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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2002

OR

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 0-10723

BOLT TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (203) 853-0700

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨  No  x

At February 12, 2003, there were 5,414,357 shares of Common Stock, without par value, outstanding.

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BOLT TECHNOLOGY CORPORATION

INDEX

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PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

BOLT TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Notes to Consolidated Financial Statements.

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BOLT TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

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BOLT TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See Notes to Consolidated Financial Statements.

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BOLT TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1—Basis of Presentation

The consolidated balance sheet as of December 31, 2002, the consolidated statements of operations for the three month and six month periods ended December 31, 2002 and 2001 and the consolidated statements of cash flows for the six month periods ended December 31, 2002 and 2001 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal, recurring items. Interim results are not necessarily indicative of results for a full year. It is suggested that the December 31, 2002 consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.

Note 2—Goodwill

Effective July 1, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill amortization ceased when the new standard was adopted. The standard also requires a test for goodwill impairment at least annually. A test of the Company’s recorded goodwill balances was conducted in November 2002 and it was determined that no impairment existed as of July 1, 2002.

As a result of an acquisition in fiscal year 1998, the Company generated tax deductible goodwill which exceeded the goodwill recorded for book purposes. The goodwill reductions during the six month periods ended December 31, 2002 and 2001 of $22,000 and $20,000, respectively, are a result of the tax benefits generated by the excess tax deductions.

Note 3—Credit Facility

In May 2002, the Company entered into a one-year $1,500,000 unsecured line of credit agreement with a bank to support working capital requirements. The agreement provides for, among other things, an interest rate option of prime rate, or LIBOR plus 1.75 percent, and a fee of .375 basis points per annum on the unutilized portion of the facility. In addition, the agreement contains certain financial covenants including (i) maintaining a debt service coverage ratio of at least 3-to-1, (ii) maintaining a ratio of total liabilities to tangible net worth of not greater than 2-to-1, and (iii) that the Company cannot report two consecutive quarters of losses or a loss for any fiscal year. The Company is in compliance with all covenants of the agreement at December 31, 2002 and to date there have been no borrowings under this facility.

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Note 4—Income Taxes

Components of income tax expense for the six months ended December 31, 2002 and 2001 are as follows:

Note 5—Inventories

Inventories, net of reserves, are comprised of the following:

Note 6—Property and Equipment

Property and equipment are comprised of the following:

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Note 7—Earnings Per Share

Basic earnings per share are computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The following tabulation sets forth the calculation of basic and diluted earnings (loss) per share for the three month and six month periods ended December 31, 2002 and 2001.

For the three month and six month periods ended December 31, 2002, the effect of any shares subject to options was not included in the calculation because to do so would have been antidilutive.

Note 8—Segment Information

The Company’s reportable segments are geophysical equipment and industrial products. The following table provides selected financial information for the Company’s business segments:

Six months ended December 31, 2002

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Six months ended December 31, 2001

The Company does not allocate income taxes to its segments.

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Purposes of Forward-Looking Statements

Forward-looking statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission, the Company’s press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including without limitation (i) the risk of technological change relating to the Company’s products and the risk of the Company’s inability to develop new competitive products in a timely manner, (ii) the risk of decreased demand for the Company’s products due to fluctuations in energy industry activity, (iii) the Company’s reliance on certain significant customers, (iv) risks associated with a significant amount of foreign sales, and (v) risk of fluctuations in future operating results. The Company believes that forward-looking statements made by it are based on reasonable expectations. However, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements. The words “estimate,” “project,” “anticipate,” “expect,” “predict,” “believe,” and similar expressions are intended to identify forward-looking statements.

Overview

Sales for the Company’s geophysical products are related to the level of worldwide oil and gas exploration and development activity, which is dependent, primarily, on oil and gas prices. Because of a rapid decline in oil prices in 1999, oil companies reduced exploration budgets, which caused the Company’s customers, primarily seismic contractors, to reduce activities. This reduction in activity resulted in underutilized and idle seismic vessels. Increasing oil prices during the last half of fiscal 2001 and through fiscal 2002 resulted in an increase in marine seismic exploration activity which benefited the Company’s geophysical equipment sales and profitability. However, during the first half of fiscal 2003, the energy industry has become more cautious on exploration spending, which the Company believes reflects uncertain economic and

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political outlooks. This slowdown in marine seismic activity was industrywide. The Company did not ship any complete energy source systems during the first and second quarters of fiscal 2003, and sales of replacement parts decreased significantly during the second quarter. The Company presently has several complete energy source system proposals outstanding and the Company is guardedly optimistic that some of these systems will be shipped during the remainder of fiscal 2003. The Company also continues to be encouraged as to the use of its energy source systems for 4-D seismic applications.

As for the industrial products segment of the Company’s business, sales improved in each of the first and second quarters of fiscal 2003, as compared to the same fiscal 2002 quarter, reflecting the addition of new customers.

Liquidity and Capital Resources

At December 31, 2002, the Company had $2,373,000 in cash and cash equivalents. For the six months ended December 31, 2002, cash and cash equivalents increased by $899,000. Cash flow from operating activities after changes in working capital items was $907,000 for the six months ended December 31, 2002, primarily due to a decrease in accounts receivable, partially offset by a decrease in current liabilities.

For the six months ended December 31, 2002, the Company used $8,000 for capital expenditures. The Company does not anticipate capital expenditures for the current fiscal year to exceed $100,000 which will be funded by operating cash flow.

At December 31, 2001, the Company had $2,634,000 in cash and cash equivalents. For the six months ended December 31, 2001, cash and cash equivalents increased by $1,305,000. Cash flow from operating activities after changes in working capital items was $2,188,000 for the six months ended December 31, 2001, primarily due to net income and a decrease in accounts receivable, partially offset by lower current liabilities.

For the six months ended December 31, 2001, the Company used $33,000 for capital expenditures and $850,000 for the scheduled repayment of the debt issued for the acquisition of A-G Geophysical Products, Inc.

In May 2002, the Company entered into a one-year $1,500,000 unsecured line of credit agreement with a bank to support working capital requirements. The details of this credit facility are summarized in Note 3 to the consolidated financial statements.

Under the terms of the January 1, 1998 purchase agreement for Custom Products Inc., the Company could have been required to make additional annual payments to the former owners in the maximum amount of $4,000,000 if net sales of Custom Products had increased to certain levels by December 2002. No payments were required because net sales targets were not met.

In October 1998, the Company’s Board of Directors approved a stock repurchase program under which the Company was authorized to buy up to 500,000 shares of its Common Stock in open market or private transactions. Although the program remains authorized, the Company has not repurchased any shares and currently has no firm plan to make repurchases.

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Current cash and cash equivalent balances, anticipated cash flow from operations, and borrowing capacity under the Company’s credit facility are considered adequate to meet foreseeable operating needs for the balance of fiscal 2003.

The Company does not use off-balance sheet financing arrangements and does not have any relationship with unconsolidated entities or any special purpose entities. The Company has not made any financial guarantees and has not entered into any transactions with related persons or entities which are material to the Company’s financial statements.

Results of Operations

Six Months Ended December 31, 2002 Compared to Six Months Ended December 31, 2001

Sales for the six months ended December 31, 2002 decreased by $2,959,000 or 35% from the corresponding period last year. Sales of geophysical equipment decreased by $3,010,000 or 42% because of the industry-wide slowdown in marine seismic activity. In particular, there were no sales of complete energy source systems and replacement part sales decreased significantly in the second quarter of fiscal 2003. This decrease was partially offset by a $51,000 or 4% increase in sales of industrial products compared to the six month period ended December 31, 2001, reflecting the addition of new customers.

Cost of sales as a percentage of sales increased from 57% for the six months ended December 31, 2001 to 62% for the six months ended December 31, 2002. The major reason for this increase was lower manufacturing efficiencies in the geophysical equipment segment reflecting significantly lower sales volumes for replacement parts and no complete energy source system sales.

Research and development costs decreased by $16,000 from the corresponding period last year. Such decrease is not significant and does not reflect any change in the Company’s ongoing research and development programs.

Selling, general and administrative expenses decreased by $175,000 or 8% for the six months ended December 31, 2002 from the six months ended December 31, 2001 due primarily to lower bad debt expense in the geophysical equipment segment.

Interest expense for the six months ended December 31, 2002 was zero and $132,000 for the six months ended December 31, 2001. The reason for this decrease was the payment in full in April 2002 of the note issued in connection with the A-G Geophysical Products, Inc. acquisition.

The provision for income taxes for the six months ended December 31, 2002 was $6,000 due primarily to deferred taxes attributable to goodwill amortization for tax purposes.

The above mentioned factors resulted in a net loss for the six months ended December 31, 2002 of $27,000 compared to net income of $711,000 last year.

Three Months Ended December 31, 2002 Compared to Three Months Ended December 31, 2001

Sales for the three months ended December 31, 2002 decreased by $1,861,000 or 43% from the corresponding period last year. Sales of geophysical equipment decreased by $1,882,000 or 52%

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because of the industry-wide slowdown in marine seismic activity. In particular, there were no sales of complete energy source systems in the quarter ended December 31, 2002. This decrease was partially offset by a $21,000 or 3% increase in sales of industrial products compared to the quarter ended December 31, 2001, reflecting the addition of new customers.

Cost of sales as a percentage of sales increased from 55% for the quarter ended December 31, 2001 to 66% for the quarter ended December 31, 2002. The major reason for this increase was lower manufacturing efficiencies in the geophysical equipment segment reflecting the significantly lower sales volumes.

Research and development costs decreased by $20,000 from the corresponding quarter last year. This decrease does not reflect any change in the Company’s ongoing research and development programs.

Selling, general and administrative expenses decreased by $88,000 or 8% for the three months ended December 31, 2002 from the three months ended December 31, 2001 due primarily to lower bad debt expense in the geophysical equipment segment.

Interest expense for the quarter ended December 31, 2002 was zero and $61,000 for the quarter ended December 31, 2001. The reason for this decrease was the payment in full in April 2002 of the note issued in connection with the A-G Geophysical Products, Inc. acquisition.

The provision for income taxes for the three months ended December 31, 2002 was a tax benefit of $91,000 which reflects an effective tax rate of 34%. Partially offsetting the benefit and impacting the effective rate is deferred tax attributable to goodwill amortization for tax purposes.

The above mentioned factors resulted in a net loss for the three months ended December 31, 2002 of $178,000 compared to net income of $409,000 last year.

Critical Accounting Policies

The methods, estimates and judgments the Company uses in applying the accounting policies most critical to its financial statements have a significant impact on the results the Company reports in its financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and results, and require the Company to make its most difficult and subjective judgments.

Based on this definition, the Company’s most critical policies include: recording of inventory reserves and deferred income taxes, and the assessment of recoverability of goodwill and other intangible assets. These policies are discussed below. The Company also has other key accounting policies including policies for revenue recognition. The Company believes that these other policies either do not generally require it to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on the Company’s reported results of operations for a given period. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ substantially from the Company’s estimates and the Company’s estimates could be different using different assumptions or conditions.

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Inventory Reserves

The Company establishes reserves to reflect those conditions when the cost of the inventory is not expected to be recovered. The Company reviews such circumstances including when products are not expected to be saleable. The reserve recorded is equal to all or a portion of the cost of the inventory based on the specific facts and circumstances. The Company monitors inventory levels on a regular basis and records changes in inventory reserves in cost of sales.

Deferred Income Taxes

The Company applies an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates. The recoverability of deferred tax assets is dependent upon the Company’s assessment of whether it is more likely than not that sufficient future taxable income will be generated in the relevant tax jurisdiction to utilize the deferred tax asset. The Company reviews its internal forecasted sales and pre-tax earnings estimates to make its assessment about the utilization of deferred tax assets. In the event the Company determines that future taxable income will not be sufficient to utilize the deferred tax asset, a valuation allowance is recorded. If that assessment changes, a charge or a benefit would be recorded in the consolidated statement of income.

Goodwill and Intangible Assets

In connection with acquisitions, the Company determines the amounts and related useful lives assigned to goodwill and intangibles based on purchase price allocations. These allocations, including an assessment of estimated useful lives, have been performed by qualified independent appraisers using generally accepted valuation methodologies. Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. Useful lives are determined based on the expected future period of benefit of the asset, which considers various characteristics of the asset, including historical cash flows. As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company reviews goodwill annually or more frequently if impairment indicators arise.

Item 3—Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4—Controls and Procedures

The chief executive officer and the chief financial officer, with the assistance of key employees throughout the Company, including its subsidiaries, have evaluated the Company’s disclosure controls and procedures within 90 days prior to the filing of this report. Based upon the results of such evaluation, the chief executive officer and chief financial officer have concluded that such disclosure controls and procedures are adequate. There have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the foregoing evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure.

PART II—OTHER INFORMATION

Item 4—Submission of Matters to a Vote of Security Holders

The 2002 Annual Meeting of Stockholders of the Company was held on November 26, 2002 to elect six directors of the Company, three directors to hold office for a term of three years, one director to hold office for a term of two years and two directors to hold office for a term of one year.

The vote tabulation for the election of directors was as follows:

Nominees for Term Expiring in 2005:

Kevin M. Conlisk received 4,739,913 affirmative votes with 99,827 votes withheld.

Joseph Mayerick, Jr. received 4,717,155 affirmative votes with 122,585 votes withheld.

Gerald M. Smith received 4,739,913 affirmative votes with 99,827 votes withheld.

Nominee for Term Expiring in 2004:

Daniel K. McConlogue received 4,733,863 affirmative votes with 105,877 withheld.

Nominees for Term Expiring in 2003:

Michael H. Flynn received 4,733,863 affirmative votes with 105,877 withheld.

George R. Kabureck received 4,728,863 affirmative votes with 110,877 withheld.

There were no abstentions or broker non-votes.

Item 6—Exhibits and Reports on Form 8-K

99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

No reports on Form 8-K were filed by the Company during October, November and December 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CERTIFICATIONS

I, Raymond M. Soto, certify that:

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I, Joseph Espeso, certify that:

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