<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(MARK ONE)
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                           COMMISSION FILE NO. 1-13490

                            -----------------------

                            MITCHAM INDUSTRIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              TEXAS                                    76-0210849
  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
  incorporation or organization)

              44000 HIGHWAY 75 SOUTH
                HUNTSVILLE, TEXAS                          77340
    (Address of principal executive offices)             (Zip Code)

        Registrant's telephone number, including area code: 409-291-2277

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

                            -----------------------

                                      NONE

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

                          COMMON STOCK, $.01 PAR VALUE
                                (TITLE OF CLASS)

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

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

         Aggregate market value of the voting stock held by non-affiliates of
the registrant: $39,103,094 as of April 14, 1999.

         As of April 14, 1999, there were outstanding 9,545,658 shares of the
registrant's common stock, par value $.01, which is the only class of common or
voting stock of the registrant

                       DOCUMENTS INCORPORATED BY REFERENCE

         The information called for by Part III of this Form 10-K is
incorporated by reference from the registrant's Proxy Statement for the 1999
Annual Meeting of Shareholders of the Company to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.


<PAGE>   2



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

<TABLE>
<CAPTION>
                                                      PART I

<S>               <C>                                                                                    <C>
Item 1.           Business..............................................................................   1

Item 2.           Properties............................................................................  11

Item 3.           Legal Proceedings.....................................................................  12

Item 4.           Submission of Matters to a Vote of Security Holders...................................  12

                                                      PART II

Item 5.           Market for the Registrant's Common Equity and Related
                  Stockholder Matters...................................................................  12

Item 6.           Selected Financial Data...............................................................  13

Item 7.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operation....................................................  13

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..............................................................  18

                                                     PART III

Item 10.          Directors and Executive Officers of the Registrant....................................  18

Item 11.          Executive Compensation................................................................  18

Item 12.          Security Ownership of Certain Beneficial Owners and Management........................  18

Item 13.          Certain Relationships and Related Transactions........................................  18

                                                      PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................  18

                  Signatures............................................................................  21
</TABLE>



<PAGE>   3


                                     PART I
ITEM 1.  BUSINESS

BACKGROUND

         Mitcham Industries, Inc. leases and sells geophysical and other
equipment used primarily by seismic data acquisition contractors to perform
seismic data surveys on land and in transition zones (marsh and shallow water
areas). The Company conducts its operations on a worldwide basis and is a
leading independent seismic equipment lessor in North and South America. Demand
for seismic data has increased significantly in the past several years due to
advances in technology and the impact such advances have had on increasing
drilling success rates, thereby reducing the overall costs of finding oil and
gas. As a result, the Company and many seismic contractors have significantly
expanded their seismic equipment fleets. From January 31, 1994 through January
31, 1999, the Company's equipment lease pool, at cost, increased from
approximately $957,000 to $63.6 million. The Company's sales of new and used
seismic equipment have also increased significantly.

         The Company owns a variety of technologically advanced equipment
acquired from the leading seismic manufacturers. The Company's lease pool
includes many types of equipment used in seismic data acquisition, including all
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 the Company's equipment lease pool is
provided by two manufacturers, Input/Output, Inc. ("I/O") and the Sercel
subsidiaries of Compagnie Generale de Geophysique ("Sercel"). The Company
believes that most of the advanced seismic data acquisition systems in use
worldwide are either I/O or Sercel systems. In the last two years, the Company
has significantly diversified its equipment lease pool. At January 31, 1999,
approximately 51% of the Company's equipment lease pool, on a cost basis,
consisted of seismic recording channel boxes, with the remainder consisting of
peripheral and other equipment.

         The Company leases its equipment on a short-term basis, generally for
three to nine months, to seismic contractors who need additional capacity to
complete a seismic survey. In doing so, the Company enables its customers to
achieve operating and capital investment efficiencies. Demand for short-term
seismic equipment leases is affected by many factors including: (i) the highly
variable size and technological demands of individual seismic surveys, (ii)
seasonal weather patterns and sporadic demand for seismic surveys in certain
regions, (iii) rapidly changing technology and (iv) costs of seismic equipment.
The Company believes these factors allow seismic contractors to use short-term
seismic equipment leasing as a cost-effective alternative to purchasing
additional equipment. The Company's equipment lease rates vary according to an
item's expected useful life, utilization and initial cost.

         A typical seismic crew uses a wide variety of equipment to perform
seismic data acquisition surveys. The Company's 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.

         Certain of the Company's leases contain a purchase option, allowing the
customer to apply a portion of the lease payments to the eventual purchase of
the equipment. Additionally, the Company sells a broad range of used seismic
equipment on a worldwide basis and, in certain markets, acts as a sales
representative or distributor of new seismic equipment.

         The Company has supply and exclusive lease referral agreements with
several leading seismic equipment manufacturers including Sercel and Pelton
Company, Inc. ("Pelton"). The Company believes


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that these agreements provide it with certain competitive advantages. Under
these agreements, the Company is the exclusive worldwide short-term leasing
representative for certain products. Additional agreements exist with certain of
these manufacturers allowing the Company to act as sales representative or
distributor for such manufacturer's products in selected markets. These
agreements have varying terms and expire in 1999 through 2000, subject to
modification or extension.

BUSINESS STRATEGY

         The Company's business strategy is to meet the needs of users of
seismic equipment through its leasing and support services. To accomplish this,
the Company has identified the following major objectives:

         o        Provide a technologically advanced seismic equipment lease
                  pool. The Company intends to maintain the size and diversity
                  of its equipment lease pool. The Company believes that the
                  availability of a large and diverse seismic equipment lease
                  pool encourages seismic data acquisition contractors to lease,
                  rather than purchase, such equipment, due to the capital and
                  operating efficiencies provided by short-term leases.

         o        Expand international operations. Historically, the Company's
                  activities outside North America have consisted of equipment
                  sales, with a limited amount of leasing activities. In fiscal
                  1999, the Company's leasing activities in South America and
                  Central America have increased significantly. The Company
                  believes that it will be able to expand its international
                  leasing activities as its customers' operations grow in
                  international markets. The Company receives referrals from
                  Sercel and other manufacturers on a worldwide basis. The
                  Company believes that its alliances with manufacturers will
                  help it to further penetrate international markets, where such
                  manufacturers are well recognized and have well-developed
                  business relationships.

         o        Develop and enhance alliances with major seismic equipment
                  manufacturers. The Company's relationships with leading
                  seismic equipment manufacturers allow it to expand its
                  equipment lease pool on favorable terms. The Company believes
                  such relationships improve its access to customers and provide
                  a significant competitive advantage. The Company has exclusive
                  short-term lease agreements with certain manufacturers and is
                  seeking to expand the scope of existing alliances, as well as
                  develop additional arrangements.

         o        Pursue additional business development opportunities. The
                  Company regularly evaluates opportunities to expand its
                  business activities within the oil service industry,
                  particularly in the seismic sector.

SEISMIC TECHNOLOGY AND THE INDUSTRY

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


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         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 six 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 and (v) other peripheral, or accessory,
equipment. Peripheral equipment includes cables that transmit digital seismic
data from the channel boxes to the CEU, survey equipment, drilling equipment for
shot holes and other 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 require much larger data
acquisition systems. By using a greater number of channels and flexible
configuration, 3-D seismic data provides more extensive and detailed information
regarding the subsurface geology than does 2-D data. As a result, 3-D data
allows the geophysicists interpreting the data to more closely select the
optimal location of a prospective drillsite or oil and gas reservoir.

         In the exploration and development process, oil and gas companies
establish requirements for seismic data acquisition programs based on their
technical objectives. Because of the expense associated with drilling oil and
gas wells, decisions whether or where to drill are critical to the overall
process. Because 3-D seismic data increase drilling success rates and reduce
costs, the Company believes that oil and gas companies are increasingly
requiring 3-D seismic surveys in their activities. 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.

         Recent industry advances include the use of high resolution 3-D,
three-component geophones ("3C-3D"), which enhance the 3-D image, and time lapse
("4-D") seismic, where surveys are periodically reacquired to allow the
monitoring of producing oil and gas field for optimal production and reserve
recovery. These and other technical advances have contributed to increased
drilling success rates and reduced oil and gas finding costs and consequently,
have increased demand for seismic data acquisition equipment and services.


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         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 1,500 channels and often use 3,000 or more channels. The Company
believes that many seismic contractors will continue to meet changes in
equipment needs by leasing incremental equipment to expand crew size as
necessary to meet specific survey requirements, and thereby reduce the
substantial capital expenditures necessary to purchase such equipment.

BUSINESS AND OPERATIONS

         SEISMIC EQUIPMENT LEASING. The Company typically purchases new and used
seismic equipment for short-term (less than one year) lease to its customers,
which primarily include seismic contractors. After the termination of the
original equipment lease, the Company enters into additional short-term leases
with other customers, often leasing such equipment multiple times until the end
of its useful life or its sale. The Company's 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. The Company's customers generally lease seismic equipment to meet
shortages of recording channels and related equipment for specific surveys.
Typically, the Company does not lease all of the channel boxes and other
peripheral equipment required for seismic surveys, although it has the
capability to lease equipment for an entire seismic system and, from time to
time, will do so.

         The Company currently has an equipment lease pool comprising a total of
approximately 25,000 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 survey and other equipment. All of the Company's lease
pool equipment is manufactured by leading seismic equipment manufacturers and is
widely used in the seismic industry.

         The Company's equipment leases generally have terms of three to nine
months and are typically renewable on a month-to-month basis. The Company offers
maintenance of its leased equipment during the lease term for malfunctions due
to failure of material and parts and will provide replacement equipment as
necessary. In addition, the Company provides telephone support services to
answer its lease customers' questions.

         The Company's 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 the Company has 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. To the extent foreign
taxes are not paid by the lessee, the relevant foreign taxing authority might
seek to collect such taxes from the Company. To date, no such collection action
has been taken against the Company.


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         A majority of the Company's leasing revenues has historically come from
North American operations. Within North America, a significant portion of the
Company's total revenues is attributable to Canadian operations. Management
believes that the United States and Canada will continue to be the focal points
of the Company's seismic equipment leasing operations for the foreseeable
future, although the Company is pursuing an expanded presence in other
international locations such as South and Central America and the Far East.

         Historically, seismic equipment leasing has been susceptible to weather
patterns in certain geographic regions. There is some seasonality to the
Company's operations in Canada, where a significant percentage of the seismic
survey activity usually occurs in the winter season, from October through March.
During the months in which the weather is warmer, certain areas are not
accessible to trucks, earth vibrators and other heavy equipment because of the
unstable terrain. In the United States, most of the seismic survey work is not
usually affected by weather. As a result of weather conditions, the Company
attempts to manage its equipment lease pool to meet seasonal demands. Equipment
leased in Canada during the winter months may be moved to the United States in
the warmer months.

         SEISMIC EQUIPMENT SALES. The Company's equipment sales business serves
a diverse base of industry, governmental, university and research customers. The
Company typically buys used equipment for resale and new equipment in response
to specific customer orders. On occasion, the Company will also hold equipment
of third parties and sell such equipment on consignment.

         SEISMIC EQUIPMENT LEASE/PURCHASES. The Company's lease/purchase
activities reflect the two components involved in lease/purchase option
contracts. The lease revenue component represents the lease amounts paid under
the lease/purchase contracts and the sales component represents the sales
revenue and related cost associated with the customers' exercise of the purchase
option.

         SEISMIC EQUIPMENT COMMISSIONED SALES. Under the Sercel Sales Agreement
discussed below, the Company receives sales commissions on all Sercel equipment
and spare parts sold in Canada.

KEY SUPPLIER AGREEMENTS

THE I/O AGREEMENT

         Effective June 30, 1998, the Company and I/O entered into a new
Preferred Supplier Agreement (the "I/O Agreement"), replacing the parties'
Exclusive Lease Referral Agreement, under which the Company had completely
fulfilled its obligation. Under the I/O Agreement, the Company agreed to
purchase a minimum of between $90 and $100 million of I/O products (after
discounts) in stated increments over a five-year term. In addition, I/O agreed
to refer rental inquiries from customers worldwide to the Company during the
term of the agreement, and not to lease products covered by the I/O Agreement,
except in limited circumstances. In a related transaction, I/O sold to the
Company for $15 million a substantial portion of its subsidiary's equipment
lease pool, some of which was subject to existing short-term lease agreements.

         Subsequent to January 31, 1999, the Company and I/O agreed to terminate
the I/O Agreement, thereby releasing the Company from its obligation to make
future minimum purchases. As a result of the termination, I/O is no longer
obligated to refer rental inquiries to the Company and is free to enter the
short-term leasing business.


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THE SERCEL LEASE AGREEMENT

         In September 1996, the Company entered into the Exclusive Equipment
Lease Agreement with Sercel (the "Sercel Lease Agreement"), under which the
Company acts as Sercel's exclusive worldwide short-term leasing representative
and Sercel must refer to the Company all requests it receives (other than
requests from its affiliates) to lease its 3-D data acquisition equipment and
other field equipment, through December 31, 1999. Subject to the exceptions
discussed below, Sercel may not recommend or suggest any competitor of the
Company as a potential lessor of such data acquisition equipment. In addition,
the Company may not engage in financing leases and leases for a duration of more
than one year.

         A condition of the Sercel Lease Agreement is that the Company purchases
an aggregate of $10.2 million of Sercel data acquisition and other field
equipment on or before December 31, 1999. The Company has exceeded its purchase
requirements under the Sercel Lease Agreement.

         Sercel must inform the Company of the identity of the third party
prospective lessee and the terms, if any, that have been discussed regarding a
proposed lease. If the Company either (i) is unable to lease the Sercel
equipment due to a shortage in its lease pool, (ii) cannot agree with a
prospective lessee on the terms of a proposed lease within five business days of
the lessee's introduction to the Company, or (iii) otherwise chooses not to
lease to a prospective lessee, then Sercel may lease its equipment to the
prospective lessee.

         The agreement is subject to termination by Sercel (i) at any time upon
(a) Sercel's reasonable belief that the Company has violated or intends to
violate the Foreign Corrupt Practices Act of 1977, as amended, (b) the Company's
refusal or inability to certify that it is in compliance with laws applicable to
its activities, (c) the Company's insolvency, voluntary or involuntary
bankruptcy, assignment for the benefit of creditors or discontinuance as a going
concern and (ii) upon 90 days prior written notice if the Company no longer
employs Billy F. Mitcham, Jr. in a senior management capacity.

THE SERCEL SALES AGREEMENT

         Through Mitcham Canada Ltd., the Company's wholly-owned subsidiary
formed in September 1996, the Company entered into the Commercial Representation
Agreement (the "Sercel Sales Agreement") with Georex, Inc. ("Georex"), a
wholly-owned subsidiary of Sercel, under which the Company is Sercel's
designated sales representative in Canada for its seismic data acquisition and
other field equipment through September 19, 1999, subject to earlier termination
after September 20, 1998 on 90 days prior notice. If not sooner terminated, the
agreement will automatically be extended for successive one-year periods after
September 19, 1999. Under the agreement, the Company is entitled to receive a
commission on all Sercel equipment and spare parts sold in Canada.

         In November 1996, in connection with the Sercel Sales Agreement and the
Sercel Lease Agreement, the Company established an office in Calgary, Alberta,
Canada to sell, service and lease Sercel equipment and to lease and service
equipment of other manufacturers. The Company is prohibited from selling certain
seismic equipment that competes with Sercel equipment during the term of the
agreement and for six months thereafter, except that the Company may sell
individual components that compete with components of Sercel equipment, such as
I/O channel boxes and Pelton vibrator control electronics, as well as any
seismic equipment previously used in its lease fleet.

         The Sercel Sales Agreement is subject to termination by Georex upon (i)
Georex's reasonable belief that the Company has violated or intends to violate
the Foreign Corrupt Practices Act of 1977, as


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amended, (ii) the Company's refusal or inability to certify that it is in
compliance with laws applicable to its activities or (iii) the Company's
insolvency, voluntary or involuntary bankruptcy, assignment for the benefit of
creditors or discontinuance as a going concern.

OTHER AGREEMENTS

         In May 1996, the Company entered into an exclusive lease referral
agreement (the "Pelton Agreement") with Pelton. The Company believes Pelton is
the leading manufacturer and supplier of vibrator control electronics. The terms
of the Pelton Agreement regarding exclusive lease referrals and favorable prices
are substantially similar to those of the Sercel Lease Agreement. The Pelton
Agreement is valid until terminated by either party upon three months prior
written notice.

CUSTOMERS; SALES AND MARKETING

         The Company's major lease customers are seismic data acquisition
contractors and major and independent oil and gas companies. The Company
typically has 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, 1999, the Company had lease customers with 68 active leases of
various lengths. Customers of the Company's used and new seismic equipment sales
and service business include its lease customers, foreign governments,
universities, engineering firms and research organizations worldwide.

         The Company participates in both domestic and international trade shows
and expositions to inform the oil and gas industry of its 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 3,000 oil and gas industry participants. The Company believes
this mailing generates significant seismic equipment lease and sales revenues.
In addition, the Company advertises its alliances with Sercel and Pelton in
several major geophysical trade journals. The Company also maintains a web site
on which it lists its seismic equipment for sale and lease.

         The Company works with a network of representatives in several
international markets, including Europe, the Far East, Russia and other former
Soviet Union countries. These agents generate equipment sales and, to a lesser
extent, equipment leasing business for the Company and are compensated on a
commission basis. The Company also expends resources in the areas of customer
service, product support and the maintenance of customer relationships. In
November 1996, the Company established an office in Calgary, Alberta, Canada
from which it leases and sells seismic equipment.

COMPETITION

         While the Company is aware of several companies that engage in seismic
equipment leasing, competition has historically been fragmented and the
Company's competitors have not had as extensive a seismic equipment lease pool
as the Company has.

         Subsequent to January 31, 1999, the Company and I/O terminated the I/O
Agreement. As a result, I/O is no longer restricted from competing with the
Company in the short-term equipment leasing business. As a result, I/O may seek
to more aggressively pursue lease and lease/purchase arrangements that would
likely have been prohibited under the I/O Agreement. I/O has significantly
greater resources than the Company, and I/O's entry into competition in the
short-term equipment leasing business could have a material adverse effect on
the Company's operations and financial condition.


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         The Company competes for seismic equipment leases on the basis of (i)
price and delivery, (ii) availability of both peripheral seismic equipment and
complete data acquisition systems which may be configured to meet a customer's
particular needs and (iii) length of lease term. The Company competes 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 the Company. The Company
believes 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

         The Company has several suppliers of the seismic equipment for its
lease pool. The Company has historically acquired the majority of the 3-D
channel boxes for its lease pool from I/O and Sercel and acquires the majority
of its vibrator control electronics from Pelton. The Company believes that I/O
and Sercel manufacture most of the land-based seismic systems and equipment in
use. Other suppliers of peripheral seismic equipment include OYO Geospace
Corporation (geophones, cables and seismic cameras), Charge-Air Compression
Systems (compressors), Steward Cable (cables) and Mark Products (geophones and
cables). From time to time, the Company purchases 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, 1999, the Company employed 47 people, none of whom is
covered by a collective bargaining agreement. The Company considers its 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 3. "Legal Proceedings" and in
Part II, Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operation"), as well as other written and oral statements made or
incorporated by reference from time to time by the Company and its
representatives in other reports, filings with the Securities and Exchange
Commission, press releases, conferences, or otherwise, may be deemed to be
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. This information includes, without limitation, statements
concerning the Company's 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; Year 2000 issues; and future demand and industry conditions.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it 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 its 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 within this Annual Report on Form 10-K generally.

UNCERTAINTY OF OIL AND GAS INDUSTRY CONDITIONS AND DEMAND FOR SERVICES

         Demand for the Company's services depends on the level of spending by
oil and gas companies


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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. The continuing downturn in the energy services
sector has resulted in a sharp decline in demand for the Company's services.
Recent increases in the price of oil have not yet countered decreased demand.
Any future fluctuations in the price of oil and gas in response to relatively
minor changes in the supply and demand for oil and gas will continue to have a
major effect on exploration, production and development activities and thus, on
the demand for the Company's services.

CREDIT RISK FROM CUSTOMER CONCENTRATION AND RISK FROM INDUSTRY CONSOLIDATION

         The Company typically leases and sells 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
the Company's revenues may be derived from a limited number of customers. The
Company's ability to maintain profitability includes risks associated with the
creditworthiness and profitability of those customers. In the fiscal years ended
January 31, 1997, 1998 and 1999, the single largest customer accounted for
approximately 15%, 20% and 36%, respectively, of the Company's total revenues.
In addition, because the Company's customer base is relatively small, the trend
toward consolidation in the oil and gas industry could adversely affect the
Company's business and financial condition if significant customers are acquired
by other companies.

DEPENDENCE ON ADDITIONAL LEASE CONTRACTS

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


DEPENDENCE ON KEY PERSONNEL

         The Company's success is dependent on, among other things, the services
of certain key personnel, including specifically Billy F. Mitcham, Jr., Chairman
of the Board, President and Chief Executive Officer of the Company. Mr.
Mitcham's employment agreement has an initial term through January 15, 2002, and
is automatically extended on a year-to-year basis until terminated by either
party giving 30 days notice prior to the end of the current term (subject to
earlier termination on certain stated events). The agreement prohibits Mr.
Mitcham from engaging in any business activities that are competitive with the
Company's business and from diverting any of the Company's customers to a
competitor for two years after the termination of his employment. The Company
has obtained a $1.0 million key employee life insurance policy payable to the
Company in the event of Mr. Mitcham's death. The loss of the services of Mr.
Mitcham could have a material adverse effect on the Company. In particular, the
Exclusive Equipment Lease Agreement with Sercel is terminable at such time as he
is no longer employed by the Company in a senior management capacity.


                                       9
<PAGE>   12


RISKS RELATED TO TECHNOLOGICAL OBSOLESCENCE

         The Company has a substantial capital investment in seismic data
acquisition equipment. The development by manufacturers of seismic equipment of
newer technology systems or component parts that have significant competitive
advantages over seismic systems and component parts now in use could have an
adverse effect on the Company's ability to profitably lease and sell its
existing seismic equipment.

         During the fiscal year ended January 31, 1999, the Company recorded a
pretax asset impairment charge of $15.1 million. Included in this charge is a
$900,000 lower of cost or market adjustment related to certain seismic equipment
assets classified as inventory. The non-cash asset impairment charge was
recorded in accordance with SFAS No. 121, which requires that long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The severity as well as the
duration of the current oil and gas industry downturn is such an event. The
Company's review of its long-lived assets indicated that the carrying value of
certain of the Company's seismic equipment lease pool and inventory assets was
more than the estimated undiscounted future net cash flows. As such, under SFAS
No. 121, the Company wrote down those assets to their estimated fair market
value based on discounted cash flows using an effective rate of 8.0%.
Undiscounted future net cash flows were calculated based on individual types of
seismic equipment using projected future utilization and lease rates over the
estimated remaining useful lives of the assets. The Company's seismic equipment
assets have been historically depreciated over 3-10 years. The impairment was
recorded based on certain estimates and projections as stipulated in SFAS No.
121. There can be no assurance that the Company will not record asset impairment
charges under SFAS No. 121 in the future.

VULNERABILITY TO WEATHER CONDITIONS AND SEASONAL RESULTS

         The first and fourth quarters of the Company's fiscal year have
historically accounted for a greater portion of the Company's revenues than do
the second and third quarters of its fiscal year. This seasonality in revenues
is primarily due to the increased seismic survey activity in Canada from October
through March, which affects the Company due to its significant Canadian
operations. This seasonal pattern may cause the Company's results of operations
to vary significantly from quarter to quarter. However, due to the significant
decrease in world oil prices in 1998, demand for the Company's services both in
Canada and worldwide declined dramatically in the fourth quarter of fiscal 1999.
Accordingly, period to period comparisons are not necessarily meaningful and
should not be relied on as indicative of future results.

DEPENDENCE ON KEY SUPPLIERS

         The Company has and continues to rely on purchase agreements with
Sercel and Pelton. To a lesser extent, the Company also relies on its suppliers
for lease referrals. The termination of these agreements for any reason could
materially adversely affect the Company's business. While the Company does not
anticipate any difficulty in obtaining seismic equipment from its suppliers
based on past experience, any such occurrence could have a material adverse
effect on the Company's business, financial condition and results of operations.

COMPETITION

         Competition in the leasing of seismic equipment is fragmented, and the
Company is aware of several companies that engage in seismic equipment leasing.
The Company believes that its competitors, in general, do not have as extensive
a seismic equipment lease pool as does the Company. The Company


                                       10
<PAGE>   13


also believes that its competitors do not have 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.

         The Company has several competitors engaged in seismic equipment
leasing and sales, including seismic equipment manufacturers, companies
providing seismic surveys and oil and gas exploration companies that use seismic
equipment, many of which have substantially greater financial resources than the
Company. There are also several smaller competitors who, in the aggregate,
generate significant revenue from the sale of seismic survey equipment.

RISK FROM VOLATILE STOCK PRICES AND NO PAYMENT OF DIVIDENDS

         Due to current energy industry conditions, energy and energy service
company stock prices, including the Company's stock price, have been extremely
volatile. Such stock price volatility could adversely affect the Company's
business operations by, among other things, impeding its ability to attract and
retain qualified personnel and to obtain additional financing if such financing
is ever needed. The Company has historically not paid dividends on its common
stock and does not anticipate paying dividends in the foreseeable future. In
addition, the Company's bank loan agreement restricts the payment of dividends.

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

         Certain provisions of the Company's 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 the Board of
Directors but that the Company's 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 the 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 the Company has no shares of preferred stock outstanding and no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future.

LIMITATION ON DIRECTORS' LIABILITY

         The Company's 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.

ITEM 2.  PROPERTIES

         The Company owns its corporate office and warehouse facilities in
Huntsville, Texas. Its headquarters facility consists of 25,000 square feet of
office and warehouse space on approximately six acres. The Company also leases
approximately 10,000 square feet of office and warehouse space at its facility
in Calgary, Alberta, Canada.


                                       11
<PAGE>   14


ITEM 3.  LEGAL PROCEEDINGS

         On or about April 23, 1998, several class action lawsuits were filed
against the Company and its chief executive officer and then chief financial
officer in the U.S. District Court for the Southern District of Texas, Houston
Division. The first-filed complaint, styled Stanley Moskowitz V. Mitcham
Industries, Inc., Billy F. Mitcham, Jr. and Roberto Rios, alleged violations of
Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11
and 12(a)(2) of the Securities Act of 1933. On or about September 21, 1998, the
complaints were consolidated into one action. On November 4, 1998, the
plaintiffs filed a consolidated amended complaint ("CAC"), which seeks class
action status on behalf of those who purchased the Company's common stock from
June 4, 1997 through March 26, 1998, and damages in an unspecified amount plus
costs and attorney's fees. The CAC alleges that the Company made materially
false and misleading statements and omissions in public filings and
announcements concerning its business and its allowance for doubtful accounts.
On or about March 30, 1999, the Company filed a motion to dismiss the CAC. The
motion is now fully briefed and the Company is awaiting a ruling by the Court.

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

         The 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.

<TABLE>
<CAPTION>
                                                              High            Low
                                                              ----            ---
<S>                                                          <C>            <C>
        Fiscal Year Ended January 31, 1998:
             First Quarter                                    9 1/4           6 1/8
             Second Quarter                                  15 3/8           6 5/8
             Third Quarter                                   29 5/8          14 1/2
             Fourth Quarter                                  33 1/8          12 5/8

        Fiscal Year Ended January 31, 1999:
             First Quarter                                   19 1/2           9 3/4
             Second Quarter                                  13 1/2          7 1/16
             Third Quarter                                    9 7/8           4 1/2
             Fourth Quarter                                   8 1/8         3 11/16
</TABLE>

         As of April 14, 1999, there were approximately 500 shareholders of
record of the common stock.

                                 DIVIDEND POLICY

         The Company has not paid any cash dividends on the common stock since
its inception, and the 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 the
Company's business. In addition, the Company's bank loan agreement restricts the
payment of dividends.


                                       12
<PAGE>   15


In the future, payment of dividends by the Company will also depend on the
Company's financial condition, results of operations and such other factors as
the Board of Directors may consider.

ITEM 6.  SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                      Years Ended January 31,
                                                       -----------------------------------------------------
                                                         1999        1998       1997       1996       1995
                                                       --------    --------   --------   --------   --------
<S>                                                    <C>         <C>        <C>        <C>        <C>     
Net sales and other revenues                           $ 37,936    $ 42,027   $ 14,690   $  7,292   $  5,284
Income (loss) from continuing operations                 (8,526)      6,392      2,702      1,713      1,000
Income (loss) from continuing operations
   per common share - diluted                             (0.90)       0.83       0.60       0.50       0.66
Cash dividends declared per common share                     --          --         --         --         --
Balance Sheet Data:
Cash and marketable securities                           19,860      32,507        301        637        874
Seismic equipment lease pool, property and equipment     65,116      50,994     22,540     10,141      5,512
Total assets                                             67,174      91,562     24,293     12,239      8,199
Long-term obligations and redeemable preferred stock         --       2,294      3,319      1,524        367
Total liabilities                                         2,422      17,326      9,051      4,191      2,023
Total shareholders' equity                               64,752      74,236     15,242      8,048      6,176
</TABLE>


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

OVERVIEW

         The Company's sales 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. The Company believes that during the
latter half of 1998, the exploration and production companies anticipated an
extended period of low oil and gas prices and began to reduce their intended
levels of expenditures for seismic data. Consolidation within the oil industry
has also delayed seismic data acquisition projects.

         Until the exploration and production companies can forecast with
reasonable certainty that future oil prices will stabilize, seismic data
acquisition activity is not expected to improve. Additional declines in oil
prices, or expectations that the recent improvement in oil prices will not hold,
could cause the Company's customers to further reduce their spending and further
adversely affect the Company's results of operation and financial condition.

         The Company leases and sells seismic data acquisition equipment
primarily to seismic data acquisition companies and oil and gas companies
conducting land and transition zone seismic surveys worldwide. The Company
provides short-term leasing of seismic equipment to meet a customer's
requirements and offers maintenance and support during the lease term. All
leases at January 31, 1999 were for a term of one year or less. Seismic
equipment held for lease is carried at cost, net of accumulated depreciation.

         For the years ended January 31, 1997, 1998 and 1999, revenues from
foreign customers totaled $6.8 million, $17.1 million and $20.7 million,
respectively. The majority of the Company's transactions with foreign customers
are denominated in United States dollars.


                                       13
<PAGE>   16
SEASONALITY

         Historically, seismic equipment leasing has been somewhat susceptible
to weather patterns in certain geographic regions. There is some seasonality to
the Company's expected lease revenues from customers operating in Canada, where
a significant percentage of seismic survey activity occurs in the winter months,
from October 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 the Company's
Canadian customers has historically resulted in increased lease revenues in the
Company's first and fourth fiscal quarters. However, due to the significant
decrease in world oil prices in 1998, demand for the Company's services both in
Canada and worldwide declined dramatically in the fourth quarter of fiscal 1999.

RESULTS OF OPERATIONS

         Revenues of $37.9 million for fiscal 1999 decreased $4.1 million
compared to revenues of $42.0 million for fiscal 1998, which reflected an
increase of $27.3 million as compared to revenues of $14.7 million for fiscal
1997. Short-term leasing revenues and leasing revenues under lease/purchase
arrangements totaling $22.4 million for fiscal 1999 represented a substantial
increase over fiscal 1998 leasing revenues of $19.6 million. Fiscal 1998
combined leasing revenues of $19.6 million represented a $10.1 million increase
over fiscal 1997 combined leasing revenues of $9.5 million. This year over year
increase reflects additions of lease pool equipment throughout fiscal 1999 and
1998 to meet lease demand. Seismic equipment sales for fiscal 1999 were $15.6
million as compared to $22.1 million and $5.2 million for fiscal 1998 and 1997,
respectively. The decrease in sales revenues during fiscal 1999 compared to
fiscal 1998 is a result of decreased capital expenditure budgets throughout the
oil and gas industry coupled with a decrease in customers exercising the
purchase option of lease/purchase contracts.

         Depreciation expense for fiscal 1999 was $12.4 million, representing an
87% increase over fiscal 1998 expense of $6.6 million. The $3.5 million increase
in depreciation expense for fiscal 1998 represented an approximate 112% increase
over fiscal 1997 expense. The significant increase in depreciation expense over
the prior two fiscal years is a direct result of the seismic equipment lease
pool increasing nearly $42 million, on a cost basis, from January 31, 1997 to
January 31, 1999. While the Company's leasing revenues have increased in each of
the past three fiscal years, direct costs associated with short-term leasing
have also increased steadily. Direct costs for fiscal 1999 were $1.6 million,
compared to $1.0 million and $.3 million for fiscal 1998 and 1997, respectively.

         For the fiscal year ended January 31, 1999, leasing and equipment sales
under lease/purchase arrangements generated an aggregate gross margin of 25%,
compared to 20% and 49% for fiscal 1998 and 1997, respectively. Gross margins in
both fiscal 1999 and 1998 are not comparable to the margin achieved in 1997
because the Company sold primarily newer equipment when customers exercised
purchase options on leased equipment that had only recently been purchased and
added to the Company's equipment lease pool. In fiscal 1997 there were fewer of
these low-margin transactions and the equipment sold was older and more
depreciated.

         Gross margins on seismic equipment sales were 25%, 10% and 34% for
fiscal years 1999, 1998 and 1997, respectively. Gross margins on equipment sales
may vary significantly between periods due to the mix of newly added seismic
equipment to the lease pool versus older, more depreciated seismic equipment
being sold.


                                       14
<PAGE>   17


         During fiscal 1999, the Company incurred a pre-tax, non-cash asset
impairment charge of approximately $15.1 million related to the impairment of
certain seismic equipment assets. This impairment charge is primarily the result
of the application of Statement of Financial Accounting Standards ("SFAS") No.
121, which requires that long-lived assets held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable through cash
flows from future operations. The severity of the decline in seismic activity,
and thus, the demand for the Company's equipment, was such an event. Based on
the application of SFAS No. 121, the Company recognized a $14.2 million pretax
charge during fiscal 1999 related to its seismic equipment lease pool. In
addition, the Company recognized approximately $900,000 of pretax charges
related to a lower of cost or market adjustment to certain seismic equipment
assets classified in the consolidated financial statements as inventory.

         General and administrative expenses increased $1.8 million in fiscal
1999 as compared to fiscal 1998 expense of $3.2 million, which reflected an
increase of $1.4 compared to fiscal 1997. The fiscal 1999 increase was due to
increased professional fees including management and systems consulting, legal
and audit fees and increased compensation and payroll tax expense related to the
increase in the size of the Company's operations and number of employees. As of
January 31, 1999, the Company has incurred or accrued approximately $425,000 of
expense related to an ongoing Texas sales tax audit and the class action lawsuit
filed on April 23, 1998. The increase in general and administrative expense in
fiscal 1998 as compared to fiscal 1997 was due in part to the establishment and
staffing of the Canadian subsidiary and increases in legal and accounting
expenses associated with being a public company.

         The Company's provision for doubtful accounts expense increased from
$842,000 in fiscal 1998 to $1.7 million in fiscal 1999. This increase is related
to the ongoing downturn in seismic activity worldwide. The decrease in provision
for doubtful accounts expense in fiscal 1998 as compared to fiscal 1997 of about
$500,000 is the result of one of the Company's customers which filed for
bankruptcy in fiscal 1997. As of January 31, 1999 and 1998, the Company's
allowance for doubtful accounts receivable amounted to $1.6 million and $1.0
million, respectively.

         Net income for fiscal 1999 decreased approximately $14.9 from fiscal
1998, resulting in a net loss for the year of $8.5 million, reflecting the
inclusion of the asset impairment charge and provision for doubtful accounts
charge. Net income for fiscal 1998 increased by $3.7 million, as compared to
fiscal 1997, reflecting the significant increase in leasing and sales activities
during the same period.

LIQUIDITY AND CAPITAL RESOURCES

         As of January 31, 1999, the Company had net working capital of
approximately $27.1 million as compared to net working capital of $33.4 million
at January 31, 1998. Historically, the Company's principal liquidity
requirements and uses of cash have been for capital expenditures and working
capital and our principal sources of cash have been cash flows from operations
and issuances of equity securities. Net cash provided by operating activities
for the year ended January 31, 1999 was $10.4 million, as compared to $3.8
million and $4.2 million for the years ended January 31, 1998 and 1997,
respectively. Net cash provided by financing activities for the years ended
January 31, 1999, 1998 and 1997 was $.2 million, $47.9 million and $7.1 million,
respectively.

         During March 1997, the Company completed a public offering of 3,450,000
shares of common stock, of which 2,875,000 shares were sold by the Company and
575,000 shares were sold by selling shareholders. The net proceeds to the
Company from the offering were approximately $18.2 million. The net proceeds
were used to purchase additional 3-D seismic data acquisition equipment, to pay
outstanding


                                       15
<PAGE>   18


debt to the Company's commercial lender under a revolving line of credit and a
term loan and for certain other corporate expenses.

         During December 1997, the Company completed a public offering of a
total of 1,920,000 shares of its common stock, of which 1,900,000 shares were
sold by the Company and 20,000 shares were sold by selling shareholders. The net
proceeds to the Company from the offering were approximately $33.6 million. Of
the proceeds from the two public offerings, the Company used approximately $34.5
million in fiscal 1998 to pay for lease pool equipment. During fiscal 1999, the
Company used $32.5 million for purchases of lease pool equipment.

         At January 31, 1999, the Company had trade accounts receivable of $7.1
million that were more than 90 days past due, as compared to $3.9 million at
January 31, 1998. As of January 31, 1999, the Company's allowance for doubtful
accounts was approximately $1.6 million, which management believes is sufficient
to cover any losses in its trade accounts receivable, including any losses in
its international customers' trade accounts.

         The Company has a working capital revolving line of credit of up to $15
million from Bank One (the "Revolver"). Interest on advances under the Revolver
are payable monthly at a variable rate which is based upon either, at the
Company's option, LIBOR or Bank One's base lending rate. The LIBOR rate, if
elected, ranges between LIBOR plus 1.75% and LIBOR plus 2.75% depending upon the
debt service coverage ratio the Company maintains. Similarly, the Bank One base
lending rate, if elected, ranges between the base rate minus 0.25% and the base
rate plus 0.25%, again depending upon the Company's debt service coverage ratio.
Additionally, the Company pays Bank One each fiscal quarter a fee equal to 0.25%
of the average daily unused portion of the Revolver calculated for the previous
quarter. Advances are limited to the total of 80% of eligible accounts
receivable and 50% of all eligible lease pool equipment. The Revolver contains
restrictions, among others, on the ability of the Company to incur indebtedness
and pay dividends and requires the Company to meet certain financial covenants,
including a minimum tangible net worth, a debt service coverage ratio, aging of
accounts receivable and net income. The Revolver will expire on December 8,
1999, at which time the unpaid principal amount of the Revolver will be due and
payable in full. As of January 31, 1999, there were no amounts outstanding under
the Revolver.

         As of January 31, 1999, the Company was in violation of a certain
covenant of the Revolver, although there were no amounts outstanding under the
Revolver. The Company obtained a waiver of the covenant from Bank One; however,
Bank One will not make any advances under the Revolver until the Company: (i) is
in compliance with the relevant covenant; and (ii) grants Bank One a first
priority secured interest in substantially all of the Company's assets.

         Capital expenditures for the 1999 fiscal year totaled approximately
$32.9 million as compared to capital expenditures of $34.9 million for fiscal
1998. Management believes that cash on hand, cash provided by future operations
and funds available from its commercial lender will be sufficient to fund its
anticipated capital and liquidity needs over the next twelve months.


YEAR 2000 COMPLIANCE

          The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations. As a result, many companies may be forced to upgrade or
completely replace existing hardware and software in order to be Year 2000
compliant.


                                       16
<PAGE>   19


State of Readiness

          During 1998, the Company began evaluating its internal operating
systems and software ("IT") and embedded manufacturing control technology
("Non-IT") in the equipment that it leases and sells. In its evaluation, vendors
of the software and hardware the Company uses in its business have represented
that such software and hardware are either Year 2000 compliant or compatible. To
assess risk associated with possible non-compliance of customers' and equipment
suppliers' failure to be Year 2000 compliant, the Company prepared and mailed
Year 2000 compliance questionnaires to its significant customers and equipment
suppliers. Completed questionnaires the Company has received to date indicate
there are no known material Year 2000 compliance issues that would negatively
affect the Company's operations and business. However, the Company has not yet
completed its assessment with respect to its equipment suppliers.

Costs to Address Year 2000 Issues

         The Company has utilized internal resources in assessing the Year 2000
issue and has not employed outside consultants to assist. There have been no
material expenditures related to identifying, assessing or remediating Year 2000
compliance issues, nor does the Company expect to incur any material
expenditures related to this issue. As of the date of this report, the Company
has identified lease pool equipment requiring approximately $10,000 of
expenditures to become Year 2000 compatible.

Risks

         As the Company has not fully completed its Non-IT assessment with
respect to its equipment suppliers, it is unable to estimate the impact of any
Year 2000 compliance issues that may arise if any equipment supplier were not
Year 2000 compliant. Though it has a number of suppliers, two suppliers provide
the vast majority of the Company's seismic equipment. In addition, the Company
derives a large percentage of its revenues from a relatively small number of
customers. Thus, if one of the Company's significant suppliers or customers
experienced a material business interruption or, if the Company lost a
significant supplier or customer due to Year 2000 non-compliance issues, it
could have a material adverse impact on the Company's operations, results of
operations or financial position.

Contingency Plan

         The Company has not developed a contingency plan related to Year 2000
compliance since no significant issues have been specifically identified. Once
the Company has completed its assessment with respect to its customers and
equipment suppliers, if necessary, the Company will develop a contingency plan
to address any significant non-compliance issues identified. The Company expects
to complete such assessment by October 31, 1999.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company operates 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. The Company typically denominates the majority
of its lease and sales contracts in U.S. dollars to mitigate the exposure to
fluctuations in foreign currencies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item appears at pages F-1 through F-22
hereof and incorporated herein by reference.


                                       17
<PAGE>   20


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding directors and executive officers of the Company
will be set forth in the proxy statement for the 1999 Annual Meeting of
Shareholders under the heading "Election of Directors," and is incorporated
herein by reference. Information regarding compliance by the officers, directors
and control persons of the Company with Section 16(a) of the Securities Exchange
Act of 1934 will be set forth in the Company's proxy statement for the 1999
Annual Meeting of Shareholders under the heading "Other Matters-Compliance with
Section 16(a) of the Exchange Act," and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         Information regarding executive compensation will be set forth in the
Company's proxy statement for the 1999 Annual Meeting of Shareholders under the
heading "Executive Compensation," and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management will be set forth in the Company's proxy statement for the 1999
Annual Meeting of Shareholders under the heading "Principal Holders of
Securities and Security Ownership of Management," and is incorporated herein by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions
will be set forth in the Company's proxy statement for the 1999 Annual Meeting
of Shareholders under the heading "Certain Transactions," and is incorporated
herein by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) EXHIBITS

<TABLE>
<CAPTION>
Exhibit Number
--------------
<S>              <C>     <C>
       3.1        --     Amended and Restated Articles of Incorporation of 
                         Mitcham Industries,  Inc.(1) (Exhibit 3.1)
       3.2        --     Amended and Restated Bylaws of Mitcham Industries, Inc.
                         (1) (Exhibit 3.2)
       4.1        --     Copy of Specimen stock certificate evidencing Common
                         Stock of Mitcham Industries, Inc. (2) (Exhibit 4.1)
         9        --     Voting Agreement, dated September 20, 1993, between the
                         Company,  Billy F. 
</TABLE>


                                       18
<PAGE>   21

<TABLE>
<S>               <C>    <C>
                         Mitcham, Jr. and certain shareholders (1) (Exhibit 9)
      10.1        --     Exclusive Lease Referral Agreement, dated February 22,
                         1994, between Mitcham Industries, Inc. and 
                         Input/Output, Inc., as amended. (3) (Exhibit 10.1)
      10.2        --     Fourth Amendment to Exclusive Lease Referral Agreement
                         with Input/Output, Inc.
      10.3        --     Fifth Amendment to Exclusive Lease Referral Agreement
                         with Input/Output, dated January 9, 1997 (5) (Exhibit
                         10.2)
    * 10.4        --     Employment Agreement, dated January 15, 1997, between
                         the Company and Billy F. Mitcham, Jr. (5) (Exhibit
                         10.4)
      10.5        --     Consulting Agreement, dated April 1, 1994, between the
                         Company and Billy F. Mitcham, Sr. (1) (Exhibit 10.16)
      10.6        --     First Amendment to Consulting Agreement, dated January
                         15, 1997, between the Company and Billy F. Mitcham, Sr.
                         (5) (Exhibit 10.6)
      10.7        --     Exclusive Lease Referral Agreement, dated May 14, 1996,
                         between the Company and Pelton Company, Inc. (4)
                         (Exhibit 10.1)
      10.8        --     First Amendment to the Exclusive Lease Referral
                         Agreement, dated January 1997, between the Company and
                         Pelton (7) (Exhibit 10.17)
      10.9        --     Second Amendment to the Exclusive Lease Referral
                         Agreement between Mitcham Industries, Inc. and Pelton
                         Company, Inc., dated November 24, 1997 (7) (Exhibit
                         10.3)
     10.10        --     Exclusive Equipment Lease Agreement, effective
                         September 20, 1996, between the Company and SERCEL,
                         S.A. (4) (Exhibit 10.2)
     10.11        --     Commercial Representation Agreement, effective
                         September 20, 1996, between Mitcham Canada Ltd., an
                         Alberta corporation, and Georex, Inc. (4) (Exhibit 
                         10.3)
     10.12        --     Amendment No. 1 to the Commercial Representation 
                         Agreement between Mitcham Canada, Ltd. and Georex,
                         Inc., dated November 11, 1997 (7) (Exhibit 10.1)
     10.13        --     Exclusive Lease Representative and Distributor 
                         Agreement between Mitcham Industries, Inc. and StrucTec
                         Systems, Inc., dated October 30, 1997 (7) (Exhibit
                         10.2)
     10.14        --     Letter Loan Agreement between Mitcham Industries, Inc.
                         and Bank One, Texas, N.A., dated December 7, 1997 (7)
                         (Exhibit 10.4)
     10.15        --     Promissory Note in the original principal amount of
                         $15,000,000, made payable to the order of Bank One,
                         Texas, N.A., dated December 8,1997(7) (Exhibit 10.5)
     10.16        --     Equipment Purchase Agreement between Mitcham 
                         Industries, Inc. and Input/Output, Inc., dated May 31,
                         1998(9) (Exhibit 10.1)
     10.17        --     Preferred Supplier Agreement between Mitcham 
                         Industries, Inc. and Input/Output, Inc., dated June 30,
                         1998(10) (Exhibit 10.1)
   * 10.18        --     1994 Stock Option Plan of Mitcham Industries, Inc.(2)
                         (Exhibit 10.9)
     10.19        --     Form of Incentive Stock Option Agreement(2) (Exhibit
                         10.10)
     10.20        --     Form of Nonqualified Stock Option Agreement(2) (Exhibit
                         10.11)
     10.21        --     1994 Non-Employee Director Stock Option Plan of Mitcham
                         Industries, Inc.(2) (Exhibit 10.12)
     10.22        --     Form of Nonqualified Stock Option Agreement(2) (Exhibit
                         10.13)
     10.23        --     Form of Mitcham Industries, Inc. customer lease
                         agreement (1) (Exhibit 10.20)
     21           --     Subsidiaries of the Company (6) (Exhibit 11)
     23           --     Consent of Hein + Associates LLP
     27           --     Financial Data Schedule

     *                   Management contract or compensatory plan or arrangement
</TABLE>


                                       19
<PAGE>   22


(1)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form SB-2 (File No. 33-81164-D),
         filed with the SEC on July 5, 1994.

(2)      Incorporated  by  reference  to the  indicated  exhibit  number of the
         Company's Amendment No. 2 to the Registration Statement on Form SB-2,
         filed with the SEC on November 9, 1994.

(3)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 3 to the Registration Statement on Form SB-2,
         filed with the SEC on December 12, 1994.

(4)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-3 (File No. 333-10555),
         filed with the SEC on October 30, 1996.

(5)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-1 (File No. 333-19997),
         filed with the SEC on January 17, 1997.

(6)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 1 to its Registration Statement on Form S-1,
         filed with the SEC on January 31, 1997.

(7)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-3 (File No. 333-40507),
         filed with the SEC on November 18, 1997.

(8)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 2 to its Registration Statement on Form S-3
         (File No. 333-40507), filed with the SEC on December 17, 1997.

(9)      Incorporated by reference to the indicated exhibit number of the
         Company's Quarterly Report on Form 10-QSB filed with the SEC on June
         22, 1998.

(10)     Incorporated by reference to the indicated exhibit number of the
         Company's Current Report on Form 8-K, filed with the SEC on July 15,
         1998.

(b) REPORTS ON FORM 8-K

 None


                                       20
<PAGE>   23



                                   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 3RD DAY OF MAY,
1999.


                            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.

<TABLE>
<CAPTION>
                  Signature                          Title/Capacity                        Date
                  ---------                          -------------                         ----
<S>                                                  <C>                                <C>
            /s/ BILLY F. MITCHAM, JR.                Chairman of the Board,             May 3, 1999
------------------------------------------           President and Chief
                  Billy F. Mitcham, Jr.              Executive Officer
                                                     

             /s/ PAUL C. MITCHAM                     Vice President -                   May 3, 1999
-----------------------------------------------      Operations and Director
                  Paul C. Mitcham              

                /s/ P. BLAKE DUPUIS                  Vice President -                   May 3, 1999
--------------------------------------------------   Finance, Secretary,
                  P. Blake Dupuis                    and Treasurer
(principal financial and accounting officer)         

           /s/ WILLIAM J. SHEPPARD                   Vice President -                   May 3, 1999
--------------------------------------------         International Operations
                William J. Sheppard                  and Director
</TABLE>



                                       21
<PAGE>   24



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
Independent Auditor's Report............................................................................... F-2

Consolidated Balance Sheets as of January 31, 1998 and 1999................................................ F-3

Consolidated Statements of Operations for the Years Ended
        January 31, 1997, 1998 and 1999.................................................................... F-4

Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
        for the Years Ended January 31, 1997, 1998 and 1999................................................ F-5

Consolidated Statements of Cash Flows for the Years Ended
        January 31, 1997, 1998 and 1999.................................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>


                                      F-1


<PAGE>   25


                          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 Subsidiary as of January 31, 1998 and 1999, 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, 1999. 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 generally accepted auditing
standards. 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
Subsidiary as of January 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended
January 31, 1999, in conformity with generally accepted accounting principles.




HEIN + ASSOCIATES LLP

Houston, Texas
April 12, 1999



                                      F-2
<PAGE>   26
                                        
                            MITCHAM INDUSTRIES, INC.
                                        
                          CONSOLIDATED BALANCE SHEETS
                                        

<TABLE>
<CAPTION>
                                                                                        JANUARY 31,
                                                                              ----------------------------
                                                                                  1998            1999
                                                                              ------------    ------------
<S>                                                                           <C>             <C>         
                                                      ASSETS
Current assets:
   Cash                                                                       $  7,498,000    $  2,525,000
   Marketable securities, at market                                             25,009,000      17,335,000
   Accounts receivable, net of allowance for doubtful accounts of
      $1,024,000 and $1,625,000 at January 31, 1998 and 1999,
      respectively                                                              14,514,000       7,880,000
   Inventory                                                                       942,000       1,191,000
   Prepaid expenses and other current assets                                       248,000          88,000
   Income taxes receivable                                                         211,000              --
   Deferred tax asset                                                                   --         483,000
                                                                              ------------    ------------
         Total current assets                                                   48,422,000      29,502,000

Seismic equipment lease pool, property and equipment                            50,994,000      65,116,000
Accumulated depreciation of seismic equipment lease pool, property and
   equipment                                                                    (7,860,000)    (31,472,000)
Deferred tax asset                                                                      --       4,028,000
Other assets                                                                         6,000              --
                                                                              ------------    ------------
         Total assets                                                         $ 91,562,000    $ 67,174,000
                                                                              ============    ============

                                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                           $  8,400,000    $    668,000
   Customer deposits                                                               300,000         215,000
   Sales taxes payable                                                              56,000         228,000
   Accrued wages                                                                   152,000         260,000
   Income taxes payable                                                                 --         817,000
   Deferred income taxes                                                            45,000              --
   Deferred revenue                                                              1,055,000         131,000
   Accrued liabilities and other current liabilities                             5,024,000         103,000
                                                                              ------------    ------------
         Total current liabilities                                              15,032,000       2,422,000
Deferred income taxes                                                            2,294,000              --
         Total liabilities                                                      17,326,000       2,422,000
Commitments and contingencies (Note 9)
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;
      9,425,759 and 9,545,658 shares issued and outstanding,
      respectively                                                                  94,000          95,000
   Additional paid-in capital                                                   61,275,000      61,459,000
   Retained earnings                                                            12,770,000       4,244,000
   Accumulated other comprehensive income                                           97,000      (1,046,000)
                                                                              ------------    ------------
         Total shareholders' equity                                             74,236,000      64,752,000
                                                                              ------------    ------------
         Total liabilities and shareholders' equity                           $ 91,562,000    $ 67,174,000
                                                                              ============    ============
</TABLE>



              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-3
<PAGE>   27

                            MITCHAM INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                           YEARS ENDED JANUARY 31,
                                                                -------------------------------------------
                                                                    1997            1998           1999
                                                                ------------    ------------   ------------
<S>                                                             <C>             <C>            <C>         
Revenues:
   Short-term leasing                                           $  8,106,000    $ 17,115,000   $ 17,626,000
   Lease/purchase activities:
      Leasing revenues                                             1,387,000       2,435,000      4,758,000
      Sales of equipment                                           2,388,000      12,770,000     10,634,000
   Sales of seismic equipment                                      2,809,000       9,303,000      4,918,000
   Sales commissions                                                      --         404,000             --
                                                                ------------    ------------   ------------
         Total revenues                                           14,690,000      42,027,000     37,936,000
                                                                ------------    ------------   ------------
Costs and expenses:
   Direct costs                                                      323,000       1,007,000      1,576,000
   Cost of sales:
      Sales of seismic equipment under lease purchase
         agreements                                                1,918,000      12,163,000     11,578,000
      Other sales of seismic equipment                             1,865,000       8,334,000      3,689,000
   General and administrative                                      1,808,000       3,166,000      4,944,000
   Provision for doubtful accounts                                 1,346,000         842,000      1,705,000
   Provision for asset impairment                                         --              --     15,082,000
   Depreciation                                                    3,112,000       6,590,000     12,356,000
                                                                ------------    ------------   ------------
         Total costs and expenses                                 10,372,000      32,102,000     50,930,000
                                                                ------------    ------------   ------------
Operating income (loss)                                            4,318,000       9,925,000    (12,994,000)
Other income (expense):
   Interest income (net of interest expense of approximately
      $385,000, $143,000 and $38,000, respectively)                 (240,000)        340,000      1,002,000
   Other, net                                                         73,000          74,000          6,000
                                                                ------------    ------------   ------------
        Total other income (expense)                                (167,000)        414,000      1,008,000
                                                                ------------    ------------   ------------
Income (loss) before income taxes                                  4,151,000      10,339,000    (11,986,000)
Provision (benefit) for income taxes                               1,449,000       3,947,000     (3,460,000)
                                                                ------------    ------------   ------------
Net income (loss)                                               $  2,702,000    $  6,392,000   $ (8,526,000)
                                                                ============    ============   ============

Earnings (loss) per common share:
         Basic                                                  $       0.66    $       0.87   $      (0.90)
         Diluted                                                $       0.60    $       0.83   $      (0.90)
Shares used in computing earnings per common share:
         Basic                                                     4,114,000       7,307,000      9,502,000
         Dilutive effect of common stock equivalents                 412,000         379,000             --
                                                                ------------    ------------   ------------
         Diluted                                                   4,526,000       7,686,000      9,502,000
                                                                ============    ============   ============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-4



<PAGE>   28

                            MITCHAM INDUSTRIES, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                   YEARS ENDED JANUARY 31, 1997, 1998 AND 1999



<TABLE>
<CAPTION>
                                                                                                   ACCUMULATED
                                                                                                      OTHER    
                                                                                                     COMPRE
                                           COMMON STOCK              ADDITIONAL                     -HENSIVE
                                     ----------------------------      PAID-IN       RETAINED         INCOME    
                                        SHARES          AMOUNT         CAPITAL       EARNINGS         (LOSS)           TOTAL
                                     ------------    ------------   ------------   ------------    ------------    ------------
<S>                                  <C>             <C>            <C>            <C>             <C>             <C>         
Balances, January 31, 1996              3,221,000    $     32,000   $  4,340,000   $  3,676,000    $         --    $  8,048,000
   Net income and comprehensive 
      income                                   --              --             --      2,702,000              --       2,702,000
   Issuance of common stock upon     
      exercise of warrants              1,254,000          13,000      4,479,000             --              --       4,492,000
                                     ------------    ------------   ------------   ------------    ------------    ------------

Balances, January 31, 1997              4,475,000          45,000      8,819,000      6,378,000              --      15,242,000
   Comprehensive income:
      Net income                               --              --             --      6,392,000              --       6,392,000
      Foreign currency translation             --              --             --             --          97,000          97,000
                                                                                                                   ------------
      Comprehensive income                                                                                            6,489,000
   Issuance of common stock, net                                                                                   ------------
      of offering expenses              4,775,000          48,000     51,743,000             --              --      51,791,000
   Issuance of common stock upon     
      exercise of warrants and
      options                             176,000           1,000        713,000             --              --         714,000
                                     ------------    ------------   ------------   ------------    ------------    ------------
Balances, January 31, 1998              9,426,000          94,000     61,275,000     12,770,000          97,000      74,236,000
   Comprehensive loss:
      Net loss                                 --              --             --     (8,526,000)             --      (8,526,000)
      Foreign currency
           translation                         --              --             --             --      (1,143,000)     (1,143,000)
                                                                                                                   ------------
      Comprehensive loss                                                                                             (9,669,000)
   Issuance of common stock upon                                                                                   ------------
      exercise of warrants and
      options                             120,000           1,000        184,000             --              --         185,000
                                     ------------    ------------   ------------   ------------    ------------    ------------

Balances, January 31, 1999              9,546,000    $     95,000   $ 61,459,000   $  4,244,000    $ (1,046,000)   $ 64,752,000
                                     ============    ============   ============   ============    ============    ============
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-5
<PAGE>   29

                            MITCHAM INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                              YEARS ENDED JANUARY 31,
                                                                  --------------------------------------------
                                                                      1997            1998            1999
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>          
Cash flows from operating activities:
  Net income (loss)                                               $  2,702,000    $  6,392,000    $ (8,526,000)
  Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
      Depreciation                                                   3,112,000       6,590,000      12,356,000
      Provision for doubtful accounts, net of chargeoffs             1,153,000        (476,000)        601,000
      Provision for asset impairment                                        --              --      15,182,000
      Deferred income taxes                                            652,000         792,000      (6,850,000)
  Changes in:
      Inventory                                                       (267,000)       (469,000)     (1,228,000)
      Trade accounts receivable                                     (3,422,000)     (9,299,000)      6,033,000
      Federal income taxes, current                                    (44,000)       (478,000)      1,028,000
      Accounts payable and other current liabilities                   193,000         661,000      (8,382,000)
      Other, net                                                       141,000          41,000         166,000
                                                                  ------------    ------------    ------------
        Net cash provided by operating activities                    4,220,000       3,754,000      10,380,000
                                                                  ------------    ------------    ------------
Cash flows from investing activities:
   Purchases of seismic equipment held for lease                   (14,011,000)    (34,511,000)    (32,488,000)
   Purchases of property and equipment                                (231,000)       (426,000)       (401,000)
   Sale (purchase) of marketable securities                                 --     (20,009,000)      2,674,000
   Disposal of lease pool equipment                                  2,603,000      10,495,000      14,677,000
                                                                  ------------    ------------    ------------
         Net cash used in investing activities                     (11,639,000)    (44,451,000)    (15,538,000)
                                                                  ------------    ------------    ------------
Cash flows from financing activities:
   Proceeds from short-term borrowings                               1,000,000              --              --
   Payments on short-term borrowings                                  (401,000)       (999,000)             --
   Proceeds from long-term debt                                      3,126,000              --              --
   Payments on long-term debt and capitalized lease obligations     (1,134,000)     (3,612,000)             --
   Proceeds from issuance of common stock upon exercise of
    warrants and options                                             4,492,000         714,000         185,000
   Proceeds from issuance of common stock, net of 
    offering expenses                                                       --      51,791,000              --
                                                                  ------------    ------------    ------------
        Net cash provided by financing activities                    7,083,000      47,894,000         185,000
                                                                  ------------    ------------    ------------
Net increase (decrease) in cash                                       (336,000)      7,197,000      (4,973,000)
Cash, beginning of period                                              637,000         301,000       7,498,000
                                                                  ------------    ------------    ------------
Cash, end of period                                               $    301,000    $  7,498,000    $  2,525,000
                                                                  ============    ============    ============
Supplemental cash flow information:
   Cash paid for:
      Interest                                                    $    385,000    $    143,000          38,000
      Taxes                                                            865,000       3,526,000       2,297,055
                                                                  ============    ============    ============
   Purchase of marketable securities in accounts payable          $         --    $  5,000,000    $         --
                                                                  ============    ============    ============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-6
<PAGE>   30


                            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.

        The accompanying consolidated financial statements include the accounts
        of the Company and its wholly-owned Canadian subsidiary. All
        intercompany transactions and balances have been eliminated in
        consolidation.

        Description of Leasing Arrangements - The Company leases various types
        of seismic equipment to seismic data acquisition companies. All leases
        at January 31, 1998 and 1999 are for one year or less. Lease revenue is
        recognized ratably over the term of the lease.

        Lease/Purchase Activities - The Company periodically leases equipment to
        customers, allowing them the option to purchase the equipment at a
        pre-determined price any time during the lease term. The Company allows
        its customers to credit a portion of the monthly lease payments to the
        purchase price. Monthly lease revenue is recognized over the term of the
        lease until the election to purchase is exercised, at which time the
        Company records the sale. Lease revenue is deferred to the extent that
        the estimated net book value, at the end of the lease term, exceeds the
        adjusted purchase price.

        Marketable Securities - Marketable securities to be held to maturity are
        stated at amortized cost. Marketable securities classified as
        available-for-sale are stated at market value, with unrealized gains and
        losses reported as a separate component of shareholders' equity, net of
        deferred income taxes. If a decline in market value is determined to be
        other than temporary, any such loss is charged to earnings. Trading
        securities are stated at fair value, with unrealized gains and losses
        recognized in earnings. The Company records the purchases and sales of
        marketable securities and records realized gains and losses on the trade
        date. Realized gains or losses on the sale of securities are recognized
        on the specific identification method.

        As of January 31, 1998 and 1999, approximately $18,000,000 and
        $7,600,000, respectively, was invested in preferred stocks and the
        balance in government securities. Also, as of January 31, 1998 and 1999,
        the securities were classified as available-for-sale, and market value
        was approximately equal to the original cost.

        Inventories - Inventories consist primarily of used seismic equipment
        purchased in bulk liquidation sales. Inventories are valued at the lower
        of cost or market using the average cost method.


                                      F-7
<PAGE>   31

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

        Seismic Equipment Held for Lease - 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 seven years for
        channel boxes and 3-10 years for other peripheral equipment. In
        conjunction with the impairment analysis discussed in Note 13, the
        Company reevaluated depreciable lives and beginning in Fiscal 2000, the
        Company will depreciate channel boxes over a five-year life and certain
        other peripheral equipment over 2-10 years (as discussed in Note 13).

        Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
        for the Impairment of Long-Lived Assets and Long-Lived Assets to be
        Disposed of, sets forth guidance as to when to recognize an impairment
        of long-lived assets and how to measure such impairment. The standard
        requires certain assets be reviewed for impairment whenever events or
        circumstances indicate the carrying amount may not be recoverable. Based
        on the application of SFAS No. 121, the Company recognized a $14.2
        million pretax charge during fiscal 1999 related to its seismic
        equipment lease pool (see Note 13 for additional information). In
        addition, the Company recognized approximately $900,000 of pretax
        charges related to a lower of cost or market adjustment to certain
        seismic equipment assets classified as inventory.

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

        Income Taxes - The Company files a separate federal return for its
        subsidiary in Canada. 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. Historically the Company has paid income taxes
        on the cash basis of accounting. Beginning in fiscal 1998, the Company
        no longer was eligible to report on the cash basis of accounting for
        federal income tax reporting purposes.

        Cash Equivalents - For purposes of presenting cash flows, the Company
        considers all highly liquid investments with a maturity of three months
        or less at the date of purchase to be cash equivalents.



                                      F-8

<PAGE>   32

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

        Use of Estimates - The preparation of the Company's consolidated
        financial statements in conformity with generally accepted accounting
        principles requires the Company's management to make estimates and
        assumptions that affect the amounts reported in these consolidated
        financial statements and accompanying notes. Actual results could differ
        from these estimates.

        As discussed in Note 13, an impairment loss has been recognized in
        accordance with SFAS No. 121; however, it is reasonably possible that
        provision for an impairment loss could be revised.

        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.

        Recent Accounting Pronouncement - Effective February 1, 1998, the
        Company adopted SFAS No. 130, Reporting Comprehensive Income, which
        establishes standards for reporting and display of comprehensive income
        and its components. The statement requires companies to report, in
        addition to net income, other components of comprehensive income
        including unrealized gains or losses on available-for-sale securities
        and foreign currency translation adjustments and the related tax
        effects. The effects of adopting this statement are reflected in each
        period reported upon herein.

        Foreign Currency Translation - All balance sheet accounts of the
        Canadian subsidiary have been translated at the current exchange rate as
        of the end of the accounting period. Income statement items have been
        translated at average currency exchange rates. The resulting translation
        adjustment is recorded as a separate component of comprehensive income
        within shareholders' equity.

        Reclassifications - Certain 1998 balances have been reclassified to
        conform with 1999 presentation. Such reclassifications had no effect on
        net income or comprehensive income.



                                      F-9
<PAGE>   33


                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.       SEISMIC EQUIPMENT LEASE POOL, PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                 JANUARY 31,
                                                       ----------------------------
                                                           1998            1999
                                                       ------------    ------------
<S>                                                    <C>             <C>         
Remote signal conditioners (channel boxes)             $ 25,912,000    $ 32,693,000
Other peripheral equipment                               23,915,000      30,921,000
                                                       ------------    ------------
   Seismic equipment lease pool                          49,827,000      63,614,000
                                                       ------------    ------------

Land                                                         25,000          25,000
Buildings and improvements                                  392,000         439,000
Furniture and fixtures                                      628,000         828,000
Autos and trucks                                            122,000         210,000
                                                       ------------    ------------
   Property and equipment                                 1,167,000       1,502,000
                                                       ------------    ------------

Seismic equipment lease pool, property and equipment     50,994,000      65,116,000
Less: accumulated depreciation                           (7,860,000)    (31,472,000)
                                                       ------------    ------------
                                                       $ 43,134,000    $ 33,644,000
                                                       ============    ============
</TABLE>


3.       REVOLVING CREDIT FACILITY

        On December 8, 1997, the Company replaced the previous line of credit
        with a working capital revolving line of credit of up to $15 million
        from Bank One (the "Revolver"). Interest on advances under the Revolver
        are payable monthly at a variable rate which is based upon either, at
        the Company's option, LIBOR or Bank One's base lending rate. The LIBOR
        rate, if elected, ranges between LIBOR plus 1.75% and LIBOR plus 2.75%,
        depending upon the debt service coverage ratio the Company maintains.
        Similarly, the Bank One base lending rate, if elected, ranges between
        the base rate minus 0.25% and the base rate plus 0.25%, again depending
        upon the Company's debt service coverage ratio. Additionally, the
        Company pays Bank One each fiscal quarter a fee equal to 0.25% of the
        average daily unused portion of the Revolver calculated for the previous
        quarter. Advances are limited to the total of 80% of eligible accounts
        receivable and 50% of all eligible lease pool equipment. The Revolver
        contains restrictions, among others, on the ability of the Company to
        incur indebtedness and pay dividends and requires the Company to meet
        certain financial covenants, including a minimum tangible net worth, a
        debt service coverage ratio, aging of accounts receivable and net
        income. The Revolver expires on December 8, 1999, at which time the
        unpaid principal amount of the Revolver will be due and payable in full.
        The Company's subsidiary, Mitcham Canada Ltd., has guaranteed full
        repayment of the Revolver. No amounts were outstanding under this credit
        arrangement as of January 31, 1998 and 1999.


                                      F-10
<PAGE>   34


                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.      REVOLVING CREDIT FACILITY  (continued)

        As of January 31, 1999, the Company was in violation of a certain
        covenant of the Revolver, although there were no amounts outstanding
        under the Revolver. The Company obtained a waiver of the covenant from
        Bank One; however, Bank One will not make any advances under the
        Revolver until the Company: (i) is in compliance with the relevant
        covenant; and (ii) grants Bank One a first priority secured interest in
        substantially all of the Company's assets.


4.      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 the 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, 1998 and 1999 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 $203,000, $477,000 and $460,000 for the
        years ended January 31, 1997, 1998 and 1999, respectively.



                                      F-11
<PAGE>   35
                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       INCOME TAXES

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

<TABLE>
<CAPTION>
                                 YEARS ENDED JANUARY 31,
                       ----------------------------------------
                           1997          1998           1999
                       -----------   -----------    -----------
<S>                    <C>           <C>            <C>        
          Current:
             Federal   $   775,000   $ 2,417,000    $ 3,102,000
             Foreign            --       670,000        288,000
             State          22,000        68,000             --
                       -----------   -----------    -----------
                           797,000     3,155,000      3,390,000
          Deferred         652,000       792,000     (6,850,000)
                       -----------   -----------    -----------
                       $ 1,449,000   $ 3,947,000    $(3,460,000)
                       ===========   ===========    ===========
</TABLE>

        The components of the Company's deferred tax liability consisted of the
following as of:

<TABLE>
<CAPTION>
                                                                   JANUARY 31,
                                                            --------------------------
                                                                1998           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>        
Deferred tax assets:
   Allowance for doubtful accounts                          $   369,000    $   553,000
   Canadian net operating loss carryforward                          --        777,000
   Imputed interest carryforward                                     --        458,000
   Inventory valuation allowance                                     --        333,000
   Depreciation -- Canada                                            --        248,000
   Lease pool impairment                                             --      4,829,000
                                                            -----------    -----------
   Gross deferred tax assets                                    369,000      7,198,000
   Valuation allowance                                               --     (1,483,000)
                                                            -----------    -----------
         Net assets                                             369,000      5,715,000
Deferred tax liabilities:
   Tax accounting change from cash basis to accrual basis    (1,242,000)      (804,000)
   Depreciation -- U.S.                                      (1,466,000)      (400,000)
                                                            -----------    -----------
   Deferred tax asset (liability), net                      $(2,339,000)   $ 4,511,000
                                                            ===========    ===========
</TABLE>



                                      F-12
<PAGE>   36

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5.      INCOME TAXES  (continued)

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

<TABLE>
<CAPTION>
                                                       YEARS ENDED JANUARY 31,
                                            ----------------------------------------
                                               1997          1998           1999
                                            -----------   -----------    -----------
<S>                                         <C>           <C>            <C>         
Federal income tax expense at 34%           $ 1,411,000   $ 3,515,000    $(4,075,000)
State and foreign taxes                          26,000       277,000             --
Deferred benefit not currently recognized            --            --      1,483,000
Nondeductible expenses                           12,000        47,000         16,000
Prior year over accrual                              --            --       (600,000)
Other                                                --       108,000       (284,000)
                                            -----------   -----------    -----------
                                            $ 1,449,000   $ 3,947,000    $(3,460,000)
                                            ===========   ===========    ===========
</TABLE>

        The Company had Canadian net operating loss carryforwards of
        approximately $1,726,000 as of January 31, 1999. The Canadian net
        operating losses expire in 2005 and 2006.

        The Company recorded a valuation allowance of $1,483,000 as of January
        31, 1999.


6.      SALES AND MAJOR CUSTOMERS

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

<TABLE>
<CAPTION>
                         YEARS ENDED JANUARY 31,
                ---------------------------------------
                    1997          1998          1999
                -----------   -----------   -----------
<S>             <C>           <C>           <C>        
Canada          $ 3,287,000   $ 8,064,000   $ 7,138,000
UK/Europe         1,657,000     4,172,000     3,673,000
Mexico              174,000       940,000     2,121,000
South America     1,271,000     2,842,000     6,819,000
Asia                393,000       919,000       915,000
Other                 4,000       160,000            --
                -----------   -----------   -----------
   Totals       $ 6,786,000   $17,097,000   $20,666,000
                ===========   ===========   ===========
</TABLE>


        Three customers represented approximately 15%, 14% and 12%,
        respectively, of fiscal 1997 total revenues, and two customers
        represented approximately 20% and 17%, respectively, of fiscal 1998
        total revenues. One customer represented approximately 36% of fiscal
        1999 total revenues. No other customer exceeded 10% of revenues for
        fiscal 1997, 1998 and 1999.


                                      F-13
<PAGE>   37


                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.      CONCENTRATIONS OF CREDIT RISK

        As of January 31, 1998 and 1999, amounts due from customers which
        exceeded 10% of accounts receivable amounted to an aggregate of $6.5
        million from two customers and $5.3 million from four 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.


8.      SHAREHOLDERS' EQUITY

        The Company has 1,000,000 shares of preferred stock authorized, none of
        which are outstanding as of January 31, 1998 and 1999. 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 9,425,759 and 9,545,658 are issued
        and outstanding as of January 31, 1998 and 1999, respectively. Warrants
        to acquire 892,750 shares of the Company's common stock at $3.50 per
        share issued in connection with the Company's 1995 initial public
        offering were exercised during fiscal 1997. During March and December
        1997, the Company consummated public offerings of its common stock, as
        more fully discussed in Note 12, in which it sold to underwriters an
        aggregate of 4,775,000 shares of common stock.

        The Company issued warrants to various shareholders during fiscal 1995
        to acquire 49,500 shares of the Company's common stock at $5.00 per
        share. The number of shares and exercise price of the warrants were
        adjusted to 63,953 and $3.87, respectively, during fiscal 1996 as a
        result of the anti-dilution provisions of the warrants. Of these
        warrants, 49,113 and 40,711 remained unexercised at January 31, 1998 and
        1999, respectively.

        In July 1995, the Company issued warrants to acquire 35,000 shares of
        its common stock to a public relations firm engaged by the Company. The
        warrants are exercisable at $3.50 per share for a period of five years
        from their issuance, and 15,000 remain unexercised at January 31, 1998
        and 1999.

        In August 1996, in exchange for services, the Company issued warrants to
        its legal counsel to purchase 50,000 shares of its common stock for
        $6.43 per share (the "August 1996 Warrants"), exercisable beginning
        August 1997 for a period of four years thereafter. Of this amount,
        warrants to acquire 40,000 shares are unexercised at January 31, 1998
        and


                                      F-14

<PAGE>   38


                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.      SHAREHOLDERS' EQUITY  (continued)

        1999. In December 1996, in exchange for services, the Company issued
        warrants to its legal counsel to purchase 50,000 shares of its common
        stock at $9.28 per share (the "December 1996 Warrants"), exercisable
        beginning December 14, 1997 for a period of five years. As of January
        31, 1998 and 1999, none of the December 1996 Warrants have been
        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; all 25,000
        remain unexercised at January 31, 1999. As of January 31, 1999, the
        exercise prices of the December 1996 Warrants and the 1997 Warrants were
        $7.00 per share, which was the offering price of the Company's common
        stock in its public offering completed in March 1997, a result of the
        anti-dilution provisions of those warrants.

        Warrants to acquire 200,000 shares of the Company's common stock were
        issued to underwriters in connection with the Company's secondary
        offering in March 1997. The warrants are exercisable at $8.40 per share
        for a period of two years from their issuance, and 200,000 and 55,000
        remain unexercised at January 31, 1998 and 1999, respectively.


9.      COMMITMENTS AND CONTINGENCIES

        Effective June 30, 1998, the Company and I/O entered into a new
        Preferred Supplier Agreement (the "I/O Agreement"), replacing the
        parties' Exclusive Lease Referral Agreement, under which the Company had
        completely fulfilled its obligation. Under the I/O Agreement, the
        Company agreed to purchase a minimum of between $90 and $100 million of
        I/O products (after discounts) in stated increments over a five-year
        term. In addition, I/O agreed to refer rental inquiries from customers
        worldwide to the Company during the term of the agreement, and not to
        lease products covered by the I/O Agreement, except in limited
        circumstances. In a related transaction, I/O sold to the Company for $15
        million a substantial portion of its subsidiary's equipment lease pool,
        some of which was subject to existing short-term lease agreements.

        Subsequent to January 31, 1999, the Company and I/O agreed to terminate
        the I/O Agreement, thereby releasing the Company from its obligation to
        make future minimum purchases. As a result of the termination, I/O is no
        longer obligated to refer rental inquiries to the Company and is free to
        enter the short-term leasing business.

        Legal Proceedings - On or about April 23, 1998, several class action
        lawsuits were filed against the Company and its chief executive officer
        and then chief financial officer in the


                                      F-15

<PAGE>   39

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.      COMMITMENTS AND CONTINGENCIES  (continued)

        U.S. District Court for the Southern District of Texas, Houston
        Division. The first-filed complaint, styled Stanley Moskowitz v. Mitcham
        Industries, Inc., Billy F. Mitcham, Jr. and Roberto Rios, alleged
        violations of Section 10(b) and 20(a) of the Securities Exchange Act of
        1934 and Sections 11 and 12(a)(2) of the Securities Act of 1933. On or
        about September 21, 1998, the complaints were consolidated into one
        action. On November 4, 1998, the plaintiffs filed a consolidated amended
        complaint ("CAC"), which seeks class action status on behalf of those
        who purchased the Company's common stock from June 4, 1997 through March
        26, 1998, and damages in an unspecified amount plus costs and attorney's
        fees. The CAC alleges that the Company made materially false and
        misleading statements and omissions in public filings and announcements
        concerning its business and its allowance for doubtful accounts. On or
        about March 30, 1999, the Company filed a motion to dismiss the CAC. The
        motion is now fully briefed and the Company is awaiting a ruling by the
        Court.

        The Company is also involved in claims and legal actions arising in the
        ordinary course of business. In the opinion of management, the ultimate
        disposition of these matters will not have a material adverse effect on
        the Company's financial position, results of operations or liquidity.

        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 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.



                                      F-16
<PAGE>   40

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.     STOCK OPTION PLANS

        The Company's stock option plans consist of the 1994 Stock Option Plan,
        the 1998 Stock Awards Plan and the 1994 Non-Employee Director Plan.
        Under the 1994 Stock Option Plan, options to purchase a maximum of
        350,000 shares of common stock may be issued to officers, employee
        directors, key employees and consultants of the Company. The plan
        provides both for the grant of options intended to qualify as "incentive
        stock options" under the Internal Revenue Code of 1986, as amended (the
        "Code"), as well as options that do not so qualify. As of January 31,
        1999, 349,700 options authorized for issuance have been granted.

        At the 1998 Annual Meeting of Shareholders, the Company's shareholders
        approved the adoption of the 1998 Stock Awards Plan. 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.

        With respect to incentive stock options issued under both the 1994 Stock
        Option Plan and the 1998 Stock Awards Plan, no option may be granted
        more than 10 years after the effective date of the stock option plan or
        exercised more than 10 years after the date of grant (five years if the
        optionee owns more than 10% of the common stock of the Company at the
        date of grant.) The vesting period for options will be determined by the
        Compensation Committee, except that no option may be exercised sooner
        than six months from the date of grant. Additionally, with regard to
        incentive stock options, the exercise price of the option may not be
        less than 100% of the fair market value of the common stock at the date
        of grant (110% if the optionee owns more than 10% of the common stock of
        the Company). Subject to certain limited exceptions, options may not be
        exercised unless, at the time of exercise, the optionee is in the
        service of the Company. As of January 31, 1999, options to purchase an
        aggregate of 221,580 shares of common stock are issued and outstanding
        under the 1994 Stock Option Plan, 97,130 of which are exercisable at a
        price of $5.00 per share, 30,000 of which are exercisable at $3.29 per
        share, 30,000 of which are exercisable at $5.75 per share, 49,450 of
        which are exercisable at $22.00 per share and 15,000 of which are
        exercisable at $5.38 per share. As of January 31, 1999, options to
        purchase an aggregate of 60,000 shares of common stock are issued and
        outstanding under the 1998 Stock Awards Plan, all of which are
        exercisable at a price of $7.38 per share.

        The Company has a non-employee director stock option plan (the "Director
        Plan") which provides for the grant of options that do not qualify as
        "incentive stock options" under the Code. Options granted under the
        Director Plan must have an exercise price at least equal to the fair
        market value of the Company's common stock on the date of grant.
        Pursuant to the Director Plan, options to purchase 5,000 shares of
        common stock are granted to each


                                      F-17
<PAGE>   41

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.     STOCK OPTION PLANS  (continued)

        non-employee director upon his election to the Board and every year
        thereafter so long as he is re-elected to the Board of Directors.
        Options granted under the Director Plan are fully vested one year after
        their grant and expire 10 years after the date of the grant. As of
        January 31, 1999, options to purchase an aggregate of 19,000 shares of
        common stock are issued and outstanding under the Director Plan, 1,000
        of which are exercisable at $2.88 per share, 2,000 of which are
        exercisable at $3.13 per share, 3,000 of which are exercisable at $7.38
        per share, 10,000 of which are exercisable at $11.00 per share and 3,000
        of which are exercisable at $11.13 per share.

        Activity in the 1994 Stock Option Plan, 1998 Stock Awards Plan and
        Director Plan for the years ended January 31, 1997, 1998 and 1999 was as
        follows:

<TABLE>
<CAPTION>
                                                   Weighted
                                                    Average
                                                    Exercise
                                       Number of     Price
                                        Shares     Per Share
                                       --------    ---------
<S>                                    <C>         <C>      
Outstanding, January 31, 1996           251,250    $    4.54
      Exercised                              --           --
      Granted                            43,500         5.87
      Expired                            (1,000)          --
                                       --------    ---------
Outstanding, January 31, 1997           293,750    $    4.73
      Exercised                         (89,120)        4.68
      Granted                            67,750        21.52
      Expired                              (500)        3.29
                                       --------    ---------
Outstanding, January 31, 1998           271,880         8.91
      Exercised                         (41,000)        4.31
      Granted                            85,000         7.45
      Expired                           (15,300)       22.00
                                       --------    ---------
Outstanding, January 31, 1999           300,580    $    8.46
                                       ========    =========
</TABLE>


        As of January 31, 1999, options to acquire 215,580 shares of the
        Company's common stock were fully vested and exercisable at a weighted
        average exercise price of $8.86 per share. The remaining options, which
        have a weighted average exercise price of $7.45 per share, will vest
        over the next three fiscal years.

        If not previously exercised, options outstanding at January 31, 1999
        will expire as follows: 29,880 options expire on May 9, 1999; 67,250
        options expire on May 9, 2004; 1,000 options expire on March 16, 2005;
        2,000 options expire on June 8, 2005; 30,000 options expire on December
        4, 2005; 3,000 options expire on June 12, 2006; 30,000 options expire


                                      F-18
<PAGE>   42

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.     STOCK OPTION PLANS  (continued)

        on August 14, 2006; 3,000 options expire on June 11, 2007; 49,450
        options expire on October 3, 2007; 10,000 options expire on July 9,
        2008; 15,000 options expire on August 31, 2008, and 60,000 options
        expire on September 29, 2008.

        The Company applies APB Opinion No. 25, Accounting for Stock Issued to
        Employees, and related Interpretations in accounting for its plans.
        Accordingly, no compensation cost has been recognized for its stock
        option plans since options have been granted at fair value. Had
        compensation expense for the Company's stock-based compensation plans
        been determined based on the fair value at the grant dates for awards
        under those plans, consistent with the method of SFAS No. 123, the
        Company's net income (loss) and income (loss) per common share would
        have been decreased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                         YEARS ENDED JANUARY 31,
                                             ---------------------------------------------
                                                  1997            1998            1999
                                             -------------   -------------   -------------
<S>                                          <C>             <C>             <C>            
Net income (loss)
      As reported                            $    2,702,000  $    6,392,000  $   (8,526,000)
      Pro forma                                   2,443,000       6,011,000      (9,177,000)
Net income (loss) per common share (basic)
      As reported                            $          .66  $          .87  $         (.90)
      Pro forma                                         .59             .82            (.97)
</TABLE>

        The fair value of each option grant was estimated on the date of grant
        using the Black-Scholes option pricing model with the following
        assumptions: risk free rates of 4.5% to 7%; volatility of 48.4%, 59% and
        66% for 1997, 1998 and 1999, respectively; no assumed dividend yield;
        and expected lives of 5-10 years.


11.     FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company's financial instruments consist of trade receivables and
        payables. The Company believes the carrying value of these financial
        instruments approximates their estimated fair value.


12.     PUBLIC OFFERINGS OF COMMON STOCK

        During March 1997, the Company completed a public offering of a total of
        3,450,00 shares of its common stock, of which 2,875,000 shares were sold
        by the Company and 575,000



                                      F-19
<PAGE>   43

                            MITCHAM INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.     PUBLIC OFFERINGS OF COMMON STOCK  (continued)

        shares were sold by the selling shareholders. The net proceeds to the
        Company from the offering (after deducting underwriting discounts and
        commissions and estimated expenses of the offering) were approximately
        $18.2 million.

        During December 1997, the Company completed a public offering of a total
        of 1,920,000 shares of its common stock, of which 1,900,000 shares were
        sold by the Company and 20,000 shares were sold by selling shareholders.
        The net proceeds to the Company from the offering (after deducting
        underwriting discounts and commissions and estimated expenses of the
        offering) were approximately $33.6 million.


13.     PROVISION FOR ASSET IMPAIRMENT

        During the fiscal year ended January 31, 1999, the Company recorded a
        pretax asset impairment charge of $15.1 million. Included in this charge
        is a $900,000 lower of cost or market adjustment related to certain
        seismic equipment assets classified as inventory. The non-cash asset
        impairment charge was recorded in accordance with SFAS No. 121, which
        requires that long-lived assets and certain identifiable intangibles
        held and used by the Company be reviewed for impairment whenever events
        or changes in circumstances indicate that the carrying amount of an
        asset may not be recoverable. The severity as well as the duration of
        the current oil and gas industry downturn is such an event. The
        Company's review of its long-lived assets indicated that the carrying
        value of certain of the Company's seismic equipment lease pool and
        inventory assets was more than the estimated undiscounted future net
        cash flows. As such, under SFAS No. 121, the Company wrote down those
        assets to their estimated fair market value based on discounted cash
        flows using an effective rate of 8.0%. Undiscounted future net cash
        flows were calculated based on individual types of seismic equipment
        using projected future utilization and lease rates over the estimated
        remaining useful lives of the assets. The Company's seismic equipment
        assets have been historically depreciated over 3-10 years. The
        impairment was recorded based on certain estimates and projections as
        stipulated in SFAS No. 121.



                                      F-20
<PAGE>   44


                          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 generally accepted auditing standards, the
consolidated financial statements of Mitcham Industries, Inc. and Subsidiary
included in this Form 10-K and have issued our report thereon dated April 12,
1999. 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 16(b) 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.


HEIN + ASSOCIATES LLP

Houston, Texas
April 12, 1999


                                      F-21
<PAGE>   45
                                        
                                        
                                        
                                        
                                  SCHEDULE II
                                        
                            MITCHAM INDUSTRIES, INC.
                                        
                       VALUATION AND QUALIFYING ACCOUNTS
                                        

<TABLE>
<CAPTION>
         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
-------------------------  ---------------------- ------------------------- ---------------------- ----------------------
<S>                        <C>                    <C>                       <C>                    <C>          
January 31, 1997
   Allowance for                                                                                                         
    doubtful accounts          $     347,000          $   1,346,000           $    193,000(A)           $   1,500,000

January 31, 1998
   Allowance for                                                                                                         
    doubtful accounts          $   1,500,000          $     842,000           $  1,318,000(A)(B)        $   1,024,000

January 31, 1999
   Allowance for                                                                                                         
    doubtful accounts          $   1,024,000          $   1,705,000           $  1,104,000(A)           $   1,625,000
</TABLE>


----------------------
(A) Represents recoveries and uncollectible accounts written off.
(B) Includes approximately $850,000 reserved in fiscal 1997 that was written off
    in fiscal 1998.

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



                                      F-22
<PAGE>   46



                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTIONS
-------                           ------------
<S>               <C>    <C>
       3.1        --     Amended and Restated Articles of Incorporation of 
                         Mitcham Industries,  Inc.(1) (Exhibit 3.1)
       3.2        --     Amended and Restated Bylaws of Mitcham Industries, Inc.
                         (1) (Exhibit 3.2)
       4.1        --     Copy of Specimen stock certificate evidencing Common
                         Stock of Mitcham Industries, Inc. (2) (Exhibit 4.1)
         9        --     Voting Agreement, dated September 20, 1993, between the
                         Company,  Billy F. 
</TABLE>


<PAGE>   47

<TABLE>
<S>               <C>    <C>
                         Mitcham, Jr. and certain shareholders (1) (Exhibit 9)
      10.1        --     Exclusive Lease Referral Agreement, dated February 22,
                         1994, between Mitcham Industries, Inc. and 
                         Input/Output, Inc., as amended. (3) (Exhibit 10.1)
      10.2        --     Fourth Amendment to Exclusive Lease Referral Agreement
                         with Input/Output, Inc. 
      10.3        --     Fifth Amendment to Exclusive Lease Referral Agreement
                         with Input/Output, dated January 9, 1997 (5) (Exhibit
                         10.2)
    * 10.4        --     Employment Agreement, dated January 15, 1997, between
                         the Company and Billy F. Mitcham, Jr. (5) (Exhibit
                         10.4)
      10.5        --     Consulting Agreement, dated April 1, 1994, between the
                         Company and Billy F. Mitcham, Sr. (1) (Exhibit 10.16)
      10.6        --     First Amendment to Consulting Agreement, dated January
                         15, 1997, between the Company and Billy F. Mitcham, Sr.
                         (5) (Exhibit 10.6)
      10.7        --     Exclusive Lease Referral Agreement, dated May 14, 1996,
                         between the Company and Pelton Company, Inc. (4)
                         (Exhibit 10.1)
      10.8        --     First Amendment to the Exclusive Lease Referral
                         Agreement, dated January 1997, between the Company and
                         Pelton (7) (Exhibit 10.17)
      10.9        --     Second Amendment to the Exclusive Lease Referral
                         Agreement between Mitcham Industries, Inc. and Pelton
                         Company, Inc., dated November 24, 1997 (7) (Exhibit
                         10.3)
     10.10        --     Exclusive Equipment Lease Agreement, effective
                         September 20, 1996, between the Company and SERCEL,
                         S.A. (4) (Exhibit 10.2)
     10.11        --     Commercial Representation Agreement, effective
                         September 20, 1996, between Mitcham Canada Ltd., an
                         Alberta corporation, and Georex, Inc. (4) (Exhibit 
                         10.3)
     10.12        --     Amendment No. 1 to the Commercial Representation 
                         Agreement between Mitcham Canada, Ltd. and Georex,
                         Inc., dated November 11, 1997 (7) (Exhibit 10.1)
     10.13        --     Exclusive Lease Representative and Distributor 
                         Agreement between Mitcham Industries, Inc. and StrucTec
                         Systems, Inc., dated October 30, 1997 (7) (Exhibit
                         10.2)
     10.14        --     Letter Loan Agreement between Mitcham Industries, Inc.
                         and Bank One, Texas, N.A., dated December 7, 1997 (7)
                         (Exhibit 10.4)
     10.15        --     Promissory Note in the original principal amount of
                         $15,000,000, made payable to the order of Bank One,
                         Texas, N.A., dated December 8,1997(7) (Exhibit 10.5)
     10.16        --     Equipment Purchase Agreement between Mitcham 
                         Industries, Inc. and Input/Output, Inc., dated May 31,
                         1998(9) (Exhibit 10.1)
     10.17        --     Preferred Supplier Agreement between Mitcham 
                         Industries, Inc. and Input/Output, Inc., dated June 30,
                         1998(10) (Exhibit 10.1)
   * 10.18        --     1994 Stock Option Plan of Mitcham Industries, Inc.(2)
                         (Exhibit 10.9)
     10.19        --     Form of Incentive Stock Option Agreement(2) (Exhibit
                         10.10)
     10.20        --     Form of Nonqualified Stock Option Agreement(2) (Exhibit
                         10.11)
     10.21        --     1994 Non-Employee Director Stock Option Plan of Mitcham
                         Industries, Inc.(2) (Exhibit 10.12)
     10.22        --     Form of Nonqualified Stock Option Agreement(2) (Exhibit
                         10.13)
     10.23        --     Form of Mitcham Industries, Inc. customer lease
                         agreement (1) (Exhibit 10.20)
     21           --     Subsidiaries of the Company (6) (Exhibit 11)
     23           --     Consent of Hein + Associates LLP
     27           --     Financial Data Schedule

     *                   Management contract or compensatory plan or arrangement
</TABLE>


<PAGE>   48



(1)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form SB-2 (File No. 33-81164-D),
         filed with the SEC on July 5, 1994.

(2)      Incorporated  by  reference  to the  indicated  exhibit  number of the
         Company's Amendment No. 2 to the Registration Statement on Form SB-2,
         filed with the SEC on November 9, 1994.

(3)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 3 to the Registration Statement on Form SB-2,
         filed with the SEC on December 12, 1994.

(4)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-3 (File No. 333-10555),
         filed with the SEC on October 30, 1996.

(5)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-1 (File No. 333-19997),
         filed with the SEC on January 17, 1997.

(6)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 1 to its Registration Statement on Form S-1,
         filed with the SEC on January 31, 1997.

(7)      Incorporated by reference to the indicated exhibit number of the
         Company's Registration Statement on Form S-3 (File No. 333-40507),
         filed with the SEC on November 18, 1997.

(8)      Incorporated by reference to the indicated exhibit number of the
         Company's Amendment No. 2 to its Registration Statement on Form S-3
         (File No. 333-40507), filed with the SEC on December 17, 1997.

(9)      Incorporated by reference to the indicated exhibit number of the
         Company's Quarterly Report on Form 10-QSB filed with the SEC on June
         22, 1998.

(10)     Incorporated by reference to the indicated exhibit number of the
         Company's Current Report on Form 8-K, filed with the SEC on July 15,
         1998.