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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended June 30, 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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     YES  ¨    NO  x

The aggregate market value of Common Stock, without par value, held by non-affiliates on December 31, 2003: $18,408,000.

As of September 20, 2004 there were 5,414,357 shares of Common Stock, without par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for 2004 Annual Meeting, which will be filed no later than 120 days after June 30, 2004 are incorporated by reference in Part III to the extent stated in this report.

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Note Regarding Forward-Looking Statements

Forward-looking statements in this Form 10-K, 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. These include statements about anticipated financial performance, future revenues or earnings, business prospects, new products, anticipated market performance, planned production and shipping of products, expected cash needs and similar matters. 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.

PART I

Preliminary Note: In this annual report on Form 10-K, we refer to Bolt Technology Corporation and its subsidiaries as “we,” “our,” “us,” “the registrant” or “the Company,” unless the context clearly indicates otherwise.

ITEM 1. Business

The Company was organized as a corporation in 1962. We operate in two business segments: geophysical equipment and industrial products. Our geophysical equipment segment develops, manufactures and sells marine seismic energy sources and underwater electrical connectors and cables, air gun signature hydrophones and pressure transducers used by the marine seismic industry. Our industrial products segment develops, manufactures and sells miniature industrial clutches, brakes and sub-fractional horsepower electric motors. See Notes 2 and 9 to the Consolidated Financial Statements for information regarding industry segments and sales by geographic areas.

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.

Geophysical Equipment

Marine Air Guns

Energy sources, such as our air guns, used in seismic exploration create elastic waves at frequencies that readily travel to great depths in the earth. As elastic waves travel through the earth, portions are reflected by variations in the underlying rock layers and the reflected energy is received as signals by devices known as hydrophones. A shipboard unit containing electronic recording equipment converts the signals to digital form. By using computer programs with complex calculations to manipulate the processed seismic data, geoscientists can

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model and visualize the subsurface through the creation and analysis of spatial representations. The analysis of seismic and other geological data is an important factor in decisions to drill exploratory and development wells. Because of the significant expense associated with drilling oil and gas wells, decisions on whether or where to drill are critical to the overall process. A seismic exploration vessel may tow 60 to 70 air guns along with multiple hydrophone streamers of 6,000 to 10,000 meters in length. The air guns are fired simultaneously every 75 to 150 feet along the survey line. Over the past several years, improvements in drilling success rates through the use of advanced seismic survey techniques, particularly 3-D techniques, substantially increased the demand for seismic data. As a result, 3-D surveys utilizing these advanced technologies have gained increasing acceptance in the oil and gas industry as an exploration risk management tool. Moreover, 3-D surveys are increasingly employed in field development and reservoir management activities.

The precise shot to shot repeatability of our marine air guns and their reliability of operation make them especially beneficial for use in 3-D surveys.

The Company’s “long-life” marine air guns, introduced in the 1990s, extend the period between routine air gun maintenance cycles. These guns also provide improved high peak sound pressure levels and improved frequency spectrum as compared with older models. These improved characteristics are advantageous to geoscientists in designing 3-D surveys. A retro-fit kit, which incorporates the improvements of the long-life guns, allows users to easily upgrade older air gun models to the long-life standard.

In fiscal 2000, the Company completed the initial development of its Annular Port Air Gun (“APG Gun”). This new design provides significant improvements in both operating efficiency and acoustic output. The principal feature of the APG Gun is an annulus containing the air chamber and shuttle valve surrounding a hollow passage through which air supply hoses and electrical control cables are routed. This new configuration permits the implementation of simplified multi-gun arrays that produce less towing drag while being easier to deploy and retrieve than conventional air gun arrays. Significant improvements in operating efficiency are also achieved by shielding fragile hoses and cables from the effects of the high pressure air blast released from the air gun. In fiscal 2001 through fiscal 2003, the Company continued to test and refine the APG Gun technology, and in late fiscal 2003 the Company received the first order for APG Guns, which were shipped in the first quarter of fiscal 2004. The APG Guns are being utilized for reservoir management purposes in 4-D seismic surveys in existing oil and gas fields. 4-D seismic surveys consist of a series of 3-D seismic surveys conducted over an identical survey line utilizing a grid of permanently implanted seismic sensors on the ocean bottom. Comparing the results of these time-lapse surveys allows reservoir engineers to more effectively target additional production drilling sites and manage production over the life of the field.

The Company sells various models of air guns that range in price from $3,000 to $76,000. A majority of the air guns sold are priced in the $10,000 range. A significant source of the Company’s revenue comes from the sale of replacement parts.

Underwater Cables, Connectors and Hydrophones

The Company’s marine cables and connectors are injection molded of thermoplastic polyurethane designed for use with marine air gun firing lines, bulkhead connectors and other underwater connectors required in seismic vessel operations.

The Company’s signature hydrophones and pressure transducers are designed for use with marine air guns in a high shock environment. The purpose of the hydrophone and pressure transducer is for near field measurements of the outgoing energy waveforms from air guns and pressure monitoring.

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The Company’s cables and connectors, and our hydrophones and pressure transducers, are used with marine air guns manufactured by the Company as well as air guns manufactured by others.

In fiscal 2004, the Company completed development of stage one of its digital Seismic Source Monitoring System (“SSMS”). SSMS will be utilized by marine seismic contractors to measure air gun depth, air pressure, and “near field” energy output for each gun array to enhance the accuracy and therefore the usefulness of 3-D seismic survey data. No sales of SSMS were recorded in fiscal 2004 but, based on interest expressed by potential customers, the Company currently anticipates initial sales of this product in fiscal 2005.

Industrial Products

The Company’s Industrial Products segment spans two basic disciplines: power transmission (miniature industrial clutches and brakes) and motion control (sub-fractional horsepower electric motors). The Company’s clutch and brake products include a complete line of mechanical and pneumatic precision miniature slip clutches, one-way clutches, toothed jaw clutches and torque limiters. A slip clutch will start to slip once its torque setting is exceeded. This feature is useful as overload protection, constant tensioning or functional torque, in different industrial applications. Among other applications, our clutches and brakes are used in airplane video systems, hospital beds, barcode labelers and banking machines. Unit prices range from $7 to $400.

In addition, the Company offers an electromagnetic clutch and brake product line which includes high performance engage/disengage clutches and brakes, power off brakes, magnetic particle clutches and brakes and multiple plate slip clutches. Applications include high speed mailing machines, packaging machines, elevators, machine tools and robotics. Unit prices range from $50 to $1,500.

The Company’s motor line is comprised of A.C. and D.C. sub-fractional horsepower motors and gear motors. These are available in various shapes and offer several design options (speed, voltage, etc.). Applications include air conditioning systems, valve timers, vending machines, point of purchase displays and business machines. Capacity ranges from 3 to 10 watts. Unit prices range from $4 to $20.

Foreign Sales

During fiscal 2004, 2003 and 2002, approximately 56%, 46% and 58%, respectively, of the Company’s sales were derived from customers outside the United States. See Note 9 to the Consolidated Financial Statements for information regarding the geographic distribution of sales.

Backlog

Geophysical Equipment

Because of the short period between order and shipment dates for the principal portion of geophysical equipment sales, the dollar amount of current backlog is not considered to be a reliable indication of future sales.

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Industrial Products

As of June 30, 2004, we had an order backlog of $741,000 as compared to $960,000 at June 30, 2003. We estimate that substantially all of the backlog as of June 30, 2004 will be shipped during the fiscal year ending June 30, 2005. Although the backlog at June 30, 2004 decreased from June 30, 2003, the Company believes that sales for fiscal 2005 may improve over fiscal year 2004 due to anticipated continuing improvement in the U.S. economy.

Competition

Geophysical Equipment

Our marine air guns compete primarily with marine air guns manufactured by Input/Output, Inc. and Sercel Inc., a subsidiary of Compagnie Generale de Geophysique. The Company’s principal competitor for connectors and cables is Input/Output, Inc. We believe that technology, product reliability and durability are the primary bases of competition in the market for our geophysical equipment and that the remaining competitive factors in the industry are field product support and price. The Company also believes that it can compete effectively with respect to each of these factors, although there can be no assurance that the sales of our geophysical equipment will not be adversely affected if current competitors or others introduce equipment with better performance or lower price.

Industrial Products

The Company cannot determine with accuracy its relative competitive position in the market for industrial products. The industry in which we operate is characterized by active and substantial competition. No single company dominates the market for the types of products we manufacture. Our competitors include both larger and smaller manufacturers and divisions of larger diversified companies with substantial financial resources. Principal competitive factors in the market for our industrial products include quality, service, reliability and price. Our products also compete with other torque control devices to solve design problems.

Marketing

Geophysical Equipment

The Company’s principal customers for geophysical equipment are worldwide marine seismic exploration contractors, who operate seismic vessels for collection of seismic data in accordance with their customers’ specifications or for their own seismic data libraries, and foreign national oil and gas companies.

Marketing of our geophysical equipment is principally performed by salaried sales personnel, all of whom are based in the United States. We also use sales agents for individual sales in certain foreign countries. In general, we market our products and services through our sales force, together with our technical services and engineering staffs, primarily to representatives of major geophysical contractors. The principal marketing techniques used are direct sales visits to current and potential customers, product demonstrations and participation at industry trade shows and meetings.

In general, products are sold on standard 30-day credit terms. In certain instances, we require our customers to furnish letters of credit payable upon shipment or provide advance payments. In limited cases, the Company allows customers extended payment terms of up to 12 months. We consider these practices to be consistent with industry practice overall.

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Industrial Products

The Company’s industrial products are sold primarily to original equipment manufacturers (“OEMs”). OEMs use our products to solve torque related problems which will provide lower installed cost and high reliability, thereby lowering production and service costs. Our engineering staff and independent sales representatives continually work in close collaboration with OEMs to determine the appropriate product for the specific application. Sales are made on standard 30-day credit terms. We sell our industrial products primarily in the United States.

Research and Development

Our ability to compete successfully depends upon, among other things, the development of new products as well as the improvement of the technical capabilities of our existing products. During the fiscal years 2004, 2003, and 2002, we spent $208,000, $206,000 and $253,000, respectively, to develop new products and to upgrade existing products. The Company’s primary research and development efforts over the last three years have been focused on the development and field testing of the APG Gun and SSMS.

Employees

As of June 30, 2004, we employed 86 people on a full-time basis, all of whom are employed in the United States. The Company is not a party to any collective bargaining agreement and has had no work stoppages. The Company believes that relations with employees are good.

Manufacturing and Raw Materials

The Company manufactures and assembles its geophysical equipment in Norwalk, Connecticut and Cypress, Texas and manufactures its industrial products in North Haven, Connecticut. Our manufacturing and assembly operations consist of machining or molding the necessary components and assembling and testing the final product. We maintain adequate levels of inventory to enable us to satisfy customer requirements within the shortest amount of time. The raw materials used in our products, sourced from multiple suppliers, are generally in adequate supply. For some marine air gun orders, we occasionally supply auxiliary equipment such as compressors, air gun controllers or towing equipment manufactured by others. We have not experienced any supply problems with respect to these auxiliary items. Because we manufacture based on customer orders, no inventory of fully assembled finished products is maintained. We consider our practices to be consistent with the industry.

Regulatory Matters

We believe that we are currently in compliance with the requirements of environmental and occupational health and safety laws and regulations. Compliance with such laws and regulations has not resulted in significant expense in the past and we do not foresee the need for substantial expenditures to ensure compliance with such laws and regulations as they currently exist.

Intellectual Property

We seek to protect our intellectual property by means of patents, trademarks and other measures. We currently own more than 23 United States patents and 30 patents in foreign countries relating to the manufacture of our products, with expiration dates from 2004 to 2021. These patents have been of value in the growth of our business and may continue to be of value in the future. However, our business is generally not dependent upon the protection of any patent and would not be materially affected by the expiration thereof.

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Major Customers

Geophysical Equipment

Historically, a significant portion of our sales has been attributable to a few large customers. In fiscal 2004, WesternGeco LLC (“Western”), Compagnie Generale de Geophysique (“CGG”) and Veritas DGC, Inc. (“Veritas”) accounted for 7%, 9% and 10% of consolidated sales, respectively. In fiscal year 2003, Western and Veritas each accounted for 12% of consolidated sales and CGG accounted for 7% of consolidated sales. The loss of Western, Veritas or CGG as a customer or a significant decrease in the amount of their purchases could have a material adverse effect on the Company.

Industrial Products

No customer accounted for more than 10% of consolidated revenue in fiscal year 2004.

ITEM 2. Properties

The following table sets forth certain information with respect to the Company’s principal properties, all of which are leased:

Geophysical equipment is manufactured and assembled in the Norwalk, Connecticut and Cypress, Texas facilities. Industrial products are manufactured in the North Haven, Connecticut facility. In the opinion of the Company’s management, the properties described above are in good condition and repair and are suitable and adequate for the Company’s purposes. The properties are currently fully utilized on a one-shift basis, which provides sufficient productive capacity.

The Company has an option to renew both Norwalk, Connecticut leases for an additional five-year period.

The building located in Cypress, Texas is leased from the former shareholder of A-G Geophysical Products, Inc. which was acquired by the Company in April 1999. The Company has an option to purchase the facility for $1,000,000 during the term of the lease which expires in April 2005. The Company presently intends to exercise this option prior to its expiration.

ITEM 3. Legal Proceedings

The Company is not aware of any material pending litigation or proceedings to which it or any of its subsidiaries are a party or to which any of its properties are subject.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our Common Stock is listed on the American Stock Exchange under the symbol “BTJ.” The following table sets forth the high and low sales prices for our Common Stock for the quarters indicated:

The number of stockholders of record at September 13, 2004 was 262. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our Common Stock is held of record in broker “street names.”

We have not paid a dividend since 1985. We do not intend to pay cash dividends on our Common Stock in the foreseeable future. Any decision to pay cash dividends will depend upon our growth, profitability, financial condition and other factors that the Board of Directors may deem relevant.

No employee stock options to purchase shares of Common Stock were exercised during fiscal year 2004 and 2003. Employee stock options to purchase an aggregate of 40,000 shares of Common Stock were exercised during fiscal year 2002. The stock options were granted under the Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan. These shares were acquired pursuant to cashless exercises which resulted in exercising optionees receiving an aggregate of 5,624 shares of Common Stock. The issuance of the Common Stock was exempt from registration under the Securities Act of 1933 (the “Act”) pursuant to Section 4(2) of the Act.

Equity Compensation Plan Information

The following table sets forth aggregate information for the Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan, which is the Company’s only equity compensation plan in effect as of June 30, 2004, and which has been approved by the Company’s stockholders:

Under the terms of the plan, no options can be granted subsequent to June 30, 2003.

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ITEM 6. Selected Financial Data

The following table has been derived from the Company’s audited financial statements and sets forth selected consolidated financial data with respect to the Company and its subsidiaries. This information should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying notes provided elsewhere in this Form 10-K.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis should be read together with the Consolidated Financial Statements and accompanying notes and other detailed information appearing elsewhere in this Form 10-K. This discussion includes forward-looking statements about the demand for our products and future results. Please refer to the “Note Regarding Forward-Looking Statements” section of this Form 10-K.

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 fiscal 2004. Based on the high price of oil and increased worldwide energy demand, proposals that the Company has outstanding and the current level of customer inquiries, the Company currently anticipates marine seismic exploration activity to continue to improve into fiscal 2005.

Sales in the industrial products segment improved during fiscal 2004 reflecting the continuing improvement in the U.S. economy resulting in the addition of new customers and higher volume from existing customers.

Liquidity and Capital Resources

As of June 30, 2004, the Company considers current cash and cash equivalent balances and projected cash flow from operations adequate to meet foreseeable operating needs. However, as discussed below under “Year Ended June 30, 2004,” in the event the Company exercises the option for the purchase of the land and building in Cypress, Texas, the Company may consider obtaining financing for such purchase.

Year Ended June 30, 2004

At June 30, 2004, the Company had $2,890,000 in cash and cash equivalents. For the year ended June 30, 2004, cash and cash equivalents increased by $968,000. Cash flow from operating activities after changes in operating assets and liabilities was $1,090,000 for the year ended June 30, 2004, primarily due to net income adjusted for depreciation and deferred income taxes partially offset by higher accounts receivable.

For the year ended June 30, 2004, the Company used $122,000 for capital expenditures funded from operating cash flow. The Company estimates that capital expenditures for fiscal year 2005 will be approximately $150,000. The Company expects to fund these capital expenditures from operating cash flow.

The Company has an option to purchase the land and building 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.

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Since a relatively small number of customers account for the majority of the Company’s geophysical equipment sales, the consolidated accounts receivable balance tends to be concentrated in a small number of customers. At June 30, 2004 and 2003, the five customers with the highest balances due represented 40% and 46%, respectively, of the accounts receivable balances on those dates.

Year Ended June 30, 2003

At June 30, 2003, the Company had $1,922,000 in cash and cash equivalents. For the year ended June 30, 2003, cash and cash equivalents increased by $448,000. Cash flow from operating activities after changes in operating assets and liabilities was $519,000 for the year ended June 30, 2003, primarily due to a decrease in the level of accounts receivable partially offset by the fiscal 2003 net loss, higher inventories and lower accrued liabilities.

For the year ended June 30, 2003, the Company used $71,000 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.

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.

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 any special purpose entities and has not issued any guarantees.

Contractual Obligations

The Company has no long-term borrowings, capital leases, purchase obligations or other long-term liabilities at June 30, 2004 and 2003. The Company is obligated for minimum lease payments as of June 30, 2004 under several operating leases for its facilities as follows:

Such amounts are exclusive of any “additional rent” for taxes, utilities or similar charges, under triple net leases. See Note 8 to the Consolidated Financial Statements under “Lease Commitments,” for further information regarding future payments and other information relating to such leases.

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.

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Results of Operations

Year Ended June 30, 2004 Compared to Year Ended June 30, 2003

Sales for the year ended June 30, 2004 increased by $3,964,000 or 37%, from the year ended June 30, 2003. Sales of geophysical equipment increased by $3,611,000 or 44% primarily due to several complete energy source systems sales of traditional guns which amounted to $2,243,000 and the first sale of the Company’s 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, sales of complete energy source systems sales during year ended June 30, 2003 amounted to only $395,000. Industrial products sales for the year ended June 30, 2004 increased by $353,000 or 13% from the year ended June 30, 2003 primarily 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 62% for the year ended June 30, 2004 versus 66% for the year ended June 30, 2003. Cost of sales as a percentage of sales for the geophysical segment decreased from 69% for the year ended June 30, 2003 to 63% for the year ended June 30, 2004, due primarily to higher manufacturing efficiencies associated with the 44% sales increase. Increases to the inventory valuation reserve in fiscal 2004 and 2003 were $243,000 and $282,000, respectively. These amounts were charged to cost of sales. Cost of sales as a percentage of sales for the industrial products segment increased from 55% for the year ended June 30, 2003 to 56% for the year ended June 30, 2004 due primarily to higher compensation costs.

Research and development expense in fiscal 2004 was $2,000 more than in the prior fiscal year, reflecting work on the development of a new product, the Seismic Source Monitoring System, and a reduction in spending on the Annular Port Gun project.

Selling, general and administrative expenses increased by $297,000 or 8% for the year ended June 30, 2004 versus the year ended June 30, 2003, primarily due to increased bad debt expense ($121,000) and higher professional fees ($99,000). Higher professional fees relate primarily to costs associated with the Securities and Exchange Commission’s informal inquiry.

The Company conducted, with the assistance of an independent valuation f