UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-------------------------
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED OCTOBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 81164-D
-------------------------
MITCHAM INDUSTRIES, INC.
(Name of small business issuer as specified in its charter)
TEXAS 76-0210849
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
44000 HIGHWAY 75 SOUTH
HUNTSVILLE, TEXAS 77340
(Address of principal executive offices)
(409) 291-2277
(Issuer's telephone number)
-------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act 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
---- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,465,650 shares of Common
Stock, $.01 par value, were outstanding as of December 9, 1996.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
1
MITCHAM INDUSTRIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operations....... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 11
Signatures...................................................... 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
MITCHAM INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS)
October 31, January 31,
ASSETS 1996 1996
(Unaudited) (Audited)
----------- -----------
CURRENT ASSETS:
Cash $ 3,330 $ 637
Accounts receivable, net 3,288 2,277
Installment notes receivable, trade 72 193
Inventories 630 206
Prepaid expenses and other current assets 103 274
------- -------
Total current assets 7,423 3,587
------- -------
Seismic equipment lease pool, net 15,247 8,115
Property plant and equipment, net 530 472
Other assets 52 65
------- -------
Total assets $23,252 $12,239
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank - 400
Current portion of long-term debt 938 447
Accounts payable 3,370 491
Accrued liabilities and other current liabilities 737 474
Income taxes payable - 311
Deferred income taxes payable 916 544
------- -------
Total current liabilities 5,961 2,667
------- -------
LONG-TERM DEBT:
Long-term debt, net of current portion 2,910 1,155
Capital lease obligations, net of current portion - 18
DEFERRED INCOME TAXES 645 351
------- -------
Total liabilities 9,516 4,191
------- -------
------- -------
STOCKHOLDERS' 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, 4,378,650 and 3,221,000 shares,
respectively, issued and outstanding 44 32
Additional paid-in capital 8,398 4,340
Retained earnings 5,294 3,676
------- -------
Total stockholders' equity 13,736 8,048
------- -------
Total liabilities and stockholders' equity $23,252 $12,239
------- -------
------- -------
See accompanying notes.
3
MITCHAM INDUSTRIES, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months Nine months
ended October 31, ended October 31,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
REVENUES:
Leases of seismic equipment $2,410 $1,290 $5,356 $3,431
Sales of seismic equipment 610 791 2,007 1,643
------ ------ ------ ------
Total revenues 3,020 2,081 7,363 5,074
------ ------ ------ ------
COSTS AND EXPENSES:
Seismic equipment subleases - 49 111 222
Sales of seismic equipment 367 503 1,261 1,000
General and administrative 685 401 1,617 1,362
Depreciation 865 374 1,951 825
------ ------ ------ ------
Total costs and expenses 1,917 1,327 4,940 3,409
------ ------ ------ ------
OTHER INCOME (EXPENSE):
Interest, net (42) 6 (170) (6)
Other, net 50 24 219 26
------ ------ ------ ------
Total other income (expense) 8 30 49 20
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 1,111 784 2,472 1,685
PROVISION FOR INCOME TAXES 366 291 854 605
------ ------ ------ ------
NET INCOME $ 745 $ 493 $1,618 $1,080
------ ------ ------ ------
------ ------ ------ ------
Earnings per common share $0.17 $0.16 $0.37 $0.34
------ ------ ------ ------
------ ------ ------ ------
Weighted average common shares
outstanding 4,515,000 3,170,000 4,431,000 3,170,000
--------- --------- --------- ---------
--------- --------- --------- ---------
See accompanying notes.
4
MITCHAM INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months
Ended October 31,
--------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,618 $1,080
Adjustments to reconcile net income to net
cash flows from operating activities:
Receivables, net (1,158) (316)
Accounts payable and other current liabilities (193) 20
Depreciation 1,951 825
Provision for doubtful accounts, net of charge offs 268 -
Deferred income taxes 666 109
Other, net (540) 145
------ -------
Net cash provided by operating activities 2,612 1,863
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of seismic equipment held for lease (5,750) (2,547)
Purchases of property, plant and equipment (131) (377)
Proceeds from sale of property and equipment - 797
------ -------
Net cash used in investing activities (5,881) (2,127)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on short-term borrowings - 400
Payments on short-term borrowings (400) (256)
Proceeds from long-term debt 3,126 326
Payments on long-term debt and capitalized
lease obligations (814) (127)
Capitalized stock issuance costs and deferred
financing charges 4,070 (36)
Payments on capital lease obligations (20) (7)
------ -------
Net cash provided (used) by financing activities 5,962 300
------ -------
NET INCREASE IN CASH 2,693 36
CASH, BEGINNING OF PERIOD 637 874
------ -------
CASH, END OF PERIOD $3,330 $ 910
------ -------
------ -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $289 $79
Taxes $515 $300
------ -------
------ -------
See accompanying notes.
5
MITCHAM INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements of Mitcham Industries, Inc. ("the
Company") have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's latest Annual Report to
Shareholders and the Annual Report on Form 10-KSB for the year ended
January 31, 1996. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position as of October 31, 1996 and 1995, and cash flows for
the nine months then ended have been included.
2. The foregoing interim results are not necessarily indicative of the
results of operations for the full fiscal year ending January 31, 1997.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995.
Revenues of $3,020,000 for the three months ended October 31, 1996 represent
an increase of 45% over revenues of $2,081,000 for the same prior year
period. Leasing services generated revenues of $2,410,000 for the three
months ended October 31, 1996, an increase of $1,120,000, or 87%, as compared
to $1,290,000 for the same prior year period. The majority of this increase
was attributable to additions of lease fleet equipment throughout fiscal 1996
and the first three quarters of fiscal 1997 to meet lease demand. Seismic
equipment sales for the three months ended October 31, 1996 were $610,000, a
decrease of $181,000, or 23%, as compared to $791,000 for the same prior year
period.
While the Company's leasing revenues increased by $1,120,000 for the
three months ended October 31, 1996 as compared to the same prior year
period, sublease costs decreased by $49,000 and depreciation, which relates
primarily to equipment available for lease, increased by $491,000, resulting
in an increase in net leasing revenues of $678,000.
Gross margins on seismic equipment sales were 40% and 36% for the three
months ended October 31, 1996 and 1995, respectively. Margins on sales of
used equipment vary based upon the size of the transactions, the availability
of the product sold and the means by which the equipment was acquired.
Higher dollar transactions tend to yield lower margins than do lower dollar
transactions, while readily available equipment yields lower margins than
equipment that is difficult to locate. In addition, the Company's costs on a
specific piece of equipment may differ substantially based upon whether it
was acquired through a bulk purchase or a discrete search. The margin for
the fiscal 1996 period was slightly higher because of a few high-margin
transactions.
General and administrative expenses increased 71%, or $284,000, for the
three months ended October 31, 1996 as compared to the same period in 1995
and were 23% and 19% of total revenues for the three months ended October 31,
1996 and 1995, respectively. The increase was due to higher accounting and
legal expense, a higher provision for bad debt expense and higher wage
expense. The higher legal and accounting expenses are associated with the
Company being a public company. The Company's provision for doubtful
accounts expense increased from $61,000 in the fiscal 1996 period to $265,000
in the fiscal 1997 period. The increase is a result of additional provisions
for the allowance account. As of October 31, 1996, the Company's allowance
for doubtful accounts receivable amounted to $615,000, which is an amount
management believes is sufficient to cover any losses which may develop in
trade accounts receivable as of that date. The increase to wages is due to an
increase in the number of employees and salary increases.
Net income for the three months ended October 31, 1996 increased by
$252,000, as compared to the same 1995 period. The increase resulted
primarily from the increase in net leasing revenues offset by increases in
general and administrative and the provision for bad debt expense.
7
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995.
Revenues of $7,363,000 for the nine months ended October 31, 1996 represent
an increase of 45% over revenues of $5,074,000 for the same prior year
period. Leasing services generated revenues of $5,356,000 for the nine
months ended October 31, 1996, an increase of $1,925,000, or 56%, as compared
to $3,431,000 for the same prior year period. The majority of this increase
was attributable to additions of lease fleet equipment throughout fiscal 1996
and the first three quarters of fiscal 1997 to meet lease demand. Seismic
equipment sales for the nine months ended October 31, 1996 were $2,007,000,
an increase of $364,000, or 22%, as compared to $1,643,000 for the same prior
year period.
While the Company's leasing revenues increased by $1,925,000 for the nine
months ended October 31, 1996 as compared to the same prior year period,
sublease costs decreased by $111,000 and depreciation, which relates
primarily to equipment available for lease, increased by $1,126,000,
resulting in an increase in net leasing revenues of $910,000.
Gross margins on seismic equipment sales were 37% and 39% for the nine
months ended October 31, 1996 and 1995, respectively. Margins on sales of
used equipment vary based upon the size of the transactions, the availability
of the product sold and the means by which the equipment was acquired.
Higher dollar transactions tend to yield lower margins than do lower dollar
transactions, while readily available equipment yields lower margins than
equipment that is difficult to locate. In addition, the Company's costs on a
specific piece of equipment may differ substantially based upon whether it
was acquired through a bulk purchase or a discrete search. The margin for
the fiscal 1996 period was slightly lower because of a few low-margin
transactions.
General and administrative expenses increased 19%, or $255,000, for the
nine months ended October 31, 1996 as compared to the same period in 1995 and
were 22% and 27% of total revenues for the nine months ended October 31, 1996
and 1995, respectively. The increase was due to higher accounting and legal
expense, a higher provision for bad debt expense and higher wage expense.
The higher legal and accounting expenses are associated with the Company
being a public company. The Company's provision for doubtful accounts
expense increased from $372,000 in the fiscal 1996 period to $418,000 in the
fiscal 1997 period. The increase is a result of additional provisions for the
allowance account. As of October 31, 1996, the Company's allowance for
doubtful accounts receivable amounted to $615,000, which is an amount
management believes is sufficient to cover any losses which may develop in
trade accounts receivable as of that date.
Net income for the nine months ended October 31, 1996 increased by
$538,000, as compared to the same 1995 period. The increase resulted
primarily from the increase in net leasing revenues offset by increases in
general and administrative and the provision for bad debt expense.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1996, the Company had current assets of $7,423,000,
including $3,330,000 in cash, and current liabilities of $5,961,000, which
includes debt totaling $938,000. Cash flows from operations for the nine
months ended October 31, 1996, increased by $749,000 as compared to the same
1995 period. Net income, which included an additional $1,126,000 of
depreciation, increased by $538,000 during the 1996 period. At October 31,
1996, the Company had four customers with an aggregate of $983,000 more than
90 days past due. As of the date of this report, $249,000 of these past due
amounts had been collected. The Company believes it has no other
8
significant credit problems as of October 31, 1996. Inventory increased by
$424,000 as of October 31, 1996, as compared to the same prior year period,
as a result of the Company's acquisition of used seismic equipment at
favorable prices. Accounts payable, accrued liabilities and other current
liabilities and income taxes payable as of October 31, 1996 collectively
amounted to $4,107,000, an increase of $2,831,000 as compared to October 31,
1995. This increase represents additional amounts accrued for equipment
purchases at October 31, 1996 as compared to the same 1995 period.
As of October 31, 1996, the Company had an equipment loan and a revolving
line of credit with a bank consisting of a $4.2 million equipment loan and a
$1.0 million line of credit. Approximately $1.0 million of the equipment
loan was advanced to the Company at January 31, 1996 and was used primarily
to pay amounts due to Input/Output, Inc. ("I/O") for 3-D channel boxes
acquired under the Exclusive Lease Referral Agreement with I/O (the "I/O
Agreement") in fiscal 1996. In March 1996, an additional approximately $3.1
million of the $4.2 million equipment loan was advanced to the Company and an
aggregate of approximately $1.5 million was used to pay all amounts
outstanding under a second equipment loan and second line of credit and to
pay amounts due to I/O for 3-D channel boxes acquired under the I/O Agreement
in fiscal 1997. Amounts due under the term loan at October 31, 1996 are due
in monthly installments of $105,668, including interest at 9.5%, through
January 2000. Amounts borrowed under the $1.0 million line of credit bear
interest at prime plus .5%. Total borrowings under the line are limited to
80% of the Company's eligible accounts receivable and 50% of its eligible
inventory. Both of the foregoing obligations are secured by an assignment of
leases, accounts receivable, and inventory, including lease pool equipment.
At October 31, 1996, the Company also had an outstanding bank loan of
$276,000 in connection with the Company's acquisition in fiscal 1996 of its
office facilities from Mitcham Properties, Inc., a corporation wholly owned
by Billy F. Mitcham, Jr. It is due in monthly installments of $2,803,
including interest at 9%, through September 1998. In April 1996, the Company
used proceeds from the $4.2 million equipment loan described in the previous
paragraph to pay all amounts outstanding on a $50,000 loan used to renovate
the facilities.
Effective June 1, 1996, the Company entered into an agreement with I/O to
amend the terms of and extend the Exclusive Lease Referral Agreement through
May 31, 2000. Under the I/O Agreement as amended, the Company must purchase
an aggregate of $3.0 million of I/O equipment between June 1 and November 30,
1996, (the "Renewal Purchase") with a minimum of $1.5 million to be purchased
by August 31, 1996. Thereafter, from January 1, 1997 through May 31, 1997,
the Company must purchase at least an aggregate of $1.25 million of I/O
equipment. In each of the years from June 1, 1997 through May 31, 1998, June
1 through May 31, 1999 and June 1, 1999 through May 31, 2000, the Company
must purchase at least an aggregate of $3.0 million of I/O equipment (or an
aggregate additional $10.25 million after the $3.0 million Renewal purchase
is made). As of November 30, the Company had purchased I/O equipment
totalling $4.8 million under the I/O Agreement as amended, thereby exceeding
its purchase requirements through May 1997.
In September 1996, the Company entered into two agreements with SERCEL,
S.A. ("SERCEL") a designer and manufacturer of land/shallow water seismic
data acquisition systems and related equipment. One agreement, the Exclusive
Equipment Lease Agreement provides that until December 31, 1999, the Company
will be SERCEL's short-term leasing agent throughout the world and that
SERCEL will refer to the Company all requests it receives from its customers
to lease its 3-D data acquisition equipment and other field equipment; and
the Company will acquire up to $10.2
9
million of SERCEL's 3-D data acquisition equipment and other field equipment
from SERCEL at favorable prices, $800,000 of which will consist of SERCEL's
existing lease pool of primarily 3-D channel boxes. The second agreement,
the Commercial Representation Agreement, provides that until September 19,
1999, the Company will be SERCEL's exclusive sales agent in Canada. In
connection with entering into this agreement, the Company established an
office in Calgary, Alberta, Canada in November 1996 in which up to 10
employees are anticipated to be employed. These agreements with SERCEL allow
the Company to expand its customer base and materially increase the type and
amount of equipment available to its customers. The SERCEL agreements are
part of the Company's overall strategy to incorporate the equipment from all
major 3-D seismic equipment manufacturers into its lease pool.
The Company expects total capital expenditures for fiscal 1997 to be
approximately $10.0 million. At November 30, 1996, capital expenditures for
the fiscal year totalled $9.0 million. The Company anticipates that the cash
flow generated from the I/O 3-D channel boxes which it currently owns and the
available portions of its $1.0 million line of credit with a bank will be
used to fund the remaining $1.0 million of expected fiscal year capital
expenditures.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 11: Computation of Earnings Per Common and Common
Equivalent Share for the nine months ended October 31, 1996
and 1995.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
October 31, 1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MITCHAM INDUSTRIES, INC.
DATE: DECEMBER 13, 1996 ROBERTO RIOS
CHIEF FINANCIAL OFFICER
11
EXHIBIT 11
MITCHAM INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Nine months ended
October 31,
---------------------
1996 1995
--------- ---------
Computation of primary earnings per common share:
Net income ............................................... $1,618 $1,080
--------- ---------
Weighted average number of common shares
outstanding.............................................. 3,999,000 3,170,000
Net effect of dilutive stock options and warrants,
based on the treasury stock method, using average
market price............................................. 432,000 -
--------- ---------
Common shares outstanding................................. 4,431,000 3,170,000
--------- ---------
--------- ---------
Earnings per common share ................................ $0.37 $0.34
--------- ---------
--------- ---------
Computation of earnings per common share
assuming full dilution:
Net income................................................ $1,618 $1,080
--------- ---------
Weighted average number of common shares
outstanding.............................................. 3,999,000 3,170,000
Net effect of dilutive stock options and warrants
based on the treasury stock method, using the
end-of-period market price............................... 490,000 -
--------- ---------
Common shares outstanding assuming full
dilution................................................. 4,489,000 3,170,000
--------- ---------
--------- ---------
Earnings per common share assuming full
dilution................................................. $0.36 $0.34
--------- ---------
--------- ---------
12
5
1,000
9-MOS
JAN-31-1997
AUG-01-1996
OCT-31-1996
3,330
0
3,975
615
630
7,423
19,266
3,489
23,252
5,961
0
0
0
44
13,692
23,252
2,007
7,363
1,261
1,372
3,568
418
289
2,472
854
1,618
0
0
0
1,618
.37
.36
