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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  For the quarterly period ended: March 31, 2004

OR

  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 May 12, 2004, there were 5,414,357 shares of Common Stock, without par value, outstanding.

BOLT TECHNOLOGY CORPORATION

INDEX

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

BOLT TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Notes to Consolidated Financial Statements (Unaudited).

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BOLT TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements (Unaudited).

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BOLT TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See Notes to Consolidated Financial Statements (Unaudited).

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BOLT TECHNOLOGY CORPORATION AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1– Basis of Presentation

The consolidated balance sheet as of March 31, 2004, the consolidated statements of operations for the three month and nine month periods ended March 31, 2004 and 2003 and the consolidated statements of cash flows for the nine month periods ended March 31, 2004 and 2003 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 March 31, 2004 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, 2003.

Note 2 – Description of Business and Significant Accounting Policies

The Company consists of three operating units: Bolt Technology Corporation (“Bolt”), A-G Geophysical Products, Inc. (“A-G”) and Custom Products Corporation (“Custom Products”). Bolt and A-G are in the “geophysical equipment” segment. Bolt manufactures and sells air guns and replacement parts, and A-G manufactures and sells underwater cables, connectors and hydrophones. Custom Products, which is in the “industrial products” segment, manufactures and sells miniature industrial clutches and brakes and sells sub-fractional horsepower electrical motors.

Principles of Consolidation:

The consolidated financial statements include the accounts of Bolt Technology Corporation and its subsidiary companies. All significant intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Allowance for Uncollectible Accounts:

The allowance for uncollectible accounts is established through a provision for bad debts charged to expense. Accounts receivable are charged against the allowance for uncollectible accounts when the Company believes that collectibility of the principal is unlikely. The allowance is an amount that the Company believes will be adequate to absorb estimated losses on existing accounts receivable, based on the evaluation of the collectibility of accounts receivable and prior bad debt experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the accounts receivable, overall accounts receivable quality, review of specific problem accounts receivable, and current economic and industry conditions that may affect the customer’s ability to pay. While the Company uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic and industry conditions.

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Inventories:

Inventories are valued at the lower of cost or market, with cost principally determined on an average cost method which approximates the first-in, first-out method. The Company maintains an inventory valuation reserve to provide for slow moving and obsolete inventory. Amounts are charged to the reserve when the Company scraps or disposes of inventory. See Note 5 to Consolidated Financial Statements (Unaudited) for additional information concerning inventories.

Plant and Equipment:

Plant and equipment are stated at cost. Depreciation for financial accounting purposes is computed using the straight-line method over the estimated useful lives of 5 to l0 years for machinery and equipment and rental assets, 1 to l0 years for geophysical equipment, 15 to 30 years for buildings, and over the term of the lease for leasehold improvements. Major improvements which add to the productive capacity or extend the life of an asset are capitalized, while repairs and maintenance are charged to expense as incurred. See Note 6 to Consolidated Financial Statements (Unaudited) for additional information concerning plant and equipment.

Goodwill:

Goodwill represents the excess cost over the value of net tangible assets acquired in business combinations and until June 30, 2001 was being amortized using the straight-line method over 20 years. Accumulated amortization at March 31, 2004 and June 30, 2003 was $1,750,000. 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 required an initial goodwill impairment test in the year of adoption and annual impairment tests thereafter. The initial impairment test of the goodwill balance as of July 1, 2001 and annual impairment tests of the goodwill balance as of July 1, 2002 and July 1, 2003 were conducted and the tests indicated no impairment. The tests were conducted by management with the assistance of an independent valuation company. See Note 3 to Consolidated Financial Statements (Unaudited) for additional information concerning goodwill.

Revenue Recognition and Warranty Costs:

Sales revenue is recognized when the risk of ownership has been transferred to the buyer, which is generally upon shipment. Warranty costs and product returns incurred by the Company have not been significant.

Income Taxes:

The provision for income taxes is determined under the liability method. Deferred tax assets and liabilities are recognized based on differences between the book and tax bases of assets and liabilities using currently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable for the period determined by applying the provisions of enacted tax laws to the taxable income for that period and the net change during the period in the Company’s deferred tax assets and liabilities. See Note 4 to Consolidated Financial Statements (Unaudited) for additional information concerning the provision for income taxes.

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Stock-Based Compensation:

The Company adopted SFAS No. 148, “Accounting for Stock-Based Compensation -Transition and Disclosure,” in 2003 and SFAS No. 123, “Accounting for Stock-Based Compensation,” in 1997. Under SFAS No. 123, as amended by SFAS No. 148, companies can, but are not required to, elect to recognize compensation expense for all stock-based awards using a fair value methodology. The Company has adopted the disclosure-only provisions, as permitted by SFAS Nos. 123 and 148. In this regard, the Company applies Accounting Principals Board Opinion No. 25 and related interpretations in accounting for its stock-based plans. Accordingly, no compensation expense is recognized for grants under the Company’s stock option plan.

Had compensation cost for stock options granted been recognized in accordance with the provisions of SFAS 123, as amended by SFAS 148, net income and earnings per share for the three months and nine months ended March 31, 2004 and 2003 would have been as follows:

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The fair value of stock options granted in January and June of 2003 was $1.09 per share, as estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

The fair value of stock options granted in November 2002 was $1.36 per share, as estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

The above fair values were used in determining the “additional compensation cost” for the three month and nine month periods ending March 31, 2004 and 2003.

See Note 8 to Consolidated Financial Statements (Unaudited) for additional information concerning stock options.

Long-Lived Assets:

The Company’s long-lived assets consist of plant and equipment and other current and non-current assets. The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is considered impaired when anticipated undiscounted cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company’s review as of March 31, 2004 did not result in any indicators of impairment and therefore, no impairment tests were performed.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting period. The most critical estimates made by the Company are those relating to inventory valuation reserves, goodwill impairment and the realization of deferred tax assets. Actual results could differ from those estimates.

Computation of Earnings Per Share:

Basic earnings (loss) per share is computed by dividing net income (loss) by the average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the average number of common shares outstanding assuming dilution, the calculation of which assumes that all stock options are exercised at the beginning of the period and the proceeds used to purchase shares at the average market price for

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the period. The following is a reconciliation from basic earnings (loss) per share to diluted earnings (loss) per share for the three and nine month periods ended March 31, 2004 and 2003:

For the three and nine month periods ended March 31, 2004 and 2003, the calculations do not include options to acquire 40,000 and 65,000 shares, respectively, since their inclusion would have been anti-dilutive.

Note 3 – Goodwill

The composition of the net goodwill balance by reporting segment is as follows:

The acquisition of Custom Products in fiscal year 1998 generated tax deductible goodwill which exceeded the goodwill recorded for book purposes. The goodwill reduction in the industrial products segment during the nine month period ended March 31, 2004 of $32,000 is a result of the tax benefits generated by the goodwill deductible for tax purposes.

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Note 4 – Income Taxes

The components of income tax expense for the nine months ended March 31 are as follows:

Note 5 – Inventories

Inventories consist of the following:

The inventory valuation reserve reflects the cost of inventory which is not expected to be recovered. The reserve recorded is equal to all or a portion of the cost of such inventory based on the specific facts and circumstances. We monitor inventory levels on a regular basis and record increases in inventory valuation reserves in cost of sales and decreases in inventory valuation reserves when items are scrapped or disposed. During the nine month period ended March 31, 2004, the Company added $98,000 to the reserve for inventory valuation and no items were scrapped or disposed.

Note 6 – Plant and Equipment

Plant and equipment are comprised of the following:

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Note 7 – Segment Information

The Company’s reportable segments are “geophysical equipment” and “industrial products.” Bolt and A-G are in the geophysical equipment segment. Custom Products is in the industrial products segment. The following table provides selected financial information for each segment for the nine months ended March 31, 2004 and 2003:

The Company does not allocate income taxes to its segments.

Note 8 – Stock Options

The Company’s 1993 Stock Option Plan provided for the granting of options to purchase up to 550,000 shares of Common Stock of the Company at a price not less than fair market value at date of grant. Options granted to employees are exercisable for a period of up to ten years. The plan also provided for the granting to non-employee directors of options to purchase 3,000 shares of Common Stock each time they were elected directors.

A summary of the Stock Option Plan changes during the nine month period ended March 31, 2004 is presented below:

Under the terms of the plan, no options can be granted subsequent to June 30, 2003 but options granted prior to that date shall remain in effect until such options have been exercised or terminated in accordance with the plan and the terms of such options.

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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 uncertainty, 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) the 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 of the Company’s geophysical products are generally related to the level of worldwide oil and gas exploration and development activity which is dependent, primarily, on oil and gas prices. During fiscal 2003, despite high oil and gas prices, the energy industry became increasingly more cautious on marine seismic exploration spending. This slowdown in marine seismic activity was industry-wide. During fiscal 2003, the Company did not ship any complete energy source systems until late in the fourth quarter, and sales of air gun replacement parts and underwater electrical connectors were depressed. Because of the slowdown in marine seismic activity, seismic contractors significantly reduced the size of their fleets. Such fleet contraction has resulted in lower sales of geophysical equipment, including the Company’s air guns and underwater connectors. Although marine seismic exploration activity continues to be depressed, there has been improvement during the first nine months of fiscal 2004. Based on proposals that the Company has outstanding and the current level of customer inquiries, the Company anticipates marine seismic exploration activity to continue to improve.

Sales in the industrial products segment also improved during the first nine months of fiscal 2004.

Liquidity and Capital Resources

At March 31, 2004, the Company had $2,411,000 in cash and cash equivalents. For the nine months ended March 31, 2004, cash and cash equivalents increased by $489,000. Cash flow from operating activities after changes in working capital items was $580,000 for the nine months ended March 31, 2004, primarily due to net income adjusted for depreciation and deferred income taxes partially offset by higher accounts receivable and inventories.

For the nine months ended March 31, 2004, the Company used $91,000 for capital expenditures funded from operating cash flow. The Company estimates that capital expenditures for manufacturing equipment for fiscal 2004 will be approximately $150,000. The Company expects to fund these capital expenditures from operating cash flow.

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The Company has an option to purchase the land and buildings in Cypress, Texas where A-G is located for $1,000,000. The option expires in April of 2005, concurrent with the present lease expiration date. The Company currently believes that it will exercise the purchase option prior to its expiration date. In this regard, the Company is considering, among other things, when it will exercise the option and how it will fund the exercise price. Should external financing for all or a portion of the exercise price be deemed appropriate, the Company believes that it could obtain such financing at competitive terms.

Since a relatively small number of customers account for the majority of the Company’s geophysical segment sales, the consolidated accounts receivable balance at the end of any period tends to be concentrated in a small number of customers. At March 31, 2004 and June 30, 2003, the five customers with the highest balances due represented 47% and 43%, respectively, of the consolidated accounts receivable balances on those dates.

At March 31, 2003, the Company had $2,146,000 in cash and cash equivalents. For the nine months ended March 31, 2003, cash and cash equivalents increased by $672,000. Cash flow from operating activities after changes in working capital items was $711,000 for the nine months ended March 31, 2003, primarily due to a decrease in accounts receivable, partially offset by an increase in inventories and a decrease in current liabilities.

For the nine months ended March 31, 2003, the Company used $39,000 for capital expenditures.

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 Company never borrowed under this facility which expired in May 2003. The Company is currently evaluating its requirements with respect to arranging a new facility.

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 plan to make repurchases.

Current cash and cash equivalent balances and projected cash flow from operations are considered adequate to meet foreseeable operating needs. In the event the Company exercises the option for the purchase of the land and building in Cypress, Texas, however, the Company may obtain financing for such purchase.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet financing arrangements. In addition, the Company does not have any relationship with unconsolidated entities or special purpose entities and has not issued any guarantees.

Contractual Obligations

The Company had no long-term borrowings, capital leases, purchase obligations or other long-term liabilities at March 31, 2004 and June 30, 2003.

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Securities and Exchange Commission Informal Inquiry

By letter dated January 23, 2004, the Company was informed that the staff of the Securities and Exchange Commission (the “Staff”) had begun an informal inquiry regarding certain corporate and accounting matters. In its letter, the Staff stated that the inquiry should not be construed to indicate that any federal securities laws had been violated or to reflect on the integrity of any person, the Company or its securities. Although the Company believes that it has acted properly and legally and is voluntarily cooperating with the Staff’s informal inquiry, it can neither predict the length, scope or results of the informal inquiry, or the impact, if any, on its operations. To date, the Company has complied with the information requests of the Staff.

Results of Operations

Nine Months Ended March 31, 2004 Compared to Nine Months Ended March 31, 2003

Sales for the nine months ended March 31, 2004 increased by $2,996,000 or 38% from the corresponding period last year. Sales of geophysical equipment increased by $2,658,000 or 45% primarily due to several complete energy source system sales of traditional guns which amounted to $1,598,000 and the first sale of the Company’s new Annular Port Guns which amounted to $594,000. The remainder of the increase was attributable to higher sales of air gun replacement parts and underwater electrical connectors reflecting increased marine seismic activity. In contrast, there were no sales of complete energy source systems during the nine months ended March 31, 2003. Industrial Products sales for the nine months ended March 31, 2004 increased by $338,000 or 18% compared to the nine months ended March 31, 2003, reflecting higher volume associated with the gradual improvement in the domestic economy and the addition of new customers.

Consolidated cost of sales as a percentage of consolidated sales was 58% for the nine months ended March 31, 2004 versus 62% for the nine months ended March 31, 2003. Cost of sales as a percentage of sales for the geophysical equipment segment decreased from 65% for the nine months ended March 31, 2003 to 58% for the nine months ended March 31, 2004, due primarily to higher manufacturing efficiencies associated with the 45% sales increase. Cost of sales as a percentage of sales for the industrial products segment increased from 55% for the nine months ended March 31, 2003 to 57% for the nine months ended March 31, 2004 primarily due to higher compensation costs.

Research and development costs increased by $8,000 from the corresponding nine months last year. This increase was due to work on the development of a new product, a seismic source monitoring system, partially offset by lower spending on the Annular Port Gun project.

Selling, general and administrative expenses increased by $175,000 for the nine months ended March 31, 2004 from the nine months ended March 31, 2003 primarily due to higher bad debt expense ($114,000) and professional fees ($54,000). Higher professional fees relate primarily to costs associated with the Securities and Exchange Commission’s informal inquiry.

The provision for income taxes for the nine months ended March 31, 2004 was $414,000, an effective tax rate of 35%. This rate was higher than the federal statutory rate of 34% primarily due to state income taxes and deferred taxes attributable to goodwill amortization for tax purposes, partially offset by the tax benefit for export sales. The provision for income taxes for the nine months ended March 31, 2003 was a benefit of $73,000 due primarily to an increase in

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net deferred tax assets, partially offset by state income taxes and deferred taxes attributable to goodwill amortization for tax purposes.

The above mentioned factors resulted in net income for the nine months ended March 31, 2004 of $764,000 compared to a net loss of $163,000 for the corresponding period last year.

Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Sales for the three months ended March 31, 2004 increased by $1,341,000 or 58% from the corresponding period last year. Sales of geophysical equipment increased by $1,136,000 or 66% primarily due to an energy source system sale and higher sales of air gun replacement parts and underwater electrical connectors. In contrast, there were no sales of complete energy source systems in the third quarter of fiscal 2003. Industrial Products sales for the three months ended March 31, 2004 increased by $205,000 or 34% compared to the three months ended March 31, 2003, reflecting higher volume associated with the improvement in the domestic economy and the addition of new customers.

Consolidated cost of sales as a percentage of consolidated sales was 59% for the three months ended March 31, 2004 versus 64% for the three months ended March 31, 2003. Cost of sales as a percentage of sales for the geophysical equipment segment decreased from 67% for the three months ended March 31, 2003 to 60% for the three months ended March 31, 2004, due primarily to higher manufacturing efficiencies associated with the 66% sales increase. Cost of sales as a percentage of sales for the industrial products segment decreased from 57% for the three months ended March 31, 2003 to 55% for the three months ended March 31, 2004, primarily due to higher manufacturing efficiencies associated with the 34% sales increase partially offset by higher compensation costs.

Research and development costs increased by $29,000 from the corresponding quarter last year. This increase was due primarily to spending on a seismic source monitoring system project.

Selling, general and administrative expenses increased by $112,000 for the three months ended March 31, 2004 from the three months ended March 31, 2003 due primarily to higher professional fees ($48,000) associated with the Securities and Exchange Commission’s informal inquiry.

The provision for income taxes for the three months ended March 31, 2004 was $120,000 which was an effective tax rate of 38%. This rate was higher than the 34% federal statutory rate primarily due to state income taxes and deferred taxes attributable to goodwill amortization for tax purposes, partially offset by the tax benefit for export sales. The provision for income taxes for the three months ended March 31, 2003 was a benefit of $79,000 which reflects an effective tax rate of 37%, due primarily to an increase in net deferred tax assets partially offset by deferred taxes attributable to goodwill amortization for tax purposes and state income taxes.

The above mentioned factors resulted in net income for the three months ended March 31, 2004 of $198,000 compared to a net loss of $136,000 for the corresponding period last year.

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Critical Accounting Policies

The methods, estimates and judgments we use in applying the accounting policies most critical to our financial statements have a significant impact on the results we report in our 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 our financial condition and results, and require us to make our most difficult and subjective judgments.

Based on this definition, our most critical policies include: recording of inventory reserves, deferred taxes, and the assessment of recoverability of goodwill and other intangible assets. These policies are discussed below. We also have other key accounting policies, including policies for revenue recognition and establishment of bad debt reserves. We believe that these other policies either do not generally require us 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 our reported results of operations for a given period.

Although we believe that our estimates and assumptions are reasonable, they are based upon information available at the end of the period and involve inherent risks and uncertainties. Actual results may differ significantly from our estimates and our estimates could be different using different assumptions or conditions.

See Note 2 to Consolidated Financial Statements (Unaudited) for additional information concerning accounting policies.

Inventory Reserves

We establish inventory valuation reserves to reflect those conditions when the cost of the inventory is not expected to be recovered. We review 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. We monitor inventory levels on a regular basis and record increases in inventory valuation reserves in cost of sales and decreases in inventory valuation reserves when items are scrapped or disposed. During the nine months ended March 31, 2004, the inventory valuation reserve was increased by $98,000 and no items were scrapped or disposed.

Deferred Taxes

We apply 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 enacted tax rates in effect for the years in which the differences are expected to reverse. The recoverability of deferred tax assets is dependent upon our 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. We review our internal forecasted sales and pre-tax earnings estimates to make our assessment about the utilization of deferred tax assets. In the event we determine 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. The Company has concluded that no deferred tax valuation allowance was necessary at March 31, 2004 and June 30, 2003 because future taxable income is believed to be sufficient to utilize the deferred tax asset. Net deferred tax assets decreased by

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$283,000 from $816,000 at June 30, 2003 to $533,000 at March 31, 2004, reflecting principally the utilization of the net operating loss carry-forward and the alternative minimum tax carry-forward generated in prior periods.

Goodwill and Intangible Assets

In connection with acquisitions, we determine 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, are performed by utilizing the assistance of qualified independent appraisers using generally accepted valuation methodologies. Valuation of intangible assets, if any, 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 for impairment annually or more frequently if impairment indicators arise. Goodwill was tested for impairment as of July 1, 2001, the initial test; as of July 1, 2002, the first annual test; and as of July 1, 2003, the next annual test. All three tests were conducted by management with the assistance of an independent valuation company and the results of such tests indicated no impairment. The Company’s goodwill carrying amounts relate solely to the acquisition of Custom Products and A-G, which are two SFAS 142 reporting units. Bolt, the parent of Custom Products and A-G, is a third reporting unit and has no goodwill. Both Bolt and A-G are in the geophysical equipment segment, and Custom Products is in the industrial products segment. The Company has no intangible assets other than goodwill on its balance sheet as of March 31, 2004 and June 30, 2003. See Notes 2 and 3 to Consolidated Financial Statements (Unaudited) for additional information concerning goodwill.

Recent Accounting Developments:

Employer’s Disclosures about Pensions and Other Postretirement Benefits

In December 2003, the FASB issued SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS 132 Revised”). The adoption of SFAS No. 132 Revised will not have any impact on the Company’s disclosures because the Company does not have any defined benefit pension plans or other defined benefit postretirement plans.

Consolidation of Variable Interest Entities

In December 2003, the FASB issued Interpretation No. 46 (Revised 2003), “Consolidation of Variable Interest Entities.” The adoption of this revision does not have any impact on the Company’s Consolidated Financial Statements since the Company does not have any variable interest entities.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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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 as of March 31, 2004. Based upon the results of such evaluation, the chief executive officer and chief financial officer have concluded that such disclosure controls and procedures are effective in providing reasonable assurance 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 officers, as appropriate, to allow timely decisions regarding required disclosure.

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PART II – OTHER INFORMATION

Item 6 – Exhibits and Reports on Form 8-K

A Form 8-K dated January 21, 2004 was filed by the Company on the same date reporting that the Company’s disclosure of results of operations for the second quarter and the first six months of fiscal year 2004 was attached as Exhibit 99.1. The information was furnished pursuant to Item 12 (Disclosure of Results of Operations and Financial Condition).

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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.

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