      | )          |            | $    | (1.15       | )          |            | $ | (0.72      | )         
|Shares used in computing loss per common share:                                                                       |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Basic                                       |            |            | 8,870,000  |      |             |            | 8,747,000  |   |            |            | 8,772,000  |  
|                                                                                                                      |                                                                                                              | Dilutive effect of common stock equivalents |            |            |           |      |             |            |           |   |            |            |           |  
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           
|                                                                                                                      |                                                                                                              | Diluted                                     |            |            | 8,870,000  |      |             |            | 8,747,000  |   |            |            | 8,772,000  |  
|                                                                                                                      |                                                                                                              |                                             |            |            |            |      |             |            |            |   |            |           

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

F-4



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##### Table of Contents



MITCHAM INDUSTRIES, INC.



CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY


AND COMPREHENSIVE INCOME


|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   |             |  
|--------------------------------------- | ------------------- | ------------------------------------------------------------------ | --------- | ----------- | ------ | --------------- | ------ | ------------- | ----- | -------------- | ---------- | ---------------- | ------- | ------ | ---------- | ----- | - | - | ----------- | - | ----------- | - | ------- | - | - | - | ---------- | - | ---------- | - | ---------- | - | ----------- | -
|                                        |                     |                                                                   
|                                        |                     | Years Ended January 31, 2002, 2003 and 2004                       
|                                        |                     |                                                                   
|                                        |                     |                                                                    |           | Accumulated |        |                
|                                        |                     |                                                                    |           |             |        | Other           |        |              
|                                        |                     | Common Stock                                                       |           |             |        | Unearned        |        | Comprehensive |       |               
|                                        |                     |                                                                    |           | Additional  |        | Treasury        |        | Accumulated   |       | Compensation & |            | Income           |         |       
|                                        |                     | Shares                                                             |           | Amount      |        | Paid-In Capital |        | Stock         |       | Deficit        |            | Restricted Stock |         | (Loss) |            | Total
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |      
|Balances, January 31, 2001              |                     |                                                                    | 9,591,000 |             |        | $               | 96,000 |               |       | $              | 61,601,000 |                  |         | $      | (3,195,000 | )     |   | $ | (3,566,000  | ) |             | $ |        |   |   | $ | (948,000   | ) |            | $ | 53,988,000 |  
|                                        | Comprehensive loss: |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   |            
|                                        |                     | Net loss                                                           |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   | (8,457,000  | ) |         |   |  |   |            |   |           |   |            |   | (8,457,000  | )
|                                        |                     | Foreign currency translation                                       |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   |            |   |         |   |  |   |            |   | (1,666,000 | ) |            |   | (1,666,000  | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|                                        |                     | Comprehensive loss                                                 |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   | (10,123,000 | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|                                        |                     | Issuance of common stock upon exercise of
    warrants and options |           |             | 67,000 |                 |        |               | 1,000 |                |            |                  | 213,000 |        |            |       |  |   |             |   |            |   |         |   |  |   |            |   |           |   |            |   | 214,000     |  
|Acquisition of treasury stock           |                     |                                                                    |          |             |        |                 |       |               |       |                |           |                  |         |        | (1,476,000 | )     |   |   |            |   |             |   |        |   |   |   |           |   |            |   | (1,476,000 | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|Balances, January 31, 2002              |                     |                                                                    | 9,658,000 |             |        |                 | 97,000 |               |       |                | 61,814,000 |                  |         |        | (4,671,000 | )     |   |   | (12,023,000 | ) |             |   |        |   |   |   | (2,614,000 | ) |            |   | 42,603,000 |  
|                                        | Comprehensive loss: |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   |            
|                                        |                     | Net loss                                                           |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   | (10,099,000 | ) |         |   |  |   |            |   |           |   |            |   | (10,099,000 | )
|                                        |                     | Foreign currency translation                                       |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   |            |   |         |   |  |   |            |   | 1,169,000  |   |            |   | 1,169,000   |  
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|                                        |                     | Comprehensive loss                                                 |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   | (8,930,000  | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|Acquisition of treasury stock           |                     |                                                                    |          |             |        |                 |       |               |       |                |           |                  |         |        | (15,000    | )     |   |   |            |   |             |   |        |   |   |   |           |   |            |   | (15,000    | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|Balances, January 31, 2003              |                     |                                                                    | 9,658,000 |             |        |                 | 97,000 |               |       |                | 61,814,000 |                  |         |        | (4,686,000 | )     |   |   | (22,122,000 | ) |             |   |        |   |   |   | (1,445,000 | ) |            |   | 33,658,000 |  
|                                        | Comprehensive loss: |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   |            
|                                        |                     | Net loss                                                           |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   | (6,289,000  | ) |         |   |  |   |            |   |           |   |            |   | (6,289,000  | )
|                                        |                     | Foreign currency translation                                       |           |             |       |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   |            |   |         |   |  |   |            |   | 3,412,000  |   |            |   | 3,412,000   |  
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|                                        |                     | Comprehensive loss                                                 |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |   | (2,877,000  | )
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|                                        |                     | Issuance of common stock upon exercise of
    warrants and options |           |             | 4,000  |                 |        |               |      |                |            |                  |        |        |            |       |  |   |             |   |            |   |         |   |  |   |            |   |           |   |            |   |            |  
|Restricted stock issued                 |                     |                                                                    | 53,000    |             |        |                 |       |               |       |                | 99,000     |                  |         |        |           |       |   |   |            |   |             |   | (99,000 | ) |   |   |           |   |            |   |           |  
|Amortization of restricted stock grants |                     |                                                                    |          |             |        |                 |       |               |       |                |           |                  |         |        |           |       |   |   |            |   |             |   | 16,000  |   |   |   |           |   |            |   | 16,000     |  
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  
|Balances, January 31, 2004              |                     |                                                                    | 9,715,000 |             |        | $               | 97,000 |               |       | $              | 61,913,000 |                  |         | $      | (4,686,000 | )     |   | $ | (28,411,000 | ) |             | $ | (83,000 | ) |   | $ | 1,967,000  |   |            | $ | 30,797,000 |  
|                                        |                     |                                                                    |           |             |        |                 |        |               |       |                |            |                  |         |        |            |       |   |   |             |   |             |   |         |   |   |   |            |   |            |   |            |  

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

F-5



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##### Table of Contents



MITCHAM INDUSTRIES, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |            |            |            |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- | -------- | ---------- | ---------- | ---------- | ---------- | -
|                                                                               |                                                                                               |                                                                                
|                                                                               |                                                                                               | Years Ended January 31,                                                        
|                                                                               |                                                                                               |                                                                                
|                                                                               |                                                                                               | 2002                                                                            |                                                         | 2003        |            | 2004      
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |           
|Cash flows from operating activities:                                          |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               | Loss from continuing operations                                                               |                                                                                 | $                                                       | (8,457,000  | )          |            | $          | (7,677,000 | )          |          | $          | (3,574,000 | )         
|                                                                               | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                                 |                                                         |             |            |            |            |            |            |          |            |            |           
|                                                                               |                                                                                               | Depreciation and amortization                                                   |                                                         |             | 16,015,000 |            |            |            | 14,681,000 |          |            |            | 13,677,000 |           
|                                                                               |                                                                                               | Provision (benefit) for doubtful accounts, net of
    chargeoffs and recoveries |                                                         |             | 224,000    |            |            |            | (2,398,000 | )        |            |            | 106,000    |           
|                                                                               |                                                                                               | Deferred income taxes                                                           |                                                         |             | 2,713,000  |            |            |            |           |          |            |            |           |           
|                                                                               | Changes in:                                                                                   |                                                                                 |                                                         |             |            |            |            |            |            |          |            |            |           
|                                                                               |                                                                                               | Trade accounts receivable                                                       |                                                         |             | 2,729,000  |            |            |            | 2,112,000  |          |            |            | (4,167,000 | )         
|                                                                               |                                                                                               | Federal income taxes, current                                                   |                                                         |             | 787,000    |            |            |            | (43,000    | )        |            |            |           |           
|                                                                               |                                                                                               | Accounts payable, accrued expenses and other
    current liabilities            |                                                         |             | (2,139,000 | )          |            |            | (6,923,000 | )        |            |            | 846,000    |           
|                                                                               |                                                                                               | Other, net                                                                      |                                                         |             | 397,000    |            |            |            | (228,000   | )        |            |            | 62,000     |           
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               |                                                                                               |                                                                                 | Net cash provided by (used in) operating
    activities |             |            | 12,269,000 |            |            |            | (476,000 | )          |            |            | 6,950,000  |  
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|Cash flows from investing activities:                                          |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               | Purchases of seismic equipment held for lease                                                 |                                                                                 |                                                         | (16,442,000 | )          |            |            | (4,622,000 | )          |          |            | (3,576,000 | )         
|                                                                               | Purchases of property and equipment                                                           |                                                                                 |                                                         | (1,579,000  | )          |            |            | (132,000   | )          |          |            | (59,000    | )         
|                                                                               | Sale of marketable securities                                                                 |                                                                                 |                                                         | 7,085,000   |            |            |            |           |            |          |            |           |           
|                                                                               | Disposal of lease pool equipment                                                              |                                                                                 |                                                         | 4,562,000   |            |            |            | 3,853,000  |            |          |            | 2,975,000  |           
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               |                                                                                               |                                                                                 | Net cash used in investing activities                   |             |            | (6,374,000 | )          |            |            | (901,000 | )          |            |            | (660,000   | )
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|Cash flows from financing activities:                                          |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               | Proceeds from debt                                                                            |                                                                                 |                                                         | 1,275,000   |            |            |            | 2,000,000  |            |          |            |           |           
|                                                                               | Payments on borrowings                                                                        |                                                                                 |                                                         | (1,981,000  | )          |            |            | (1,880,000 | )          |          |            | (2,093,000 | )         
|                                                                               | Purchase of common stock for treasury                                                         |                                                                                 |                                                         | (1,476,000  | )          |            |            | (15,000    | )          |          |            |           |           
|                                                                               | Proceeds from issuance of common stock upon
    exercise of warrants and options              |                                                                                 |                                                         | 214,000     |            |            |            |           |            |          |            |           |           
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|                                                                               |                                                                                               |                                                                                 | Net cash provided by (used in) financing
    activities |             |            | (1,968,000 | )          |            |            | 105,000  |            |            |            | (2,093,000 | )
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|Net increase (decrease) in cash and cash
    equivalents-continuing operations |                                                                                               |                                                                                 | 3,927,000                                               |             |            |            | (1,272,000 | )          |            |          | 4,197,000  |           
|Net decrease in cash and cash
    equivalents-discontinued operations          |                                                                                               |                                                                                 |                                                        |             |            |            | (1,835,000 | )          |            |          | (2,500,000 | )         
|Cash, beginning of year                                                        |                                                                                               |                                                                                 | 4,317,000                                               |             |            |            | 8,244,000  |            |            |          | 5,137,000  |           
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           
|Cash, end of year                                                              |                                                                                               | $                                                                               | 8,244,000                                               |             |            | $          | 5,137,000  |            |            | $        | 6,834,000  |           
|                                                                               |                                                                                               |                                                                                 |                                                         |             |            |            |            |            |            |          |            |           

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

F-6



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##### Table of Contents



MITCHAM INDUSTRIES, INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant
    Accounting Policies

Organization
Mitcham Industries, Inc. (the Company) is a Texas
corporation formed on January 29, 1987. The Company and its
wholly-owned Canadian subsidiary provide full-service equipment
leasing, sales and services to the seismic industry worldwide,
primarily in North and South America. Through its wholly-owned
U.S. subsidiary, Drilling Services, Inc. (DSI),
the Company 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 presented as discontinued operations and all prior
period statements have been restated accordingly. The Company,
through its wholly-owned Australian subsidiary, Seismic Asia
Pacific Pty Ltd. (SAP), provides seismic,
oceanographic and hydrographic leasing and sales worldwide,
primarily in Asia and Australia. All intercompany transactions
and balances have been eliminated in consolidation.

Revenue Recognition of Leasing
Arrangements The Company
leases various types of seismic equipment to seismic data
acquisition companies. The majority of leases at
January 31, 2003 and 2004 are for one year or less. Lease
revenue is recognized ratably over the term of the lease. The
Company does not enter into leases with imbedded maintenance
obligations. The standard lease contract provides that the
lessee is responsible for maintenance and repairs to the
equipment, excluding fair wear and tear. The Company provides
technical advice to its customers without additional
compensation as part of its customer service practices. Repairs
or maintenance performed by the Company is charged to the
lessee, generally on a time and materials basis.

Revenue Recognition of Equipment
Sales Revenue and cost of
goods sold from the sale of equipment is recognized upon
transfer of title.

Sales allowances and
incentives From time to
time the Company will offer incentives to customers as part of
leasing transactions. These allowances or incentives may take
the form of free equipment rent, credits on future purchases of
equipment or credits on existing equipment repair charges. These
allowances and incentives are accounted for as a reduction of
revenue.

Notes
receivable In certain
instances when customers have been unable to repay their open
accounts receivable balances, the Company has agreed to a
structured repayment program using an interest bearing
promissory note. In these cases, the Company provides a reserve
for doubtful accounts against the balance. Due to the
uncertainty of collection, the Company does not recognize the
interest earned until the entire principal balance has been
collected. In most cases where the Company has a chronic
collection problem with a particular customer, future business
is done on a prepayment basis or if additional credit is
extended, revenues are not recognized until collected.

The Company occasionally offers extended payment
terms on equipment sales transactions. These terms are generally
less than one year in duration. The sales revenue and cost of
goods sold is recognized upon transfer of title of the equipment.

Allowance for doubtful
accounts Trade receivables
are uncollateralized customer obligations due under normal trade
terms. Payments on trade receivables are allocated to the
specific invoices identified on the customers remittance
advice or, if unspecified, are applied to the earliest unpaid
invoices.

The carrying amount of trade receivables and
notes receivable is reduced by a valuation allowance that
reflects managements best estimate of the amounts that
will not be collected. Management reviews all trade receivable
balances that exceed 90 days past due and any notes
receivable that are delinquent as to payments and based on an
assessment of current creditworthiness, estimates the portion,
if any, of the balance that will not be collected. In addition,
management establishes a general allowance based on its
assessment of the overall credit risk the Company is exposed to
from its trade receivables and notes receivables.

F-7



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Cash and Cash
Equivalents The Company
considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

Property and
Equipment Property and
equipment is carried at cost, net of accumulated depreciation.
Depreciation is computed on the straight-line method over the
estimated useful lives of the property and equipment. The
estimated useful lives of equipment range from three to seven
years. Buildings are depreciated over 40 years and property
improvements are amortized over 10 years. Leasehold
improvements are amortized over the life of the respective
leases.

Seismic Equipment Lease
Pool Seismic equipment
held for lease consists primarily of remote signal conditioners
(channel boxes) and peripheral equipment and is carried at cost,
net of accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the
equipment, which is five years for channel boxes and 2 -
10 years for other peripheral equipment.

Impairment
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of,set forth guidance as to when to recognize an impairment of
long-lived assets and how to measure such impairment. The
standard required certain assets to be reviewed for impairment
whenever events or circumstances indicate the carrying amount
may not be recoverable. In October 2001, the FASB approved
SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 replaced SFAS 121.
SFAS 144 requires that long-lived assets be measured at the
lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued
operations. The Companys assessment resulted in the
recognition of impairment expense of $700,000 related to the
sale of DSIs operating assets in fiscal 2004.

Income
Taxes The Company files
separate federal returns for its foreign subsidiaries. The
Company accounts for its taxes under the liability method,
whereby the Company recognizes, on a current and long-term
basis, deferred tax assets and liabilities which represent
differences between the financial and income tax reporting bases
of its assets and liabilities. A valuation allowance is
established when uncertainty exists as to the ultimate
realization of net deferred tax assets. As of January 31,
2003 and 2004, the Company has recorded a net deferred tax asset
of $9.4 million and $11.6 million, respectively. The
Company believes it is not assured that these net deferred tax
assets will be realized and has recorded valuation allowances of
$9.4 million and $11.6 million at January 31,
2003 and 2004, respectively.

Use of
Estimates The preparation
of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the Companys management
to make estimates and assumptions that affect the amounts
reported in these consolidated financial statements and
accompanying notes. Estimates are used for, but not limited to:
allowance for doubtful accounts, lease pool valuations,
valuation allowance on deferred tax assets and depreciable lives
of assets. Future events and their effects cannot be perceived
with certainty. Accordingly, these accounting estimates require
the exercise of judgment. The accounting estimates used in the
preparation of the consolidated financial statements will change
as new events occur, as more experience is acquired, as
additional information is obtained and as the Companys
operating environment changes. Actual results could differ from
these estimates.

Substantial judgment is necessary in the
determination of the appropriate levels for the Companys
allowance for doubtful accounts because of the extended payment
terms the Company often offers to its customers and the limited
financial wherewithal of many of these customers. As a result,
the Companys allowance for doubtful accounts could change
in the future, and such change could be material to the
financial statements taken as a whole.

Foreign Currency
Translation All balance
sheet accounts of the Canadian and Australian subsidiaries have
been translated at the current exchange rate as of the end of
the accounting period. Income statement

F-8



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

items have been translated at average currency
exchange rates. The resulting translation adjustment is recorded
as a separate component of comprehensive income within
shareholders equity.

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

|                                                                                  |  |                         |            |      |  |      |             |   |  |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ----------- | - |  | - | ---------- | -
|                                                                                  |  |                        
|                                                                                  |  | Years Ended January 31,
|                                                                                  |  |                        
|                                                                                  |  | 2002                    |            | 2003 |  | 2004
|                                                                                  |  |                         |            |      |  |     
|Pro forma impact of fair value method
    (FAS 148)                               |  |                         |            |      |  |      |             |   |  |   |            |  
|Reported loss from continuing operations
    attributable to common shareholders  |  | $                       | (8,457,000 | )    |  | $    | (7,677,000  | ) |  | $ | (3,574,000 | )
|Less: fair value impact of employee stock
    compensation                        |  |                         | (485,000   | )    |  |      | (609,000    | ) |  |   | (340,000   | )
|                                                                                  |  |                         |            |      |  |      |             |   |  |   |            |  
|Pro forma loss from continuing operations
    attributable to common shareholders |  | $                       | (8,942,000 | )    |  | $    | (8,286,000  | ) |  | $ | (3,914,000 | )
|                                                                                  |  |                         |            |      |  |      |             |   |  |   |            |  
|Reported loss                                                                     |  | $                       | (8,457,000 | )    |  | $    | (10,099,000 | ) |  | $ | (6,289,000 | )
|Less: fair value impact of employee stock
    compensation                        |  |                         | (485,000   | )    |  |      | (609,000    | ) |  |   | (340,000   | )
|                                                                                  |  |                         |            |      |  |      |             |   |  |   |            |  
|Pro forma loss                                                                    |  | $                       | (8,942,000 | )    |  | $    | (10,708,000 | ) |  | $ | (6,629,000 | )
|                                                                                  |  |                         |            |      |  |      |             |   |  |   |            |  
|Loss per common share                                                             |  |                         |            |      |  |      |             |   |  |   |            |  
|Basic and diluted  as reported loss
    from continuing operations               |  | $                       | (0.95      | )    |  | $    | (0.88       | ) |  | $ | (0.41      | )
|Basic and diluted  pro forma loss from
    continuing operations                 |  | $                       | (1.01      | )    |  | $    | (0.95       | ) |  | $ | (0.45      | )
|Basic and diluted  as reported loss                                              |  | $                       | (0.95      | )    |  | $    | (1.15       | ) |  | $ | (0.72      | )
|Basic and diluted  pro forma loss                                                |  | $                       | (1.01      | )    |  | $    | (1.22       | ) |  | $ | (0.76      | )

The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option pricing
model with the following assumptions: risk free rates of 3.0% to
5.0%; volatility of 69%, 63% and 65% for 2002, 2003 and 2004,
respectively; no assumed dividend yield; and expected lives of
3-8 years.

Earnings Per
Share For the fiscal years
ended January 31, 2002, 2003 and 2004, the following
potential common stock was excluded from the per share
calculations due to their anti-dilutive effect.

|              |                                |                         |         |         |  |      |        |        |  |  |        |        | 
|------------- | ------------------------------ | ----------------------- | ------- | ------- |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|              |                                |                        
|              |                                | Years Ended January 31,
|              |                                |                        
|              |                                | 2002                    |         | 2003    |  | 2004
|              |                                |                         |         |         |  |     
|Stock options |                                |                         | 105,600 |         |  |      | 35,218 |        |  |  | 90,271 |       
|Warrants      |                                |                         | 2,383   |         |  |      |       |        |  |  |       |       
|              |                                |                         |         |         |  |      |        |        |  |  |        |       
|              | Total anti-dilutive securities |                         |         | 107,983 |  |      |        | 35,218 |  |  |        | 90,271 | 

Reclassifications
Certain prior year amounts have been reclassified to conform
with the current year presentation. Such reclassifications had
no effect on the results of operations or comprehensive income.

F-9



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                              
|-- | -----------------------------
|2. | New Accounting Pronouncements

SFAS No. 150, issued in May 2003, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity, establishes standards for the
measurement and classification of such financial instruments. If
the instrument has characteristics of a liability, it is to be
classified as a debt instrument. The effective date of the
statement is June 15, 2003. The Company has adopted the
statement; however, management does not believe the effect of
adopting this statement will have a material impact on its
financial position, results of operations, or cash flows.

In January 2003, the Financial Accounting
Standard Board (FASB) issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities, FIN 46 clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, and addresses consolidation by business
enterprises of variable interest entities (more commonly known
as Special Purpose Entities or
SPEs). In December 2003, FASB issued FIN No.
46R which replaced FIN 46 and clarified ARB 51. This
interpretation provides guidance on how to identify a variable
interest entity and determine when the assets, liabilities,
non-controlling interests and results of operations of a
variable interest entity should be consolidated by the primary
beneficiary. The primary beneficiary is the enterprise that will
absorb a majority of the variable interest entitys
expected losses or receive a majority of the expected residual
returns as a result of holding variable interests. This FIN
requires the consolidation of results of variable interest
entities in which the Company is the primary beneficiary of the
variable interest entity. As of January 31, 2004, the
Company did not own an interest in a variable interest entity
that met the consolidation requirements and as such the adoption
of FIN No. 46R did not have any effect on the financial
condition, results of operations, or liquidity of the Company.
Interests in entities acquired or created after January 31,
2004 will be evaluated based on FIN No. 46R criteria and
consolidated, if required.



|   |                                               
|-- | ----------------------------------------------
|3. | Long-Term Debt and Equipment Notes
    Payable

In February 2002, the Company closed an
$8.5 million term loan with First Victoria National Bank.
The loan is payable in 48 equal installments of approximately
$197,000 beginning in March 2002 and bears interest at the rate
of prime plus one-half percent. The loan is collateralized by
lease pool equipment and all proceeds from lease pool leases and
asset sales.

In 2004, the Company executed three 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, of which approximately $1.3 million
remains unpaid as of January 31, 2004. The notes call for
monthly principal payments aggregating approximately $121,000
and bear interest ranging from 0% to 8%. All three notes have
twelve-month repayment terms and mature during fiscal 2005.

On March 30, 2004, the Company closed a
$4 million revolving loan agreement and credit line with
First Victoria National Bank. The line allows the Company to
borrow funds to purchase equipment at any time as necessary and
is collateralized by the equipment purchased and any leases on
that equipment. Interest is payable monthly at prime plus
one-half percent. 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. The Company has not yet borrowed
any funds available under this line.

In connection with the formation of DSI, the
Company closed a $75,000 term loan in December 2001 with Regions
Bank. This loan amortized over 12 months and bore interest
at the rate of prime minus one percent, adjusted daily. The
quarterly payments of principal and interest, beginning
March 7, 2002, were approximately $19,000. During fiscal
2003, the Company repaid all outstanding principal under this
note.

Long-term debt repayments are scheduled to be
$2,203,000, $2,304,000 and $114,000 in fiscal 2005, 2006 and
2007, respectively.

F-10



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                                                      
|-- | -----------------------------------------------------
|4. | Supplemental Statements of Cash Flows
    Information

Supplemental disclosures of cash flow information
for the years ended January 31, 2002, 2003 and 2004 are as
follows:

|                                                                                   |  |                         |          |      |  |      |            |   |  |   |           | 
|---------------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                                                                                   |  |                        
|                                                                                   |  | Years Ended January 31,
|                                                                                   |  |                        
|                                                                                   |  | 2002                    |          | 2003 |  | 2004
|                                                                                   |  |                         |          |      |  |     
|Interest paid, continuing operations                                               |  | $                       | 542,000  |      |  | $    | 400,000    |   |  | $ | 273,000   | 
|Interest paid, discontinued operations                                             |  |                         |         |      |  |      | 10,000     |   |  |   | 3,000     | 
|Taxes paid (refunded), net                                                         |  |                         | (942,000 | )    |  |      | (1,647,000 | ) |  |   |          | 
|Seismic equipment acquired in exchange for
    cancellation of accounts receivable |  |                         | 312,000  |      |  |      | 3,000      |   |  |   | 48,000    | 
|Seismic equipment acquired as recovery of
    previously written off receivables   |  |                         |         |      |  |      | 1,933,000  |   |  |   |          | 
|Seismic equipment acquired from vendor in
    exchange for debt                    |  |                         |         |      |  |      |           |   |  |   | 1,733,000 | 



|   |                 
|-- | ----------------
|5. | Notes Receivable

Notes receivable consisted of $12,000 due from
two customers and $2,037,000, of which $739,000 is included in
the assets of discontinued operations, due from six customers as
of January 31, 2003 and 2004, respectively. These notes
bear interest ranging from 0%  12% with repayment
terms ranging from 6 to 48 months.

During fiscal 2004, the Company established seven
new notes receivable in the aggregate amount of $1,960,000
related to the sales of seismic equipment. Additionally, during
fiscal 2004, the Company issued a note receivable in the amount
of $800,000 related to the sale of DSIs operating assets.
This note bears interest at the rate of 7% annually and has
repayment terms of 39 months. The first three monthly
payments were interest only and the remaining 36 monthly
payments of principal and interest are in the approximate amount
of $25,000. As of January 31, 2004, the outstanding balance
of this note was $739,000. Additionally, during fiscal 2004 the
Company received final payments on two notes receivable that had
been established in prior fiscal years.

During fiscal 2003, the Company established one
new note receivable in the amount of $30,000 related to the sale
of seismic equipment. Also during fiscal 2003, the Company
received final payments on two notes receivable that had been
established in prior fiscal years. Additionally, during fiscal
2003 the Company wrote off one note receivable in the amount of
$282,000 related to the financing of trade receivables from
prior fiscal years due to the customers insolvency.



|   |                        
|-- | -----------------------
|6. | Discontinued Operations

On August 1, 2003, the Company sold the
operating assets of DSI, which comprised all of the operating
assets of the Companys Front-End Services segment. The
Companys decision to sell DSI resulted from the
over-capacity in that market segment. Proceeds from the sale
were $250,000 cash and an $800,000 note receivable due over
three years. Additionally, the buyer assumed $143,000 of
capitalized lease obligations. In the January 31, 2004
financial statements, the Company had recorded an asset
impairment charge of $700,000 related to those assets. The
impairment charge is included in the loss from discontinued
operations.

F-11



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Effective with the January 31, 2004
financial statements, the operating results of DSI are presented
as discontinued operations and all prior period statements have
been restated accordingly. A summary of DSIs revenue,
pretax loss and assets and liabilities is reflected in loss from
discontinued operations as follows.

|                                                                          |  |                         |            |      |  |   |            |  
|------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                          |  |                        
|                                                                          |  | Years Ended January 31,
|                                                                          |  |                        
|                                                                          |  | 2003                    |            | 2004
|                                                                          |  |                         |            |     
|Revenues                                                                  |  | $                       | 5,014,000  |      |  | $ | 4,524,000  |  
|Pretax loss                                                               |  | $                       | (2,422,000 | )    |  | $ | (2,715,000 | )
|Accounts and notes receivable from discontinued
    operations            |  | $                       | 636,000    |      |  | $ | 815,000    |  
|Other current assets from discontinued operations                         |  | $                       | 49,000     |      |  | $ | 83,000     |  
|Net property plant and equipment from
    discontinued operations         |  | $                       | 1,789,000  |      |  | $ | 4,000      |  
|Accounts payable and accrued liabilities from
    discontinued operations |  | $                       | 1,197,000  |      |  | $ | 399,000    |  



|   |               
|-- | --------------
|7. | Concentrations

Credit
Risk As of
January 31, 2003 and 2004, amounts due from customers which
exceeded 10% of accounts receivable amounted to an aggregate of
$1.1 million from two customers and $2.5 million from
two customers, respectively.

The Company maintains deposits with banks which
exceed the Federal Deposit Insurance Corporation
(FDIC) insured limit and has a money market account
included in its cash balances which is not FDIC insured.
Management believes the risk of loss in connection with these
accounts is minimal.

Industry
Concentration The
Companys revenues are derived from seismic equipment
leased and sold to companies providing seismic acquisition
services. The seismic industry has rapidly expanded its 3-D
seismic acquisition capabilities over the past few years as this
technology has gained broad market acceptance from oil and gas
exploration companies. With this expansion, many of the seismic
acquisition companies in North America, while experiencing rapid
growth in 3-D seismic acquisition revenues, have not experienced
corresponding increases in profitability and have become
increasingly leveraged. Should the financial performance of the
companies in this industry not improve, the Company could be
exposed to additional credit risk and be subjected to declining
demand for its leasing services.

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

F-12



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                                                         
|-- | --------------------------------------------------------
|8. | Seismic Equipment Lease Pool, Property and
    Equipment

Seismic equipment lease pool, property and
equipment consisted of the following as of:

|                                                         |                              |             |             |            |  |   |             |            | 
|-------------------------------------------------------- | ---------------------------- | ----------- | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                                         |                              |            
|                                                         |                              | January 31,
|                                                         |                              |            
|                                                         |                              | 2003        |             | 2004      
|                                                         |                              |             |             |           
|Remote signal conditioners (channel boxes)               |                              | $           | 33,760,000  |            |  | $ | 32,711,000  |           
|Other peripheral equipment                               |                              |             | 48,798,000  |            |  |   | 49,681,000  |           
|                                                         |                              |             |             |            |  |   |             |           
|                                                         | Seismic equipment lease pool |             |             | 82,558,000 |  |   |             | 82,392,000 | 
|                                                         |                              |             |             |            |  |   |             |           
|Land                                                     |                              |             | 25,000      |            |  |   | 25,000      |           
|Buildings and improvements                               |                              |             | 574,000     |            |  |   | 582,000     |           
|Furniture and fixtures                                   |                              |             | 1,236,000   |            |  |   | 1,399,000   |           
|Autos and trucks                                         |                              |             | 159,000     |            |  |   | 226,000     |           
|                                                         |                              |             |             |            |  |   |             |           
|                                                         | Property and equipment       |             |             | 1,994,000  |  |   |             | 2,232,000  | 
|                                                         |                              |             |             |            |  |   |             |           
|Seismic equipment lease pool, property and
    equipment |                              |             | 84,552,000  |            |  |   | 84,624,000  |           
|Less: accumulated depreciation                           |                              |             | (51,398,000 | )          |  |   | (59,265,000 | )         
|                                                         |                              |             |             |            |  |   |             |           
|                                                         |                              | $           | 33,154,000  |            |  | $ | 25,359,000  |           
|                                                         |                              |             |             |            |  |   |             |           



|   |       
|-- | ------
|9. | Leases

The Company leases and subleases seismic
equipment to customers under operating leases with
non-cancelable terms of one year or less. These leases are
generally renewable on a month-to-month basis. All taxes (other
than U.S. federal income taxes) and assessments are the
contractual responsibility of the lessee. To the extent that
foreign taxes are not paid by the lessee, the relevant foreign
taxing authorities might seek to collect such taxes from the
Company. Under the terms of its lease agreements, any amounts
paid by the Company to such foreign taxing authorities may be
billed and collected from the lessee. If the Company is unable
to collect the foreign taxes it paid on behalf of its lessees,
the Company may have foreign tax credits in the amounts paid
which could be applied against its U.S. income tax
liability subject to certain limitations. The Company is not
aware of any foreign tax obligations as of January 31, 2003
and 2004 that have not already been reflected on the
accompanying consolidated financial statements.

The Company leases seismic equipment from others
under month-to-month operating leases.

Lease expense incurred by the Company in
connection with such leases amounted to $329,000, $358,000 and
$886,000 for the years ended January 31, 2002, 2003 and
2004, respectively.

F-13



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |             
|--- | ------------
|10. | Income Taxes

The components of income tax expense (benefit)
were as follows:

|         |         |                         |           |        |  |      |            |            |   |   |   |   | 
|-------- | ------- | ----------------------- | --------- | ------ |  | ---- | ---------- | ---------- | - | - | - | - | 
|         |         |                        
|         |         | Years Ended January 31,
|         |         |                        
|         |         | 2002                    |           | 2003   |  | 2004
|         |         |                         |           |        |  |     
|Current: |         |                         |           |        |  |      |            |            |   |   |   |  
|         | Federal |                         | $         |       |  |      | $          | (1,647,000 | ) |   | $ |  | 
|         | Foreign |                         |           | 12,000 |  |      |            |           |   |   |   |  | 
|         | State   |                         |           |       |  |      |            |           |   |   |   |  | 
|         |         |                         |           |        |  |      |            |            |   |   |   |  
|         |         |                         | 12,000    |        |  |      | (1,647,000 | )          |   |   |   |  
|Deferred |         |                         | 2,713,000 |        |  |      |           |            |   |   |  |  
|         |         |                         |           |        |  |      |            |            |   |   |   |  
|         |         | $                       | 2,725,000 |        |  | $    | (1,647,000 | )          |   | $ |  |  
|         |         |                         |           |        |  |      |            |            |   |   |   |  

The components of the Companys deferred tax
assets consisted of the following as of:

|                          |                                                            |             |   |            |   |  |   |             |   | 
|------------------------- | ---------------------------------------------------------- | ----------- | - | ---------- | - |  | - | ----------- | - | 
|                          |                                                            |            
|                          |                                                            | January 31,
|                          |                                                            |            
|                          |                                                            | 2003        |   | 2004      
|                          |                                                            |             |   |           
|Deferred tax assets:      |                                                            |             |   |            |   |  |   |            
|                          | Allowance for doubtful accounts                            |             | $ | 262,000    |   |  | $ | 295,000     |  
|                          | Canadian net operating loss carryforward                   |             |   | 4,861,000  |   |  |   | 4,947,000   |  
|                          | Australian net operating loss carryforward                 |             |   |           |   |  |   | 27,000      |  
|                          | U.S. net operating loss carryforward                       |             |   | 3,015,000  |   |  |   | 5,656,000   |  
|                          | Inventory valuation allowance                              |             |   | 83,000     |   |  |   | 66,000      |  
|                          | Depreciation                                               |             |   | 905,000    |   |  |   | 179,000     |  
|                          | Accruals not yet deductible for tax purposes               |             |   | 65,000     |   |  |   | 213,000     |  
|                          | AMT credit                                                 |             |   | 202,000    |   |  |   | 202,000     |  
|                          |                                                            |             |   |            |   |  |   |            
|                          | Gross deferred tax assets                                  |             |   | 9,393,000  |   |  |   | 11,585,000  |  
|                          | Valuation allowance                                        |             |   | (9,393,000 | ) |  |   | (11,585,000 | )
|                          |                                                            |             |   |            |   |  |   |            
|                          |                                                            | Net assets  |   |            |  |  |   |             |  | 
|Deferred tax liabilities: |                                                            |             |   |            |   |  |   |            
|                          | Tax accounting change from cash basis to accrual
    basis |             |   |           |   |  |   |            |  
|                          |                                                            |             |   |            |   |  |   |            
|                          | Deferred tax assets, net                                   |             | $ |           |   |  | $ |            |  
|                          |                                                            |             |   |            |   |  |   |            

The following is a reconciliation of expected to
actual income tax expense (benefit):

|                                            |  |                         |            |      |  |      |            |   |  |   |            |  
|------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                            |  |                        
|                                            |  | Years Ended January 31,
|                                            |  |                        
|                                            |  | 2002                    |            | 2003 |  | 2004
|                                            |  |                         |            |      |  |     
|Federal income tax expense (benefit) at 34% |  | $                       | (1,949,000 | )    |  | $    | (3,994,000 | ) |  | $ | (2,138,000 | )
|Deferred benefit not currently recognized   |  |                         | 4,604,000  |      |  |      | 2,693,000  |   |  |   | 2,192,000  |  
|Nondeductible expenses                      |  |                         | 58,000     |      |  |      | 27,000     |   |  |   | 21,000     |  
|Foreign rate differential                   |  |                         |           |      |  |      | (446,000   | ) |  |   | (98,000    | )
|Other                                       |  |                         | 12,000     |      |  |      | 73,000     |   |  |   | 23,000     |  
|                                            |  |                         |            |      |  |      |            |   |  |   |            |  
|                                            |  | $                       | 2,725,000  |      |  | $    | (1,647,000 | ) |  | $ |           |  
|                                            |  |                         |            |      |  |      |            |   |  |   |            |  

F-14



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company had Canadian net operating loss
carryforwards of approximately $11,800,000 as of
January 31, 2004. The Canadian net operating losses expire
in various years through 2008. The Company has U.S. net
operating losses of approximately $16,600,000, as of
January 31, 2004, which if unused will begin to expire in
2021.

The Company recorded a valuation allowance of
approximately $9,393,000 as of January 31, 2003 and
$11,585,000 as of January 31, 2004 (a change of $2,192,000).



|    |            
|--- | -----------
|11. | Acquisition

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



|    |                          
|--- | -------------------------
|12. | Sales and Major Customers

A summary of the Companys revenues from
foreign customers by geographic region is as follows:

|              |        |                         |            |            |  |      |           |            |  |   |           |            | 
|------------- | ------ | ----------------------- | ---------- | ---------- |  | ---- | --------- | ---------- |  | - | --------- | ---------- | 
|              |        |                        
|              |        | Years Ended January 31,
|              |        |                        
|              |        | 2002                    |            | 2003       |  | 2004
|              |        |                         |            |            |  |     
|Canada        |        | $                       | 10,637,000 |            |  | $    | 9,481,000 |            |  | $ | 9,530,000 |           
|UK/ Europe    |        |                         | 3,084,000  |            |  |      | 408,000   |            |  |   | 808,000   |           
|Mexico        |        |                         | 380,000    |            |  |      | 64,000    |            |  |   | 110,000   |           
|South America |        |                         | 7,030,000  |            |  |      | 1,135,000 |            |  |   | 1,012,000 |           
|Asia          |        |                         | 252,000    |            |  |      | 625,000   |            |  |   | 4,569,000 |           
|Other         |        |                         | 351,000    |            |  |      | 281,000   |            |  |   | 513,000   |           
|              |        |                         |            |            |  |      |           |            |  |   |           |           
|              | Totals |                         | $          | 21,734,000 |  |      | $         | 11,994,000 |  |   | $         | 16,542,000 | 
|              |        |                         |            |            |  |      |           |            |  |   |           |           

Two customers represented approximately 22% and
11% of fiscal 2002 total revenues and one customer represented
approximately 13% of fiscal 2003 total revenues. Two customers
represented approximately 11% and 10% of fiscal 2004 total
revenues. No other customer exceeded 10% of revenues for fiscal
2002, 2003 and 2004.



|    |                                    
|--- | -----------------------------------
|13. | Fair Value of Financial Instruments

The Companys financial instruments consist
of trade receivables, marketable securities, notes receivable
and accounts and notes payables. The Company believes the
carrying value of these financial instruments approximates their
estimated fair value due to the short maturity of these
instruments and for the market rates associated with the notes
payable.



|    |                     
|--- | --------------------
|14. | Shareholders Equity

The Company has 1,000,000 shares of
preferred stock authorized, none of which are outstanding as of
January 31, 2003 and 2004. The preferred stock may be
issued in multiple series with various terms, as authorized by
the Companys Board of Directors. The Company has
20,000,000 shares of common stock authorized, of which
9,657,801 and 9,714,994 are issued as of January 31, 2003
and 2004, respectively.

In December 1996, in exchange for services, the
Company issued warrants to its legal counsel to
purchase 50,000 shares of its common stock at
$9.28 per share (the December 1996 Warrants),
exercisable

F-15



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

beginning December 14, 1997 for a period of
five years. During fiscal 2002, all of these warrants were
exercised. In October 1997, in exchange for services rendered in
connection with the Companys secondary offering, the
Company issued warrants to its legal counsel to
purchase 25,000 shares of its common stock for
$28.12 per share (the 1997 Warrants),
exercisable beginning October 28, 1998 for a period of five
years thereafter. During fiscal 2002, 20,000 of these warrants
were exercised. As of January 31, 2002, the exercise price
of the remaining 5,000 1997 Warrants was $3.56 per share, a
result of the anti-dilution provisions of those warrants. The
remaining 5,000 warrants expired in fiscal 2003.

In July 2001, in exchange for services, the
Company issued warrants to an investment banking firm to
purchase 20,000 shares of its common stock for
$5.00 per share, exercisable beginning July 18, 2002
for a period of five years thereafter. As of January 31,
2004, the exercise price of the warrants was $4.42 per
share, a result of the anti-dilution provisions of those
warrants. Warrants are accounted for pursuant to variable
accounting rules at each interim reporting date.

The Company has repurchased 915,000 shares
of its common stock at an average cost of $5.12 per share
as of January 31, 2004 and has classified these shares as
treasury stock in the accompanying financial statements.

In July 2003, the Compensation Committee of the
Companys Board of Directors granted 52,500 shares of
restricted stock awards to certain members of management as
deferred compensation. The shares vest ratably over three years
from the date of grant. On the date of the award, the restricted
stock had a market value of $99,750. The deferred compensation
amount is amortized to compensation expense ratably over the
three years. The unamortized balance of the deferred
compensation is $83,000 at January 31, 2004 and is
classified as a component of shareholders equity in the
financial statements.



|    |                              
|--- | -----------------------------
|15. | Commitments and Contingencies

Sercel Lease
Agreement Effective
April 9, 2003, the Company renewed its exclusive leasing
arrangement with Sercel by entering into a new Equipment Lease
Agreement (the New Sercel Agreement). The New Sercel
Agreement replaces the parties Exclusive Equipment Lease
Agreement that was entered into in December 1999 and that
expired December 31, 2002. Under the New Sercel Agreement,
the Company is Sercels exclusive third-party worldwide
short-term (for leases of a duration of less than one year)
leasing representative for land-based seismic equipment and its
non-exclusive leasing representative with respect to certain
marine seismic equipment. While there are no restrictions on
Sercels ability to undertake short-term or long-term
leasing of either land-based or marine seismic equipment, Sercel
will provide the Company with information regarding any
potential leases or sales opportunities that Sercel does not
undertake. The agreement now expires December 31, 2004,
subject to earlier termination by Sercel on the occurrence of
certain events.

Purchase Commitment(unaudited)  The Company is
committed to purchase $2.25 million of land data
acquisition equipment by December 31, 2004, under the
Sercel Purchase Agreement.

Employment
Agreement Effective
January 15, 1997, the Company entered into an employment
agreement with the Companys president for a term of five
years, beginning January 15, 1997, which term is
automatically extended for successive one-year periods unless
either party gives written notice of termination at least
30 days prior to the end of the current term. The agreement
provides for an annual salary of $150,000, subject to increase
by the Board of Directors. It may be terminated prior to the end
of the initial term or any extension thereof if the president
dies; if it is determined that the president has become
disabled; if the Board of Directors determines that the
president has breached the employment agreement in any material
respect, has appropriated a material business opportunity of the
Company or has engaged in fraud or dishonesty with respect to
the Companys business that is punishable by imprisonment.
If the presidents employment is terminated by the Company
prior to the end of the initial five-year term other than for a
reason enumerated

F-16



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

above, the president will be entitled to payments
equal to $450,000, payable ratably over the 24 months
following such termination. For a period of two years after the
termination of the agreement, the president is prohibited from
engaging in any business activities that are competitive with
the Companys business and from diverting any of the
Companys customers to a competitor.



|    |                   
|--- | ------------------
|16. | Stock Option Plans

The Companys stock option plans consist of
the 1994 Stock Option Plan, the 1998 Stock Awards Plan, the 2000
Stock Option Plan and the 1994 Non-Employee Director Plan (the
Director Plan).

Under the 1994 Stock Option Plan, which is now
expired, incentive stock options and non-qualified stock options
to purchase a maximum of 350,000 shares of common stock
were available to be issued to officers, employee directors, key
employees and consultants of the Company.

Under the 1998 Stock Awards Plan, up to
350,000 shares of common stock may be issued in the form of
stock options, stock appreciation rights, restricted stock
awards, performance awards and phantom stock awards to the
Companys employees.

Under the 2000 Stock Option Plan, up to
1,000,000 shares of common stock may be issued in the form
of incentive stock options and non-qualified stock options to
the Companys employees, consultants and non-employee
directors.

With respect to incentive stock options issued
under the 1994 Stock Option Plan, the 1998 Stock Awards Plan and
the 2000 Stock Option Plan, no option may be granted more than
10 years after the effective date of the stock option plan
or exercised more than 10 years after the date of grant
(five years if the optionee owns more than 10% of the common
stock of the Company at the date of grant). The vesting period
for options will be determined by the Compensation Committee,
except that no option may be exercised sooner than six months
from the date of grant. With regard to incentive stock options,
the exercise price of the option may not be less than 100% of
the fair market value of the common stock at the date of grant
(110% if the optionee owns more than 10% of the common stock of
the Company). Subject to certain limited exceptions, options may
not be exercised unless, at the time of exercise, the optionee
is in the service of the Company.

The Director Plan provides for the grant of up to
50,000 nonqualified stock options. Options granted under the
Director Plan must have an exercise price at least equal to the
fair market value of the Companys common stock on the date
of grant. Pursuant to the Director Plan, which is now expired,
options were automatically granted annually to each non-employee
director. Outstanding options granted under the Director Plan
are fully vested and expire 10 years after the date of the
grant.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Restricted Stock Awards 
    52,500 shares are outstanding, as more fully discussed in
    Note 14.

The following is a summary of outstanding options
as of January 31, 2004:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1994 Stock Option
    Plan Granted shares total
    33,020 and options to purchase 204,900 shares of
    common stock are issued and outstanding, 45,750 of which are
    exercisable at $5.00 per share, 21,000 of which are
    exercisable at $3.29 per share, 11,500 of which are
    exercisable at $5.75 per share, 19,150 of which are
    exercisable at $22.00 per share, 15,000 of which are
    exercisable at $5.38 per share, 5,000 of which are
    exercisable at $1.38 per share and 87,500 of which are
    exercisable at $1.90 per share.
|
| |  | 1998 Stock Awards
    Plan Options to purchase
    an aggregate of 221,250 shares have been granted and
    options to purchase 215,150 shares of common stock are
    issued and outstanding, 60,000 of which are exercisable at
    $7.38 per share and 155,150 of which are exercisable at
    $3.56 per share.                                                                                                                                                                                                                                          
|
| |  | 2000 Stock Option
    Plan Options to purchase
    an aggregate of 933,740 shares of common stock are issued
    and outstanding, 205,500 of which are exercisable at
    $5.13 per share, 750 of which are                                                                                                                                                                                                                                                                                                                                                 

F-17



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | exercisable at $5.53 per share, 238,450 of
    which are exercisable at $5.00 per share, 10,000 of which
    are exercisable at $4.60 per share, 2,500 of which are
    exercisable at $4.00 per share, 256,540 of which are
    exercisable at $1.99 per share, 130,000 of which are
    exercisable at $1.25 per share and 90,000 of which are
    exercisable at $1.90 per share.                                                                                                                                              
|
| |  | Director
    Plan Options to purchase
    an aggregate of 41,000 shares of common stock were issued
    and outstanding, 1,000 of which are exercisable at
    $2.88 per share, 1,000 of which are exercisable at
    $3.13 per share, 10,000 of which are exercisable at
    $4.06 per share, 15,000 of which are exercisable at
    $5.13 per share, 2,000 of which are exercisable at
    $7.38 per share, 10,000 of which are exercisable at
    $11.00 per share and 2,000 of which are exercisable at
    $11.13 per share.

Stock option activity in the 1994 Stock Option
Plan, 1998 Stock Awards Plan, 2000 Stock Option Plan and
Director Plan for the years ended January 31, 2002, 2003
and 2004 was as follows:

|                              |           |           |           |                  |   |                  |      |      |  |  |   |      | 
|----------------------------- | --------- | --------- | --------- | ---------------- | - | ---------------- | ---- | ---- |  |  | - | ---- | 
|                              |           |           |           |                  |   | Weighted Average
|                              |           |           |           | Weighted Average |   | Fair Value      
|                              |           | Number of |           | Exercise Price   |   | Per Share on    
|                              |           | Shares    |           | Per Share        |   | Grant Date      
|                              |           |           |           |                  |   |                 
|Outstanding, January 31, 2001 |           |           | 860,350   |                  |   | $                | 5.75 |      |  |  |   |     
|                              | Exercised |           |           | (6,100           | ) |                  |      | 3.56 |  |  |   |      | 
|                              | Granted   |           |           | 274,600          |   |                  |      | 4.99 |  |  | $ | 3.49 | 
|                              | Expired   |           |           | (166,650         | ) |                  |      | 5.90 |  |  |   |      | 
|                              |           |           |           |                  |   |                  |      |      |  |  |   |     
|Outstanding, January 31, 2002 |           |           | 962,200   |                  |   | $                | 5.52 |      |  |  |   |     
|                              | Exercised |           |           |                 |   |                  |      |     |  |  |   |      | 
|                              | Granted   |           |           | 410,120          |   |                  |      | 1.77 |  |  | $ | 1.18 | 
|                              | Expired   |           |           | (5,450           | ) |                  |      | 4.64 |  |  |   |      | 
|                              |           |           |           |                  |   |                  |      |      |  |  |   |     
|Outstanding, January 31, 2003 |           |           | 1,366,870 |                  |   | $                | 4.40 |      |  |  |   |     
|                              | Exercised |           |           | (10,000          | ) |                  |      | 1.99 |  |  |   |      | 
|                              | Granted   |           |           | 182,500          |   |                  |      | 1.89 |  |  | $ | 1.34 | 
|                              | Expired   |           |           | (144,580         | ) |                  |      | 6.10 |  |  |   |      | 
|                              |           |           |           |                  |   |                  |      |      |  |  |   |     
|Outstanding, January 31, 2004 |           |           | 1,394,790 |                  |   | $                | 3.91 |      |  |  |   |     
|                              |           |           |           |                  |   |                  |      |      |  |  |   |     

The weighted average remaining contractual life
at January 2002, 2003 and 2004 was 7.4 years,
6.5 years and 7.0 years, respectively.

As of January 31, 2004, options to acquire
930,112 shares of the Companys common stock were
fully vested and exercisable at a weighted average exercise
price of $4.75 per share. The remaining options, which have
a weighted average exercise price of $2.23 per share, will
vest during the next three fiscal years. If not previously
exercised, options outstanding at January 31, 2004 will
expire as follows: 45,750 shares in 2004,
23,000 shares in 2005, 13,500 shares in 2006,
21,150 shares in 2007, 85,000 shares in 2008,
165,150 shares in 2009, 221,250 shares in 2010,
248,450 shares in 2011, 389,040 shares in 2012 and
182,500 shares in 2013.

F-18



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##### Table of Contents



MITCHAM INDUSTRIES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|17. | Quarterly Financial Data (Unaudited)

|                                                                                       |  |                                          |      |          |  |         |        |            |  |            |        |   |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------------- | ---- | -------- |  | ------- | ------ | ---------- |  | ---------- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                                       |  | Fiscal Year                              |      | April 30 |  | July 31 |        | October 31 |  | January 31
|                                                                                       |  |                                          |      |          |  |         |        |            |  |           
|                                                                                       |  |                                         
|                                                                                       |  | (In thousands, except per share amounts)
|Net sales, continuing operations:                                                      |  |                                          | 2004 |          |  | $       | 5,868  |            |  | $          | 3,929  |   |  | $ | 7,275  |   |  | $ | 5,334  |  
|                                                                                       |  |                                          | 2003 |          |  |         | 7,048  |            |  |            | 1,008  |   |  |   | 2,680  |   |  |   | 3,403  |  
|Gross profit:                                                                          |  |                                          | 2004 |          |  |         | 4,332  |            |  |            | 2,860  |   |  |   | 4,824  |   |  |   | 3,349  |  
|                                                                                       |  |                                          | 2003 |          |  |         | 3,504  |            |  |            | 479    |   |  |   | 1,692  |   |  |   | 2,534  |  
|Income (loss) from continuing operations before
    income taxes:                      |  |                                          | 2004 |          |  |         | (526   | )          |  |            | (2,264 | ) |  |   | 105    |   |  |   | (889   | )
|                                                                                       |  |                                          | 2003 |          |  |         | (1,412 | )          |  |            | (2,790 | ) |  |   | (3,013 | ) |  |   | (2,109 | )
|Income taxes (benefit):                                                                |  |                                          | 2004 |          |  |         |       |            |  |            |       |   |  |   |       |   |  |   |       |  
|                                                                                       |  |                                          | 2003 |          |  |         | 288    |            |  |            |       |   |  |   | (1,935 | ) |  |   |       |  
|Net income (loss) from continuing operations:                                          |  |                                          | 2004 |          |  |         | (526   | )          |  |            | (2,264 | ) |  |   | 105    |   |  |   | (889   | )
|                                                                                       |  |                                          | 2003 |          |  |         | (1,700 | )          |  |            | (2,790 | ) |  |   | (1,078 | ) |  |   | (2,109 | )
|Income (loss) from discontinued operations:                                            |  |                                          | 2004 |          |  |         | (914   | )          |  |            | (1,879 | ) |  |   |       |   |  |   | 78     |  
|                                                                                       |  |                                          | 2003 |          |  |         | (354   | )          |  |            | (458   | ) |  |   | (788   | ) |  |   | (822   | )
|Net income (loss):                                                                     |  |                                          | 2004 |          |  |         | (1,440 | )          |  |            | (4,143 | ) |  |   | 105    |   |  |   | (811   | )
|                                                                                       |  |                                          | 2003 |          |  |         | (2,054 | )          |  |            | (3,248 | ) |  |   | (1,866 | ) |  |   | (2,931 | )
|Income (loss) per common share from continuing
    operations, basic and diluted       |  |                                          | 2004 |          |  | $       | (0.06  | )          |  | $          | (0.26  | ) |  | $ | 0.01   |   |  | $ | (0.10  | )
|                                                                                       |  |                                          | 2003 |          |  | $       | (0.19  | )          |  | $          | (0.32  | ) |  | $ | (0.12  | ) |  | $ | (0.24  | )
|Net income (loss) per common share from
    discontinued operations, basic and diluted |  |                                          | 2004 |          |  | $       | (0.10  | )          |  | $          | (0.21  | ) |  | $ |       |   |  | $ | 0.01   |  
|                                                                                       |  |                                          | 2003 |          |  | $       | (0.04  | )          |  | $          | (0.05  | ) |  | $ | (0.09  | ) |  | $ | (0.09  | )
|Net income (loss) per common share-basic and
    diluted                               |  |                                          | 2004 |          |  | $       | (0.16  | )          |  | $          | (0.47  | ) |  | $ | 0.01   |   |  | $ | (0.09  | )
|                                                                                       |  |                                          | 2003 |          |  | $       | (0.23  | )          |  | $          | (0.37  | ) |  | $ | (0.21  | ) |  | $ | (0.34  | )

F-19



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

ON FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Shareholders

Mitcham Industries, Inc.


Huntsville, Texas


We have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements of Mitcham
Industries, Inc. and Subsidiaries included in this
Form 10-K and have issued our report thereon dated
May 20, 2004. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a
whole. The financial statement schedule listed in
Item 15(a) herein (Schedule II  Valuation
and Qualifying Accounts) is the responsibility of the
Companys management and is presented for the purpose of
complying with the Securities and Exchange Commissions
rules and is not part of the basic financial statements. The
financial statement schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material
respects with the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.



| |                          
| | -------------------------
| | /s/ HEIN & ASSOCIATES LLP
| |                          
| | Hein & Associates LLP    

Houston, Texas

May 20, 2004


F-20



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##### Table of Contents



SCHEDULE II

MITCHAM INDUSTRIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

|                 |                                 |                     |   |                      |  |              |   |               |   |  |   |           |      |  |   |           | 
|---------------- | ------------------------------- | ------------------- | - | -------------------- |  | ------------ | - | ------------- | - |  | - | --------- | ---- |  | - | --------- | 
|Col. A           |                                 | Col. B              |   | Col. C(1)            |  | Col. D       |   | Col. E       
|                 |                                 |                     |   |                      |  |              |   |              
|                 |                                 | Balance at          |   | Additions Charged to |  | Deductions  |   | Balance at   
|Description      |                                 | Beginning of Period |   | Costs and Expenses   |  | Describe     |   | End of Period
|                 |                                 |                     |   |                      |  |              |   |              
|January 31, 2002 |                                 |                     |   |                      |  |              |   |               |   |  |   |           |      |  |   |          
|                 | Allowance for doubtful accounts |                     | $ | 1,230,000            |  |              | $ | 5,065,000     |   |  | $ | 4,841,000 | (A)  |  | $ | 1,454,000 | 
|January 31, 2003 |                                 |                     |   |                      |  |              |   |               |   |  |   |           |      |  |   |          
|                 | Allowance for doubtful accounts |                     | $ | 1,454,000            |  |              | $ | (500,000      | ) |  | $ | 184,000   | (A)  |  | $ | 770,000   | 
|January 31, 2004 |                                 |                     |   |                      |  |              |   |               |   |  |   |           |      |  |   |          
|                 | Allowance for doubtful accounts |                     | $ | 770,000              |  |              | $ | 103,000       |   |  | $ | (3,000    | )(A) |  | $ | 876,000   | 



---



|    |  |                                                                  
|--- |  | -----------------------------------------------------------------
|(A) |  | Represents recoveries and uncollectible accounts
    written off.

Note:Column C(2)
has been omitted, as all answers would be none.

F-21



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##### Table of Contents



INDEX TO EXHIBITS

|        |     |     |  |   |  |                                                                                                                                                                             
|------- | --- | --- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |     |  |  
|Number  |     |     |  |  
|        |     |     |  |  
|        | 3   | .1  |  |  |  | Amended and Restated Articles of Incorporation of
    Mitcham Industries, Inc. (1) (Exhibit 3.1)                                                                            
|        | 3   | .2  |  |  |  | Second Amended and Restated Bylaws of Mitcham
    Industries, Inc.**                                                                                                        
|        | 9   |     |  |  |  | Voting Agreement, dated September 20, 1993,
    between the Company, Billy F. Mitcham, Jr. and certain
    shareholders (2) (Exhibit 9)                                     
|        | *10 | .1  |  |  |  | Employment Agreement, dated January 15,
    1997, between the Company and Billy F. Mitcham, Jr. (3)
    (Exhibit 10.4)                                                      
|        | 10  | .2  |  |  |  | Exclusive Lease Referral Agreement, dated
    May 14, 1996, between the Company and Pelton Company, Inc.,
    an Oklahoma corporation (Pelton) (4)                        
|        | 10  | .3  |  |  |  | First Amendment to Exclusive Lease Referral
    Agreement, dated January 15, 1997, between the Company and
    Pelton (3) (Exhibit 10.17)                                   
|        | 10  | .4  |  |  |  | Second Amendment to Exclusive Lease Referral
    Agreement, dated November 24, 1997, between Mitcham Industries,
    Inc. and Pelton (5) (Exhibit 10.3)                     
|        | *10 | .5  |  |  |  | Mitcham Industries, Inc. 1994 Stock Option Plan
    (2) (Exhibit 10.9)                                                                                                      
|        | 10  | .6  |  |  |  | Mitcham Industries, Inc. 1994 Non-Employee
    Director Stock Option Plan (2) (Exhibit 10.12)                                                                               
|        | *10 | .7  |  |  |  | Mitcham Industries, Inc. 1998 Stock Awards Plan
    (6)                                                                                                                     
|        | *10 | .8  |  |  |  | Mitcham Industries, Inc. 2000 Stock Option Plan
    (7)                                                                                                                     
|        | 10  | .9  |  |  |  | Warrant No. M-7, dated July 18, 2001,
    issued to Bear Ridge Capital, L.L.C. (8)                                                                                          
|        | 10  | .10 |  |  |  | Share Sale Agreement, dated December 2002,
    between Mitcham Industries, Inc. and Nautronix, Inc. (9)                                                                     
|        | *10 | .11 |  |  |  | Agreement, dated April 4, 2003, between
    Mitcham Industries, Inc. and William J. Sheppard (10)
    (Exhibit 10.14)                                                       
|        | *10 | .12 |  |  |  | Second Consultant Agreement, dated April 1,
    2003, but effective January 1, 2004, between Mitcham
    Industries, Inc. and William J. Sheppard (10)
    (Exhibit 10.16)  
|        | 10  | .13 |  |  |  | Equipment Lease Agreement, dated April 9,
    2003, between Mitcham Industries, Inc. and Sercel, Inc., an
    Oklahoma corporation (Sercel) (10)
    (Exhibit 10.17)      
|        | 10  | .14 |  |  |  | Amendment to the Equipment Lease Agreement, dated
    as of December 17, 2003, between Mitcham Industries, Inc.
    and Sercel**                                            
|        | 10  | .15 |  |  |  | Promissory Note of Mitcham Industries, Inc.,
    dated as of February 11, 2002, payable to First Victoria
    National Bank in the original principal amount of $8,518,919**
|        | 10  | .16 |  |  |  | Loan Agreement, dated March 30, 2004, by and
    between Mitcham Industries, Inc. and First Victoria National
    Bank**                                                    
|        | 21  |     |  |  |  | Subsidiaries of the Company**                                                                                                                                               
|        | 23  |     |  |  |  | Consent of Hein & Associates LLP**                                                                                                                                          
|        | 31  | .1  |  |  |  | Certification of Billy F. Mitcham, Jr., Chief
    Executive Officer, pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended**         
|        | 31  | .2  |  |  |  | Certification of Christopher C. Siffert,
    Corporate Controller, pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended**           
|        | 32  | .1  |  |  |  | Certification of Billy F. Mitcham, Jr., Chief
    Executive Officer, under Section 906 of the Sarbanes-Oxley
    Act of 2002, U.S.C. 1350**                                 
|        | 32  | .2  |  |  |  | Certification of Christopher C. Siffert,
    Corporate Controller, under Section 906                                                                                        






|   |                                                            
|-- | -----------------------------------------------------------
|*  | Management contract or compensatory plan or
    arrangement
|  
|** | Filed herewith                                             



| |     |                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-8 (File No. 333-67208), filed with the SEC on
    August 9, 2001.
|
| | (2) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form SB-2, filed with the SEC on July 5, 1994.                          



---



##### Table of Contents





| |     |                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-1 (File No. 333-19997), filed with the SEC on
    January 17, 1997.    
|
| | (4) | Incorporated by reference to Exhibit 10.1 of
    the Companys Registration Statement on Form S-3/ A
    (File No. 333-10555), filed with the SEC on
    October 25, 1996.                 
|
| | (5) | Incorporated by reference to the indicated
    exhibit number of the Companys Registration Statement on
    Form S-3/ A (File No. 333-40507), filed with the SEC on
    December 17, 1997.
|
| | (6) | Incorporated by reference to Exhibit A of
    the Companys proxy statement for the fiscal year ended
    January 31, 1998, filed with the SEC on June 1, 1998.                            
|
| | (7) | Incorporated by reference to Exhibit A of
    the Companys proxy statement for the fiscal year ended
    January 31, 2000, filed with the SEC on May 26, 2000.                            
|
| | (8) | Incorporated by reference to Exhibit 10.14
    of the Companys Annual Report on Form 10-K for the
    fiscal year ended January 31, 2002, filed with the SEC on
    May 1, 2002.          
|
| | (9) | Incorporated by reference to Exhibit 2.1 of
    the Companys Current Report on Form 8-K, filed with
    the SEC on January 13, 2003.                                                      



|     |                                                                                                                                                                                                 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the indicated
    exhibit number of the Companys Annual Report on
    Form 10-K for the fiscal year ended January 31, 2003,
    filed with the SEC on May 1, 2003.